How will the 2023 Spring Budget affect your small business?

The Chancellor, Jeremy Hunt, has outlined his latest plans for the UK economy in the 2023 Spring Budget. Although we’re still very much in the midst of a cost-of-living crisis, the run-up to this latest statement hasn’t been quite as frenzied as the last one, when Hunt had to deal with the fallout of his predecessor’s disastrous mini-budget. 

As expected, cutting inflation, getting debt falling and growing the economy were the priorities outlined by the chancellor. The four pillars of the government’s industrial strategy – enterprise, employment, education, and everywhere - also took centre stage. 

But what does all that mean for you and your business? Let’s take a look. 

What does the 2023 Spring Budget mean for your business?

There are always winners and losers where tax is concerned, which means Spring Budgets and Autumn Statements are usually pretty divisive affairs. That’s we’re just going to report the facts about those bits that relate to business and leave you to decide on whether it was a good Budget for you. 

Energy bill support

As expected, the Energy Bills Discount Scheme (EDBS) will replace the Energy Bill Relief Scheme (EBRS) from April 1. This will discount the unit rates on all eligible non-domestic gas and electricity contracts for the next 12 months.  

You can find out exactly how it works in our guide to the Energy Bills Discount Scheme or by watching the video below. 

The key things to remember are that this is not a price cap and that funding for EBDS will be capped at £5.5 billion over 12 months – that's a significant cut from the £18 billion put aside for the six months of EBRS. That’s why it makes sense to compare business energy quotes to see if you could save more by fixing your rates. 

The climate change agreement scheme (CCA) will be extended until March 2025 to give eligible businesses tax relief for energy efficiency measures. CCAs are available for a wide range of sectors including energy-intensive industries like chemicals and paper production, supermarkets and agricultural businesses. Find out more about CCAs at the government website. 

Business rates 

Business rates are a tax on property used for business purposes, such as offices, shops, pubs, and warehouses. You can check out the government website for more information on business rates.  

Business rates will be reevaluated on April 1. This means your business rates will be based on the Valuation Office Agency’s (VOA) estimate of your property’s open market rental value on April 1, 2021. You can get an estimate of your property’s 2023/24 rateable value at the government website. 

From April 6, the 2023/24 Retail, Hospitality and Leisure business rates relief scheme will give eligible properties a 75% relief on business rates, up to a cash limit of £110,000 per business.  

You can find out more about eligibility and see some examples of how much different business properties save on the government website. One thing to note is that the eligibility section will talk about ‘hereditaments’ - in this context, it just means a business property or a property that’s not classed as domestic (such as one that’s occupied by a charity). 

Corporation tax

Corporation tax is paid on company profits. The main rate of corporation tax will increase from 19% to 25% from April 6. This higher rate will be paid by limited companies on profits over £250,000 made from trading and from the sale of assets or investments.  

If your company has profits of £50,000 or less, you’ll pay a small profits rate (SPR) of 19%.  

Any profits between £50,000 and £250,000 will be eligible for marginal relief. This means there will be a gradual increase between the small profits rate and the main rate, so you’re not hit with the full 25% rate. You can calculate marginal relief for corporation tax on the government website. 

The ‘super-deduction’ will end on March 31 and will be replaced with full capital expensing for the next three years. This means that every £1 a company invests in IT, plant or machinery can be deducted in full from taxable profits. 

Annual investment allowance 

The annual investment allowance (AIA) provides 100% tax relief on certain assets and is designed to encourage people to invest in growing their businesses. AIA includes most plant and machinery but excludes cars, items you owned for another reason before you used them at your business or items given to you or your business. 

The maximum claim amount of £1 million will continue past April 2023.  

Income Tax 

Income tax is a tax you pay to the government based on your yearly income. This tax goes towards funding public services, including the NHS and schools, as well as social security, such as universal credit and the state pension. The 2023/24 income tax rates are: 

VAT  

VAT is charged on all goods, services and other 'taxable supplies'. The Chancellor announced there would be a two-year extension to the threshold at which businesses must start paying VAT. This will now be held at £85,000 of turnover until 2026.   

Dividend tax 

If you’re a company shareholder, dividends are the money you get from company profits. Unlike with salary payments, your company must be making a profit after tax before it can pay dividends. Dividend tax is the tax you need to pay on these dividends.  

The following dividend tax rates will apply from April 6: 

• Ordinary rate – 8.75% 
• Upper rate – 33.75% 
• Additional rate – 39.35% 

Your income tax band dictates the rate of tax you pay on dividends above the allowance. From April 6, this allowance will be cut from £2,000 to £1,000. It will then be cut to £500 from April 2024. 

Capital gains tax  

Capital gains tax is a tax on assets that have increased in value. If you’ve had an asset for more than a year and its value has gone up, you’ll be charged capital gains tax when you sell it. 

From 6 April 2023, the capital gains tax-free annual allowance will be cut from £12,300 to £6,000, then to £3,000 from April 2024. 

Wages

As announced in the previous Autumn 2022 budget, from April 1, the following National Living Wage rates will be as below: 

• £10.42 for employees aged 23 and over 
• £10.18 for employees aged between 21 and 22 
• £7.49 for employees aged 18 to 20  

Fuel duty 

The 5p fuel duty cut that was introduced in March 2022 will continue and will be frozen for another 12 months. The chancellor said that fuel duty will not increase in line with inflation.  

National Insurance 

As outlined in the 2022 Autumn Statement, National Insurance thresholds will stay the same until 2028. 

To recap, this means that: 

• Employees won't pay anything in National Insurance Contributions (NICs) until they're earning £12,570 a year. This is in line with the income tax personal allowance. 
• Employers pay NICs at a rate of 13.80% for all employees that earn more than £8,840 per year (excluding those aged 21 or under and apprentices aged 25 or under). 

The Employment Allowance will stay at £5,000 until March 2026. This means eligible employers can cut their employer NICs bills by up to £5,000 per year, a tax cut worth up to £1,000 per employer. 

If you’re self-employed and pay "Class 4" rates, you’ll pay 9.73% on profits between £11,909 and £50,270 and 2.73% on profits over £50,270. 

Anything else? 

The chancellor announced some other measures that will be of interest to some business owners. 

• £63m fund for public pools and leisure centres.  
• £100m fund for local charities and community organizations. 
• The duty on draught products in pubs will be 11p cheaper than the duty in supermarkets. This drop in duty - labelled as the “Brexit Pubs Guarantee” - will take effect from August 1. 
• There will be a new tax credit for small and medium-sized firms that spend 40% of their expenditure on research and development (R&D) as well as tax reliefs for film, TV and video gaming businesses. 
• Theatres, Orchestras, and museums will have tax reliefs extended for two years. 

How to cut your business costs 

There’ll no doubt be parts of the Spring Budget that will benefit your business, while you’ll probably look at other bits with a lot less enthusiasm. In any case, it's always worth looking for ways to cut your business costs. Switching business essentials with Bionic is a good place to start. 

Business essentials are those critical products and services that help keep your business running from day to day - energy, insurance, and connectivity.  

Our tech-enabled experts compare deals on business gas, business electricity, business insurance, business phone, and business broadband. If you want to future-proof your business against the 2025 digital switchover, we can help you find the perfect business VOIP package 

Our Think Business Loans team can also compare business loans and finance to help your business with cash flow or expansion.