What Does the 2023 Spring Budget Mean for Businesses?

Jeremy Hunt's plans for 2023 outlined in the Spring Budget follow on from his previous Budget speech to the House of Commons in autumn 2022. At the time, he spoke of how people across the UK were struggling to cope with soaring interest rates, record-breaking inflation and a national cost of living crisis.

His recent proposals, on Wednesday 15^th March, built on the foundations he had laid in November. Today's economic climate is slightly more favourable than it was it was in the autumn - when inflation was more than 11%.

However, the Chancellor must still address some serious financial challenges, including inflation of 10.1% and a shrinking economy.

Despite independent watchdog the Office for Budget Responsibility predicting Britain will technically avoid a recession, the Gross Domestic Product is still likely to decline by 0.2% during 2023.

What does the Spring Budget mean for businesses?

The Spring Budget statement contained a number of important announcements for businesses. The Chancellor's goal was to create a Budget that encouraged investment.

This refers to his previous observations that government efforts to incentivise investment have been less successful in the UK than they have in other European countries.

The government's latest policies aim to find alternative ways of encouraging investment - but will the spring statement provide the incentives that businesses are hoping for?

The main talking points include confirmation of a rise in corporation tax, fresh support for businesses' energy bills and new UK "investment zones". Read on to find out what the 2023 Spring Budget really means for your business.

Rise in corporation tax

Hunt confirmed that the previously announced increase in corporation tax - from 19% to 25% for top-earning businesses with profits of more than £250,000 - will go ahead. Companies with lower profits will pay a staggered rate, ranging from 19% to 25%.

The tax increase was announced initially in 2021 by Rishi Sunak when he was Chancellor. It was later repealed in Kwasi Kwarteng's mini-Budget in September 2022. However, Hunt reinstated it only a few weeks later.

Raising the rate of corporation tax for top earners was seen as a means to fill the deep hole in government finances left by the Covid-19 pandemic. Hunt estimated only 10% of businesses would pay the full rate of 25%.

Companies with profits of less than £50,000 will be paying only the lowest rate of 19%. The staggered rate will apply to companies whose profits are between £50,000 and £250,000.

However, this proposal has been a bone of contention since it was first announced. Cutting corporation tax was an integral part of the Conservatives' strategy since David Cameron became prime minister in 2010.

The rate went down continually from 28% in 2010 to 20% in 2015. The lowest rate of corporation tax in recent years was 19% at the beginning of the 2017/18 tax year.

Critics have said the increase goes against the Conservatives' core policy of reducing corporation tax. They have questioned the government's attitude to businesses and whether increasing corporation tax provides an incentive for companies to invest.

Conservative party donor Lord Michael Spencer, who founded the brokerage ICAP, said the UK's corporation tax rate should be no higher than 20% across the board. He claimed this would give the nation the best chance of being competitive globally.

Support for businesses’ energy bills

Although the Chancellor didn't mention this in his Budget speech, the government had already planned a new scheme that was launched on 1^st April to support businesses with sky high energy bills.

The new Business Energy Discount Scheme is providing more limited support with energy costs after it replaced the Business Energy Relief Scheme that was launched in autumn 2022.

The new initiative will continue for the next 12 months, providing an estimated £5.5 billion of discounts for businesses' commercial energy costs.

However, it will be available only to companies that pay more than £302 per MWh for electricity and £107 per MWh for gas. It offers a discount of £19.61 per MWh of electricity and £6.97 per MWh of gas.

Industries using more energy, such as the manufacturing sector, will be eligible for bigger discounts. The government has compiled a list of industries whose members can receive a greater discount.

However, the price cuts will be capped at £89.10 per MWh for electricity and £40 per MWh for gas in all sectors.

Dividend tax threshold cuts

The Chancellor reiterated plans to change tax-free allowances for workers paid via company dividends. The dividend tax threshold cuts had been announced earlier, as part of the autumn statement.

The changes have come into effect this month on 6^th April. The tax-free allowance has now been cut from £2,000 a year to £1,000 a year. The allowance will be reduced again in April 2024 - this time to just £500.

The people most impacted will be self-employed freelancers who work through their own limited company. This is because they receive income disproportionately through dividends from their own business, instead of through a salary.

The move has been criticised by Andy Chamberlain, policy director for the Association of Independent Professionals and the Self-Employed. He accused the government of making the UK's smallest businesses the "first targets".

He said following the financial damage caused by the Covid pandemic, the corporation tax increase and a general exclusion from support, this was an "attack" on people who worked for their own company.

Analysts calculate the cuts mean a limited company owner earning £40,000 per annum will be £500 a year worse off than an employee paying National Insurance and PAYE tax on a £40,000 salary.

Investment zones

The Chancellor announced that 12 new Investment Zones will be created across the UK, aimed at driving business investment and levelling up the regions. Located around research centres and universities, each one will receive £80 million funding over five years.

The scheme aims to harness existing talent hubs, using a combination of tax incentives and spending. They will focus on life sciences, the creative industries, the green sector and manufacturing.

Investment Zones are planned for Greater Manchester, the West Midlands, the North East, West Yorkshire, South Yorkshire, the East Midlands, Liverpool and the Tees Valley. Scotland, Wales and Northern Ireland will have at least one Investment Zone each.

The Spring Budget initiative is a pared-back version of the low-tax investment zone scheme announced by former Chancellor Kwarteng in his mini-budget last year. Details of the new zones remain sparse and the Chancellor hasn't expanded further on the announcement.

The state of the economy

The Office for Budget Responsibility says the Spring Budget will start to deliver Hunt's three main responsibilities: cutting inflation by half, reducing debt and growing the economy.

While the economy is forecast to shrink by 0.2% during 2023, the watchdog believes it will then grow by 1.8% in 2024, a further 2.5% during 2025 and 2.1% in 2026. The OBS also forecasts a significant reduction in inflation to 2.9% by the end of this year.

However, the small business community has expressed disappointment at a lack of targeted help in view of the precarious state of the economy.

Small and medium business owners fear the Spring Budget hasn't done enough to support them through the current challenging economic climate.

The Federation of Small Businesses labels the Budget a "snub" for SMEs, demonstrating the government's "clear lack of understanding" of the important role they will play in the UK's economic recovery.

Effective accountancy practices are increasingly important to help businesses of all sizes make sound financial decisions during these challenging times.

Here at DL Accounts, we offer a wide range of services; from basic tax returns to complex Limited Company accounts, we're always happy for clients old and new to come in and see us. Why not pop in and see how we can help you?