Autumn Statement: What does it mean for SMEs?
On 17th November 2022, Jeremy Hunt unveiled a raft of measures that will have an impact on SMEs balance sheets. Already struggling with a 40-year-high rate of inflation and spiralling energy bills, UK businesses now face higher wage bills, increased taxation and a loss of some tax incentives.
We’ve created this summary to give you an overview of the changes made and what the impact could be on your business.
Employee-related taxes
The rise in the National Minimum Wage to £10.42 an hour at the top rate, will add to employers’ costs when it kicks in in April 2023.
On top of that, Income Tax and National Insurance contributions thresholds are to be fixed at their current rates until April 2028. That means, from April 2023, companies have to pay 13.8% in National Insurance contributions on earnings of all workers earning more than £9,100 per year. The Government has frozen this threshold until 2027-28, which will raise £5.8bn by 2028.
Overall, if you’re an employer you’ll pay more in the coming years for each person they employ.
Director and self-employed taxes
The Chancellor announced that the dividend allowance will be halved from £2,000 to £1,000 from April 2023, halving again to £500 in April 2024. Similarly, the capital gains tax (CGT) annual allowance will reduce to £6,000 in April 2023 and to £3,000 in April 2024.
The cut to the dividend tax allowance will cost a basic rate taxpayer £87.50, a higher rate taxpayer £337.50 and an additional rate taxpayer £393.50, according to accountants Blick Rothenberg. They said that taxes on company dividends mean double taxation for self-employed sole traders, as they already pay tax on company profits as well as on dividend income.
Frank Haskew, Head of Taxation Strategy at the ICAEW, said: “The tax measures… will bring more people into higher tax bands and add more complexity to the system for many taxpayers.
“The most obvious change – the reduction in the threshold for the highest earners – will bring more people into higher rates of income tax over the next five years, but frozen allowances and bands, the reduction in the dividend allowance and capital gains exemptions will also lead to taxation by stealth.
“Many taxpayers will find their tax becomes more complex and this will be more difficult for HMRC to administer at a time when its services are under considerable pressure.”
Furthermore, the revaluation of business properties will go ahead next year, meaning an increase in business rates for many firms.
VAT
Regarding VAT, the Chancellor announced that the threshold at which businesses must register to pay VAT will be held at £85,000 of turnover until 2026. Blick Rothenberg’s Robert Salter said this will mean thousands more small businesses will have to pay VAT for the first time as their turnover increases in line with rising prices, discouraging them from expanding their operations.
Research & development tax
Finally, the Research & Development (R&D) tax credit for SMEs will decrease from 130% to 86% from April 2023. That means the R&D tax credit will be worth only 18.6p for every pound of R&D spend, compared with the current 33.3p.
Penny Simmons, legal director at law firm Pinsent Masons, reckons the changes will cost SMEs £4.5bn in lost tax benefits over the first five years of the changes.
What to do if you’re worried about your business’ future
The starting point is to undertake a complete review of your company’s position. Where are you now? What opportunities do you have to improve the bottom line? If some parts of your business aren’t making money, is it time to close them?
You should also look (objectively) at your employees. Are they allocated to the areas of the business where they make the most impact? Could their skills be more useful in other areas? It’s vital you keep your employees ‘in the loop’ during any changes you make.
Speaking to your suppliers could also find you some breathing space. You might be able to negotiate discounts, or better payment terms. With so many businesses in the same position as you, you’ll hopefully find an empathetic ear. And they’re likely to want to help you where they can – after all, they don’t want business either.
Our Kitchen Table Guide talks you through the necessary steps to separate your business into the parts that are – and are not – working, and helps you build a plan for the future. You can download the guide here:
The most important thing to remember is that you’re not alone. This is a difficult time for SMEs up and down the UK. Our team of business rescue experts and insolvency professionals are helping 100s of these businesses navigate their way through the recession. The first consultation is always free and there’s no obligation to choose our services.
Call us on 01455 555 444 or email [email protected] and we will call you back.