Autumn Budget Breakdown

The question I have most since last Wednesday is, “What do you make of the budget?” with keen eyes people watching me as if I can personally tell them if this is good news or bad news. I’ll tell you what it was, underwhelming news! We were teased with headlines expecting tax cuts and growth support. Well, what did we get?

Permanent Full Expensing for Plant & Machinery

This is just another measure that will largely benefit big companies – the current annual investment allowance is £1million, meaning if you spend over this your expenditure goes into a ‘Pool’ and you’re allowed to claim 18% per year as an allowance against corporation tax. How many SME’s are going to be spending more than £1million a year? I would have much preferred a reduction in corporation tax. The 25% corporation tax rate is now one of the highest in Europe, the average being 21.5%. I can’t help but feel it’s still the smaller businesses affected, those with multiple directors paying themselves tax-efficiently with a small salary and their main income being dividends. I know that micro businesses (profits under 50K) are still only paying 19% but it’s the hard working ‘white collar’ workers being hit and I expected to see some fairness restored.
In my opinion there’s been nothing in this budget for SMEs - Where’s the incentive to run your own business, to take that risk and endure the sleepless nights?

Personal Tax

Abolishing Class 2 NI – I agree it’s a simpler way, why should the self-employed pay two classes of NI? It’s only worth £179 a year, I can’t help but think most people would have preferred a cut in the rate of tax OR (what I expected) an increase in the tax-free allowance. By not increasing the tax-free allowance, combined with stagnant taxes and increased cost of living – in effect, many people are worse off with each passing year. This just has not been addressed.
There has been a reduction in Employees NI by 2% (Nothing for the burden of the 13.8% Employers NI). Good news for those who are employed and earning over £12,570 on PAYE. If you’re on £25K a year, this amounts to an extra £20.72 in your pocket each month.

National Living Wage Changes

From April 2024, the national living wage is going to apply to everyone aged 21 and over. It replaces the national minimum wage and is a huge increase of £1.02 per hour (or 9.8%) to £11.44 an hour. Good news for those on minimum wage? Potentially, but not welcome news for SMEs struggling – they are left with two options, increase prices to the end consumer or increase the output with less resource. I recognise there’s a need to increase minimum wages, but it disproportionally affects everyone else. Anyone earning between £24K-£50K needs to negotiate a pay rise of 9.8% to keep in line, but as Liz Truss famously said- “get a better job”. (That’s sarcasm in case you don’t know me!) I don’t know what the answer is, and I’m glad I don’t make these decisions, but what I do see is clients (who are not in their growth phase), taking home less and less for the same (if not more) work each year. I can’t help but think it’s the consumer that will end up paying the price of this increase, including those on the national living wage – irony eh?

Simplification of the R&D Tax Credits System

It takes an overly complicated process and makes it… slightly less complicated. There’s definitely some questions still to be answered, such as with companies using contracting now needing to establish who “initiated” the R&D work to avoid double claims.
Let’s look at how this affects SMEs in particular.
Up until 31/03/23 – 130% uplift on costs, 24.7% net benefit
From 01/04/23 – 86% uplift on costs, 21.5% net benefit
Although if the R&D work was not internal and was contracted, this was a headline rate of 13%.
From 01/04/24 – New merged scheme, no uplift, but 20% headline rate.
If the company is loss-making & R&D intensive (defined as 30% of activities on R&D), then you can still claim the 86% uplift on costs, 21.5% net benefit.
So, is the company better or worse off?
That depends – R&D intensive and loss making, there’s no difference. R&D for another contractor, provided that you ‘initiate’ the work you will be significantly better off. If you’re profitable and do a small amount of internal R&D work then you’re slightly worse off.