Last week was a big week for UK businesses, with a raft of new policy announcements in the Energy Relief Scheme and the Mini Budget. Despite the poor reaction from the financial markets, there was plenty of positive news for established and startup companies.
Let’s review the changes and assess what that means for business owners.
Energy Bill Relief Scheme
This Energy Bill Relief Scheme will provide energy bill relief for non-domestic customers in Great Britain. Discounts will be applied to energy usage initially between 1 October 2022 and 31 March 2023
The scheme will be available to everyone on a non-domestic contract, including:
- voluntary sector organisations, such as charities
- public sector organisations such as schools, hospitals and care homes
- on existing fixed price contracts that were agreed on or after 1 April 2022
- signing new fixed price contracts
- on deemed / out of contract or variable tariffs
- on flexible purchase or similar contracts
The Business Secretary confirmed that the Government would cap bills at 21.1p per kilowatt hour for electricity and 7.5p per KWh for gas – less than half the expected cost this winter – to allay fears that thousands of small businesses could go bust without state help.
The Energy Bill Relief Scheme only applies to wholesale costs. Businesses pay other charges on top, but these are relatively small.
The energy relief scheme is not perfect. In the past year, energy costs have gone from being a relatively small cost to being one of the main costs for businesses, so the energy cap will be a relief for business owners. However, some companies could not qualify for support if they agreed their energy costs before April 2022. This does not provide certainty.
Cancelling planned increase to corporation tax
The UK’s corporate tax rate will not rise to 25 per cent – it will remain at 19 per cent, the lowest corporation tax rate in the G20.
But the former proposal to increase corporation tax to 25 per cent would only have applied to those making profits of £50,000 or more, which is approximately 70 percent of businesses. For many of the UK’s 5.6 million small to medium-sized companies, profits fall well short of this threshold.
National Insurance rise cancelled
The increase in Employer National Insurance Contributions and dividends tax to pay for a Health and Social Care Levy has been cancelled. And the interim increase in the National Insurance rate brought in for this tax year will also be cancelled. This cut will take effect from November 6.
Annual Investment Allowance
The annual investment allowance for businesses will be set at its highest level of £1m from April 1 next year. This will give 100 per cent tax relief to companies on their plant and machinery investments up to £1m.
The government is in talks with 38 local and mayoral combined authority areas in England to set up new investment zones.
The zones will offer targeted and time-limited tax cuts for businesses to increase productivity and create jobs.
On the purchase of land and buildings for commercial or residential developments, there will be no stamp duty or business rates to pay on newly occupied business premises.
Companies that create new jobs in investment zones will not pay any national insurance on the first £50,000.
Work will also begin with Scotland, Wales and Northern Ireland to agree on zones in these locations.
IR35 to be simplified
IR35, which treats independent contractors the same as employees for tax purposes but without giving them the benefits that employment provides, is also being adjusted to make it easier for contractors to work in companies.
The IR35 reforms, which rolled into the public and private sectors in 2017 and 2021, respectively, will no longer apply from April 2023. Instead, the original rules will remain, and contractors will be responsible for assessing their own taxes.
This will make it easier for companies to hire experienced staff without requiring them to work under an umbrella company, as the contractor will save money by cutting out the costs of working under an umbrella company and will be able to pay taxes through self-assessment rather than PAYE.
EIS/VCT extended and SEIS fundraising limit raised
The seed enterprise investment scheme (SEIS) has been widened, allowing firms to raise £250,000 under the scheme, up from £150,000.
This is really positive news for startup founders requiring funding who can raise more money to develop their businesses.