Spring Budget 2023: the lowdown for small businesses

It might not feel like it if you’ve been battling snow and subzero temperatures this week, but technically spring has arrived. And in an effort to nurture the green shoots of growth, the Chancellor, Jeremy Hunt, unveiled his Spring Budget today. 

While the big headlines were the expansion of free childcare, the scrapping of the lifetime allowance on tax-free pension contributions and the extension of energy bills support for households, several other announcements will affect small businesses. Our Chief Accountant, Emily Coltman, explains the key takeaways.

Corporation Tax

The Chancellor confirmed that the planned increase in Corporation Tax to 25% for companies with profits over £50,000 will go ahead next month as planned. This means that from 1st April 2023:

  • companies that make a taxable profit of £50,000 or less per year will continue to pay Corporation Tax at the ‘small profits rate’ of 19%
  • companies with taxable profits between £50,001 and £250,000 a year will pay Corporation Tax at a rate of 25% with a ‘Marginal Relief’ deduction
  • companies with taxable profits of £250,001 or more a year will pay Corporation Tax at a rate of 25%

Capital allowances

Replacing the super-deduction that ends on 31st March, ‘full expensing’ will be introduced from 1st April 2023, for an initial period of three years. This means that 100% of the money invested by qualifying companies in qualifying equipment can be used to reduce the amount of taxable profits. Companies that invest in other assets that don’t qualify for the full 100%, such as long-life assets, will also benefit from a 50% first-year allowance during this period.

From April 2023, the Annual Investment Allowance will be permanently set at £1 million. This provides 100% relief against the cost of qualifying equipment, so for small businesses, it will cover most purchases of assets.

Research and development (R&D) relief

From 1st April 2023, loss-making small or medium-sized enterprises (SMEs) will be able to claim a credit worth £27 for every £100 they spend on R&D, provided that R&D constitutes at least 40% of their total expenditure.

Fuel duty

Some good news for business owners who pay for fuel for business travel: the planned 11p rise in fuel duty will be cancelled, maintaining last year’s 5p cut for another year. 

Energy Bills Discount Scheme

As previously announced, the new Energy Bills Discount Scheme for businesses will take effect from April 2023, giving eligible non-domestic consumers a per-unit discount on wholesale prices for a further year.

Small business consultations and reviews

The Spring Budget promised to launch a consultation to expand cash basis accounting, a simplified method which allows certain businesses to record their income and costs at the date the money comes in or is paid out, rather than the date displayed on an invoice they issue or bill they receive. It also promised “a systematic review of HMRC guidance and key forms for small businesses, to ensure the tax system is easy for them to understand”.

To learn more about the changes announced in the Spring Budget, you can read the full report on the government’s website.

Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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