The Autumn Statement was the third financial event in the last eight weeks, so you’d be forgiven if you were a little confused about what was left in force.
On 17 November 2022, the Chancellor, Jeremy Hunt, announced the priorities of the Autumn Statement were “stability, growth and public services”. Growth has been at the forefront of recent fiscal events – Kwasi Kwarteng called himself a “new growth agenda” and while the messy results have been criticized, the chancellor “recognized my predecessor’s small budget motivation and he was right to identify growth.” as a priority”.
We live in very uncertain times with high inflation, the aftermath of the war in Ukraine, and recession ahead. The Autumn Statement attempts to fill the black hole in the government’s finances by increasing various taxes, reducing some allowances and possibly reducing public spending.
Tony Dunker, director general of the CBI, recently said: “We need to make the UK an attractive place to invest” and companies are deciding whether to “invest for next year or go into hibernation”. In our experience, most entrepreneurs are interested in any plan that promotes investments and any help that they can claim will keep costs as low as possible, especially when they are just starting out.
In this blog we consider what remains of the initial mini-budget in September 2022, as well as the reforms announced in the Chancellor’s recent autumn statement, with a particular focus on the impact this will have on entrepreneurs:
1. Seed Enterprise Investment Plans (SEIS)
The government has been committed to reforming SEIS throughout the financial announcements. The Chancellor said: “The Government is increasing the generosity and availability of the Initial Enterprise Investment Scheme and the Company Share Option Scheme”, as well as support for the Enterprise Investment Scheme (EIS) and Venture Capital Funds (VCT).
As explained in our previous blog – What this means for entrepreneurs From April 2023 companies can raise up to £250,000 under the scheme, while the gross asset limit rises to £350,000, the age limit from 2 Year. Up to 3 years and the cap will double for investors to £200,000.
Maintaining these reforms is key for entrepreneurs because it promotes investment in startups by creating tax breaks for those who invest in these projects. As explained in our previous blog, investing in start-up companies is considered risky by many, so this scheme aims to reduce the risk for individual investors, thereby making the investment more attractive. Founders will be relieved to see these reforms remain as they encourage investment. Retaining these provisions seems logical, as they are likely to support the government’s goals as well. It should help start-ups succeed and a successful start-up will create material taxation (VAT, payment, company tax etc.).
2. Annual Investment Allowance (AIA)
As with SEIS, the government has maintained its commitment to the AIA. From April 2023 the £1m AIA level will become permanent. Businesses can deduct 100% of eligible plant and machinery costs up to £1 million in the first year.
The chancellor has confirmed that the allowance increase will be “permanent”, giving reassurance to entrepreneurs looking to claim the tax break.
3. Dividend rate and capital gains tax (CGT)
In last autumn’s statement the chancellor announced a reduction in the dividend quota and the annual CGT allowance. The dividend allowance will decrease from £2,000 to £1,000 in 2023/24 and then to £500 in 2024/25. The annual CGT allowance will decrease from £12,300 to £6,000 in 2023/24 and then to £3,000 in 2024/25.
The changes will particularly penalize entrepreneurs who pay themselves through dividends, as the amount they can pay out will be significantly reduced. The 1.25% increase in dividend tax remains in place and therefore interest rates remain at 8.75%, 33.75% and 39.35% for basic rate, higher rate and additional rate taxpayers respectively.
The reduction in dividends combined with the recent increase in the tax on dividend income will not make paying dividends attractive to entrepreneurs. The dividend reduction will come into effect from 2023/24, so entrepreneurs should think about declaring any dividends before the law comes into effect.
4. Commercial rates
The chancellor has put the business rates multiplier on hold for another year to protect jobs, confirmed that a rating revaluation is going ahead as planned and also extends rate cuts.
This is expected to save companies £9.3 billion over the next five years. Business rates have been the subject of debate for years and the Autumn Statement announcements should have a positive impact on businesses, particularly in the retail, leisure and hospitality sectors. As the business rate multiplier is frozen until 2023/24, this gives businesses a bit of certainty for the year ahead, which is especially important as the country heads into recession, if we’re not already there.
Many are still calling for a complete overhaul of the business rates system, but there is already some positive news.
5. Investment areas
An earlier financial announcement introduced the plan, which would design investment zones in 38 areas that would “benefit from tax incentives, planning liberalization and broader support for the local economy.” The chancellor said the government would now focus on “re-leveraging” areas of investment. “Our research strengths to help create clusters for our new growth industries.”
While little was known about the investment zones, it was anticipated that this could be especially beneficial for entrepreneurs starting a business and trying to keep costs as low as possible. be Time will tell how the government “recenters,” but from the perspective of the founders, it’s a shame that these areas are completely gone.
6. Research and development (R&D)
From April 1, 2023, the research and development cost credit rate will increase from 13% to 20%. For small and medium-sized companies, the additional deduction will be reduced from 130% to 86% and the credit rate will be reduced from 14.5% to 10%. While the government says the R&D tax cut reforms are left over from the Autumn 2021 Statement, these changes will not be legislated until the Spring 2023 Finance Bill.
The chancellor said the reforms were made to prevent fraud “with the generosity of aid making it a target for fraud”. While the goal is to prevent abuse of facilities, increasing tax rates may discourage businesses from investing in technology and innovation. Perhaps the focus should be on enforcing laws to combat any fraud rather than punishing business by raising tax rates.
The Autumn Statement aims to deliver “a consolidation of £55bn, meaning inflation and interest rates will be significantly lower”. Growth has been repeatedly highlighted in the autumn statement, but some announcements may reduce the attractiveness of investing in startups. If there is less investment, less tax is paid on those investments, and as a result, the government’s intention to increase the amount of tax paid may actually be the opposite of what happens.
In her autumn statement the German chancellor said: “I want to combine our technology and scientific brilliance with our strong financial services to make Britain the next Silicon Valley.” The Chancellor’s ambition is commendable. However, tax increases and the removal of investment zones lead to concerns about how this will be achieved.
Entrepreneurs will be encouraged with a focus on “growth” and reforms to SEIS, AIA and business rates are positive for entrepreneurs. Business rates reforms and the AIA provide a way for entrepreneurs to save some money and gain some confidence in the coming year. This, along with SEIS, encourages investment in start-up companies.
However, reductions in dividend tax and CGT rates, reductions in research and development facilities and the removal of investment zones will have a negative impact on entrepreneurs, and anyone facing pressure may find it less attractive to invest in start-ups. It is therefore important for start-ups to consider any grants, funding and incentive arrangements.