2023 Spring Budget Explained
In March, the 2023 Spring Budget was presented by Chancellor of the Exchequer Jeremy Hunt, with a focus on promoting growth. Despite concerns of a recession, Hunt announced measures to address the 1 million job vacancies in the UK and to support businesses.
For UK startups and small and medium-sized enterprises (SME), the Spring Budget contained several important announcements that could impact your operations. While significant tax cuts weren’t included in the budget, there are still opportunities for businesses to benefit from the billions of pounds allocated towards growth initiatives.
In this article, we’ll provide an overview of the most important takeaways, including an analysis of their potential impact on various sectors and industries.
Inflation Expected to Fall
In positive news, the Office of Budget Responsibility predicted a fall in inflation from 10.7% at the end of 2022 to 2.9% by the end of 2023. This is partly thanks to the changes outlined in the Spring Budget.
Additionally, according to the World Bank, the UK has been listed as the best place in Europe to do business and is among the top countries for investment. London is also recognised as the best city for female entrepreneurs, ahead of New York and 53 other cities.
Creation of New Investment Zones
Hunt announced plans to create 12 new investment zones aimed at boosting business investment and promoting regional economic growth. The areas selected are the West Midlands, East Midlands, Greater Manchester, North East, South Yorkshire, West Yorkshire, Teesside, Liverpool, Scotland, Wales and Northern Ireland.
Each English investment zone will receive £80m in interventions, including tax reliefs and grant funding, over a five-year period. Local government and research institutions will have the flexibility to develop tailored plans for their investment zones, according to their specific needs and circumstances.
Increase in Corporation Tax
The main Corporation Tax increased from 19% to 25% on 1 April 2023.
- Companies making profits up to £50,000 will continue to pay tax at the rate of 19%.
- Companies earning over £250,000 profits will pay a new rate of 25%.
- Companies making profits between £50,000 and £250,000 will be eligible for marginal rate relief, which will bring down their tax to anywhere between 19% and 25%.
Additionally, there are changes in the Spring Budget to VAT, fuel duty, and alcohol duty rates that businesses need to keep in mind.
New Capital Allowance
The super deduction for small businesses was replaced with “full expensing”, which offers 100% capital allowances for qualifying plant and machinery. The incentive will last for three years with the aim to make it permanent.
Businesses can reduce their tax bill by using capital allowances, which allow them to deduct the cost of certain capital spending from their taxable profits. Read more about the new business taxes available here.
Changes in R&D
From April, SMEs that invest at least 40% of their total expenses into research and development (R&D) will receive a higher rate of relief for losses. This will allow eligible SMEs to receive an effective tax credit of £27 for every £100 spent on qualifying R&D. The UK government is still reviewing feedback on the possibility of combining the RDEC and SME schemes – a decision hasn’t yet been reached.
In the meantime, the previously announced rule banning overseas subcontractors in R&D claims has been postponed until April 2024.
Additionally the Spring Budget introduced two new categories of qualifying R&D expenses for data licenses and cloud computing services.
SEIS Limit Changes
Almost important to remember are the previously announced changes to the seed enterprise investment scheme (SEIS). With the aim to stimulate more Investment into startup businesses, the new SEIS rules are:
- The maximum amount which can be raised in SEIS will increase from £150,000 to £250,000.
- Businesses will have three years to access the scheme as opposed to two.
- Companies applying must have a gross asset value less than £350,000 – previously the limit was £200,000.
For investors, there has been a huge shift in the opportunities available as they are now allowed to allocate up to £200,000 on an annual basis from either SEIS or EIS investments whereas before this was limited at just a maximum of £100,000 per financial year.