The Chancellor, Jeremy Hunt, has delivered his Autumn Statement to Parliament earlier today, with an eye on unlocking business investment, rewarding effort and work, growing our economy and backing our businesses.
Richard Godmon, Tax Partner at Menzies LLP, shared his views on the key announcements made and the impact they will have on British businesses.
UK SMEs overlooked
SMEs are arguably the engine room of the economy, and it was particularly disappointing to see them largely left out of today’s statement despite the Government’s rhetoric around supporting UK SMEs.
The sole pertinent announcement for these businesses is the extension of the frozen small business rates multiplier for another year, providing relief to independent high-street businesses.
However, conversations with our SME clients have shown that the duration of this freeze is not enough to significantly improve their financial standing.
Permanent tax breaks
The Chancellor has made the ‘full expensing’ tax break permanent to incentivise business investment, hailing it as the ‘single most transformative move’ by the Government to drive productivity and growth.
This is good news for large companies, especially in the manufacturing and construction sectors, as it provides stability for longer-term planning.
However, the scope of this only benefits companies, leaving out unincorporated businesses, smaller high street establishments, pubs, restaurants, and self-employed individuals who play a crucial role in sustaining UK’s economy. The current setup also does not create a conducive environment for entrepreneurs to start their businesses.
R&D tax relief
The introduction of a single R&D scheme, in particular, was heralded as a measure to simplify R&D tax relief and encourage more claimants. In reality, this was a stealthy move by the Chancellor to further reduce the vital tax reliefs available to innovative SMEs.
Loss-making SMEs have seen their effective tax credit repayments fall from 33.35% pre-1 April 2023 to 18.6% (if non R&D-intensive) and now further to 16.2% with these changes from 1 April 2024.
There will still be two schemes – the new ‘single scheme’ and an additional scheme for R&D-intensive business – with many companies worse off than they would have been under the previous SME scheme.
The good news is that the Government has at least recognised the value of R&D-intensive companies, who will receive a higher R&D tax credit rate. This higher rate will be open to some 5,000 more SMEs with the definition of R&D intensive being reduced from 40% to 30%.
National Insurance cuts
There has been much chatter about tax cuts in the lead up to the Autumn Statement, and today the Chancellor lowered National Insurance rates for employees and abolished National Insurance for the self-employed.
While this spells good news for employees, employer-side National Insurance contributions were not addressed – a move which would have had significant impact, especially given the increased National Living Wage which was also announced.
Today’s cuts will be seen more widely as a preliminary step to a more significant reduction in the March Spring Budget as we warm up to the upcoming General Elections.