How to grow your Business

What does the Mini-Budget mean for small businesses?

Valentina GolubovicValentina Golubovic
Last updated on:
September 29, 2022
Published on:
September 28, 2022

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Kwasi Kwarteng, our new chancellor of the Exchequer, announced fiscal changes to our economy. He outlined plans for April 2023 and others which take effect as soon as Friday 23rd of September. The planned changes, or cancellation of previous changes, are all part of the government's “Growth Plan” for the UK to expand the economy at 2.5% each year. 

Freezing Corporation Tax 

The government is planning to cancel the corporation tax increase to 25%, which was promised to happen in April 2023. Instead, it will leave corporation tax at 19%, one of the lowest in Europe. Freezing corporation tax means that the UK remains a competitive place to set up a business as a company will be able to retain most of its profits compared to its European neighbours. Having one of the lowest corporate tax rates in the G7 should increase money flowing into the UK, benefitting the broader economy from an influx of investment.

Business owners can reinvest their profits into their businesses, allowing them to grow, pay staff, employee workers, and keep prices stable for consumers.

Incentivising Investment 

The government aims to grow our economy by encouraging expansion and reducing business tax obligations. The plan is to make the current £1 million annual investment allowance permanent after April 2023. The annual investment allowance allows businesses to deduct cost of assets purchased from business profits, reducing business tax obligations. This will encourage spending in our economy as a business owner would be inclined to reinvest in plant and machinery. 

The government will launch the Long-term Investment for Technology & Science (LIFTS) competition, offering up to £500 million to support new funds created by institutional investors and fund managers. This is to incentivise private investment into UK science and technology businesses. This initiative will make the UK more competitive and allow entrepreneurs in the science and technology space to access more funds. 

Seed Enterprise Investment Scheme (SEIS) will rise in April 2023. The measure is long overdue as early start-ups are asking for way more than the current cap. This means new companies wishing to raise funds can obtain up to £250,000 through SEIS investments. This measure incentivises investment into UK start ups as investors receive income tax relief. 

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National Insurance Contributions Increase 

The government aims to stimulate the economy by making it cheaper to employ individuals. The proposed plan is to cancel the 1.25 percentage point increase, which came into force in April 2022, for the main and additional rates of Class 1, Class 1A, Class 1B, and Class 4 National Insurance contributions and scrap the Health and Social care levy. This means employees get to keep more of their wages and the costs of hiring reduces.  The surplus funds can be used for further investment or passed down to consumers or employees in the form of reduced prices or increased wages.

If you are a small business owner in charge of your company’s payroll, you will need to remove this increase in November.

Repealing changes to IR35

Cancelling the last change made to IR35 means that workers contracted by companies will be responsible for ensuring they pay the correct amount of tax and NIC. This measure takes the burden from UK businesses allowing them to function without any barriers when contracting staff off-payroll.

The measures introduced have been welcomed, although there has been criticism over who is footing the tax cuts implemented and the uncertainty associated with the government going back on previously set policies. The UK economy needs a certain and stable market to attract investment and grow. Although a weak pound makes our exports attractive, it does make imports more expensive and, therefore, can be detrimental to businesses.

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