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Mini Budget – what it means for small businesses

Updated: Nov 7, 2023


The planned increases in corporation tax and national insurance have been scrapped, the investment cap for the Seed Enterprise Investment Scheme has been raised, and low-tax investment zones have been established to encourage the development of new industries, according to Chancellor Kwasi Kwarteng's announcements.

As the most pro-business Budget this century, Chancellor Kwasi Kwarteng announced £50 billion worth of tax cuts in his mini-budget, including the elimination of the top marginal tax rate of 46% for those earning over £150,000, the elimination of the increase in national insurance, the freezing of corporation tax, and the reduction of stamp duty.

"Small innovative enterprises are important to the government's 2.5 percent economic growth target, and creating the high-value jobs that will drive wealth creation more generally," said Nicholas Hyett, investment analyst at Wealth Club.

"The Government trailed a pro-business and pro-growth mini-budget and they threw the kitchen sink at it," said Nigel Holmes, director of tax at innovation funding firm Catax. The government threw all it had at a pro-business and pro-growth mini-budget. For business, there are now numerous reasons to be happy. Businesses around the nation will be ecstatic about what they heard.

This was a fairly aggressive tax-cutting budget from the new Chancellor, according to Scott Gallacher, a chartered financial planner with independent financial advisers Rowley Turton in Leicestershire. The key question is whether this economic growth will be sufficient to make up for the levy the Chancellor has eliminated. Kwarteng is taking a major risk here, and if it doesn't pay off, we could all suffer the price for years to come. Let's hope he's accurate.

Let’s examine how the Mini Budget will impact small businesses.

Canceling planned increase to corporation tax

The corporate tax rate in the UK will not increase to 25%; instead, it will stay at 19%, the lowest rate in the G20. According to The Times, the reverse will cost an estimated £17 billion. The UK had the lowest corporate investment of the G7 in 2019 despite having the lowest corporation tax of these nations, according to the Institute for Public Policy Research (IPPR).

However, the former chancellor's plan to raise corporation tax to 25% would only have applied to companies with profits of at least £50,000 or roughly 70% of businesses. Profits for a substantial portion of the 5.6 million small- and medium-sized firms in the UK fall far short of this mark.

National Insurance rise canceled

A Health and Social Care Levy's proposed rise in Employer National Insurance Contributions and dividend tax has been scrapped. Additionally, the National Insurance rate's temporary increase that was implemented for this tax year will also be revoked. This reduction will start on November 6.

Annual Investment Allowance

Starting on April 1 of the following year, the yearly investment limit for firms will be fixed at its maximum of £1 million. Businesses will receive a 100% tax break on their plant and equipment purchases up to a $1 million threshold.

‘Investment zones’ where businesses could benefit from less red tape

38 local and mayoral combined authority regions in England are in discussions with the government about creating new investment zones. In an effort to boost productivity and generate jobs, the zones will provide firms with specific and time-limited tax breaks. To establish zones in Scotland, Wales, and Northern Ireland, work will also get underway.

Cut in VAT

A 20% to 15% nationwide drop in VAT is what Truss is thinking about doing.

IR35 to be simplified

The Chancellor pledged to undo the IR35 legislation, which classifies independent contractors the same as workers for tax purposes without providing them with the advantages of employment. He refrained from completely eliminating IR35, though. From April 2023, the IR35 reforms—which were implemented in the public and private sectors in 2017 and 2021, respectively—will no longer be in effect. The original regulations will continue to apply, and contractors will be in charge of determining their own taxes.

"Today, contractors and businesses will be celebrating as Liz Truss and her government has not only kept their promise but also gone further and repealed a legislation that has negatively impacted business and contractors' livelihoods for the past five years," said Dave Chaplin, CEO of tax compliance firm IR35 Shield.

"These burdensome reforms were doomed from the start and were never going to succeed... The chancellor did the right thing by relieving businesses of the needless burden of having to solve a difficult puzzle each time they recruit a worker.

"Many experienced persons who left the labor market will now return," said Emma Jones, CBE, founder of the small business assistance platform Enterprise Nation.

However, the present IR35 regulations were put in place to address non-compliance with the previous regulations, as John Chaplin, employment tax partner at BDO, pointed out. "If time travel were to occur, would non-compliance simply resume? While conforming companies and contractors are in good shape, today's statement may help pave the way for more to those wishing to promote tax avoidance.”

EIS/VCT extended and SEIS fundraising limit raised

With the expansion of the seed enterprise investment program (SEIS), businesses are now able to raise £250,000 via the program, which is 66% more money than was previously available.

"In a statement with a very welcome focus on growth and the future of UK economic success, the chancellor has given UK start-ups a major boost by guaranteeing the future of the EIS scheme, which provides £1.7bn a year in funding for some of the UK's highest-growth businesses," said Tim Mills, managing partner at ACF Investors.

VAT-free shopping for tourists

VAT-free shopping will be available to visitors to the UK.

With the relative weakness of the pound, which already makes the UK a desirable travel destination, Alison Horner, indirect tax partner at MHA, said the idea is sound. Prior to today's news, only visitors from outside the EU were eligible for tax-free shopping. However, this now applies to everyone traveling from outside Britain. However, because VAT-free shopping calls for a new digital system and HMRC's track record with implementing new technology is spotty, it may be challenging to put into practice.

Company share option plan

The Company Share Option Plan (CSOP) limit, which permits companies to grant share options to employees, will increase from £30,000 to £60,000.

What was omitted by the Chancellor?

The VAT rate for business

A lower VAT rate for enterprises was not mentioned in the declaration given today. According to Glenn Collins, the chairman of accounting organization ACCA UK, VAT reductions would have given businesses—and the hospitality industry in particular—a fighting opportunity to move toward post-pandemic recovery.

"As we saw during the epidemic, focusing on reduced rates of VAT at businesses helped to give them a lift following the numerous lockdowns," Collins added. Currently, consumers are reducing their discretionary expenditures due to growing prices.

Business rates

Business taxes were mostly disregarded. One of the largest expenses for property owners is business rates. With rates increasing in line with CPI inflation levels for September, which is expected to be about 10%, the tax, which raises about £32 billion a year in gross revenue (£26 billion in net revenue), could possibly cost firms an additional £3 billion.

"It's all very well giving comfort over high energy costs and other taxes, but all this will be meaningless if business rates are allowed to increase," said John Webber, head of business rates at Collier’s.

Fuel Duty

Significant gasoline duty reductions across Europe have not been matched by Kwasi Kwarteng, and he did not make a commitment to uphold former chancellor Rishi Sunak's 5p duty reduction. The mini-Budget, according to Howard Cox of Fair Fuel UK, "has the economics of an asylum." The stupidity is mind-blowing!"

Late payments

The Small Business Commissioner, who is in charge of pursuing frequent late payers when it comes to small enterprises, was not given any other authority.

The issue of late payments has gotten worse under economic instability, leaving the viability of smaller businesses up to the whim of whether their larger customers can pay them on time, according to Alex von Schirmeister, UK managing director of Xero.

Mini Budget


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