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Decoding the 2024 Spring Budget: What it means for UK SMEs

13/03/2024

Last week’s Spring Budget 2024 saw Chancellor Jeremy Hunt attempting to make a lasting impression, in what was potentially his final opportunity before a looming general election. However, looking past the theatrics of the occasion, what does this Budget mean for UK businesses? Does it go far enough to provide any real relief from the challenging conditions businesses to continue to navigate in order to allow them to push forward in the coming months and years?

While widely anticipated measures included a 2p reduction in National Insurance, there were a few surprises. Notably, the Office for Budget Responsibility (OBR) forecasting inflation to dip below 2% by summer, possibly paving the way for interest rate cuts by the Bank of England. Projected economic growth stands at 0.9% this year and 1.9% next year, signalling recovery from the previous year’s recession, though lagging behind other major economies.

National Insurance

The Chancellor referenced ‘Make work pay’ to incentivise those who are able to, to get back to work. As part of this, it was announced that National Insurance is to be reduced by an additional 2%, taking it to 8% for those employed, due to benefit 27 million workers, with self-employed National Insurance dropping to 6%. The Treasury said the average worker earning £35,400 will save more than £900 a year as a result of this cut alongside January’s reduction. 

From a business perspective, the rate of employer’s National Insurance contributions, however, remains unchanged at 13.8% on earnings above the relevant threshold, with some questioning whether the government could have done more on this to support businesses with ongoing high running costs.

Investment in UK businesses

New measures to make investment in UK companies more attractive included the newly introduced ‘British ISA’, which provides a £5,000 allowance for investments exclusively in UK companies.

Pension-related reforms announced involve disclosure of UK Government pension schemes’ holdings in overseas companies, promoting transparency. Efforts to boost UK entrepreneurship include facilitating pension funds’ investment in domestic assets, aiming to position the UK as a technology hub akin to Silicon Valley.

The government is consulting on the Private Intermittent Securities and Capital Exchange System (PISCES), a new innovative market that will allow private companies to scale and grow. It is hoped that this will be a useful platform for companies operating employee share plans involving transfers of existing shares.

‘Levelling up’

The Chancellor talked of the government’s commitment to ‘levelling up’ by allocating funding to areas in need, designating Canary Wharf as a life sciences hub and allocating funds to support life sciences expansion in Cambridge and vaccine manufacturing in Liverpool.

They also committed to continuing to drive innovation and boost private investment across the UK through the Investment Zone programme, which aims to accelerate innovation in high-potential knowledge-intensive growth clusters across the UK and benefit from a package of tax reliefs. The Tees Valley’s Investment Zone will focus on digital and creative sectors, backed by an initial £15 million private investment to support the growth of the digi-tech cluster in Middlesbrough.

Final plans have been agreed for the next 5 Investment Zones in England: Greater Manchester, Liverpool City Region, North East of England, South Yorkshire and West Midlands. Working in partnership with both the Scottish and Welsh governments, the Investment Zone programme in Scotland and Wales will match that in England, from 5 to 10 years. As set out in the Northern Ireland Command Paper and working with the Northern Ireland Executive, an Enhanced Investment Zone in Northern Ireland will be delivered to ensure that Northern Ireland benefits from the same opportunities elsewhere in the UK. 

Financial support for businesses

Support for small businesses was emphasised through the Growth Guarantee Scheme, successor to the Recovery Loan Scheme, benefiting 11,000 SMEs, providing £200m of funding to support SMEs to access finance.

The Growth Guarantee Scheme will run until the end of March 2026 and offers a 70% government guarantee on loans to SMEs of up to £2 million in Great Britain, and £1 million in Northern Ireland.

A welcome measure for owners of small businesses was the rise in the VAT registration limit to £90,000, marking the first increase in seven years, meaning that some small firms will be exempt from this tax. However, this rise of a mere £5,000 will arguably have limited impact.

Full expensing for leased assets

In the Autumn Statement the Chancellor unveiled a £10bn tax cut for businesses that make capital investments in the UK, known as “full expensing”.

Full expensing, a first-year capital allowance, permits companies to deduct 100% of the total cost of qualifying investments from taxable profits in the year of the expenses. While there isn’t an exhaustive list of items eligible for full expensing, the government offers examples such as computers, printers, lathes, office equipment, certain vehicles (excluding cars), construction equipment and specific fixtures in non-residential properties.

The noteworthy aspect in the 2024 Spring Budget is the extension of full expensing to leased assets “when affordable to do so”. Presently, full expensing only covers assets purchased by the qualifying business. The Chancellor has announced the imminent publication of draft legislation on full expensing within a few weeks.

Business taxes

The oil and gas windfall tax extension until 2029 and the fuel duty freeze, saving motorists £250 annually, are notable economic measures.

Over in the creative industries, the Chancellor said he will give film studios in England 40% relief on their gross business rates until 2034.

He also unveiled plans for a new tax credit for independent films with budgets of less than £15m.

Did the Budget do enough to support businesses? Will Chancellor Hunt’s fiscal measures and sector-specific support deliver what businesses need to push forward? Could more be done? What measures would make a real difference to your business? Please share your thoughts in the comments below.

 

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