2024 Spring Budget: What does it mean for small businesses?
Posted 4 weeks ago by Tracy
While the cut in national insurance may have got most of the headlines, the 2024 UK Spring Budget, announced by Chancellor Jeremy Hunt on 6 March, contained several other key announcements that will impact small businesses. From new VAT thresholds and changes to energy bill support to added incentives for the creative industries, the Budget aimed to encourage growth while reducing the tax burden. So, what’s new and what impact are the announcements likely to have?
1. National Insurance
Let’s start with the big one: Jeremy Hunt announced that there will be a further 2p cut in the main employee National Insurance rate when it’s reduced from 10% to 8% on 6 April. This comes hot on the heels of an earlier cut from 12% to 10%, effective 6 January this year. You’ll still pay NICs at a rate of 13.80% for all employees who earn more than £8,840 per year.
2. Self-employed National Insurance
National insurance contributions for the self-employed will also change on 6 April, when the rate will be cut from 8% to 6%. Class 4 National Insurance, payable on profits between £12,570 and £50,270, will be cut from 9% to 8%, although it remains 2.73% on profits over £50,270. In addition, Class 2 National Insurance paid by self-employed people earning more than £12,570 will be scrapped, removing the flat rate compulsory charge of £3.45 a week.
According to the Chancellor, the changes to national insurance “mean an additional £450 a year for the average employee or £350 for someone self-employed. Combined with the autumn reductions, it means 27 million employees will get an average tax cut of £900 a year and two million self-employed tax cuts averaging £650.”
It’s worth noting, however, that no changes were made to income tax, so the freeze announced in 2021 will remain. This means the cuts to NI may not offset the extra income tax that must be paid. The thresholds at which national insurance kicks in have also been frozen this year.
3. VAT
In a move specifically designed to help SMEs, Hunt announced that the VAT registration threshold will increase from £85,000 to £90,000 per annum from 1 April 2024. On the same date, the taxable turnover threshold that determines whether businesses can apply for de-registration will increase from £83,000 to £88,000. This is the first rate change in seven years, despite previous announcements that rates would be frozen until 31 March 2026.
According to the government, the change will have significant impacts. The overall administrative burden will fall by £5 million per year, and 28,000 fewer micro businesses will need to be VAT registered in 2024 to 2025.
In addition to having a financial impact, HMRC highlights that this move will reduce the administrative burden of completing and filing tax returns.
Businesses can still register voluntarily for VAT even if their turnover is below the £90,000 threshold.
4. Training Costs
The Budget was also used to unveil HMRC’s plans to publish updated guidance on the tax deductibility of training costs for sole traders and the self-employed “to provide certainty to those that want to invest in boosting their productivity”. Whereas in the past, only costs incurred ‘wholly and exclusively’ for the purposes of an existing business and that were not capital in nature would be deductible under the new guidance, expenses relating to developing new skills or retraining will be deductible. Of course, there may still be grey areas with this new approach, so HMRC has published a new page of examples to explain things more clearly.
5. Energy Bills
Since energy prices skyrocketed a couple of years ago, the impact on small businesses has been much discussed, with many reporting significant increases in their bills. The government responded with the Energy Bill Relief Scheme in October 2022, initially offering a six-month discount on business energy bills. This has since been extended and renamed the Energy Bills Discount Scheme but, with wholesale energy prices now falling, the government has confirmed there will be no further relief for non-domestic energy bills after 31 March.
As energy prices remain much higher than they were just a few years ago, many businesses hoped the government would continue with some level of support. However, that’s not the case, so the advice now is to shop around, compare suppliers, and secure a fixed-rate deal. Unlike domestic energy, non-domestic services have no price cap, so do your research before committing.
6. Fuel Duty
Perhaps one of the least surprising announcements was that fuel duty has been frozen once more – for the 14th year in a row. Also, the current rate will be maintained for an additional 12 months, extending the existing 5p cut and cancelling the planned inflation increase. While the average car driver could save £50 a year, small businesses that rely on cars and vans could notice a bigger impact.
7. Growth Guarantee Scheme
The Chancellor also announced an extension to the Recovery Loan Scheme, which has been renamed the Growth Guarantee Scheme in its third iteration. The scheme's terms will remain unchanged. It provides a 70% guarantee to participating lenders on finance of up to £2 million offered to smaller businesses, although borrowers are always 100% liable for the debt.
To be eligible for a loan, UK businesses must have a turnover of £45 million or less, be viable, and not be in financial difficulty. Loans are available through a network of accredited lenders listed on the British Business Bank’s website. Louis Taylor, CEO of British Business Bank, the UK government’s economic development bank, said: “This type of guarantee scheme supports lenders in providing a wide range of finance for smaller businesses and is a vital ingredient in the smaller business finance landscape.”
The scheme is expected to support 11,000 businesses between 1 July 2024 and 31 March 2026.
8. Capital Allowances
While the details of this one are currently limited, the Chancellor did use the Spring Budget to reveal that full expensing will soon apply to leased assets “when affordable to do so”. Full expensing was initially only a temporary initiative and was made permanent in the 2023 Autumn Statement. It allows companies to claim 100% capital allowances when buying qualifying plant and machinery investments, including printers, vans, office equipment, and even kitchen and bathroom fittings in non-residential properties. Leased assets are currently excluded except for what is termed ‘background plant or machinery’, which only applies to fixed plant or machinery leased with a building. It does not cover special or loose assets.
While this would be a welcome move for many, the timings could be more specific, although draft legislation on full expensing is expected within the next few weeks. Despite that, the CBI called the move “a game-changer for many SMEs” and said it “opens up more UK business investment”. Meanwhile, the government claims full expensing amounts to a £10 billion tax cut annually for businesses investing in the UK.
9. Creative Industries
One sector to benefit from the Spring Budget is the creative industries, thanks to a suite of tax relief changes to boost investment and innovation. For example, the tax credit rate for visual effects costs in film and high-end TV will be increased by 5% to 39% from April 2025, and the 80% cap will be removed for qualifying expenditure for visual effects costs. Full details of this are yet to be confirmed, as the government is set to consult on the sorts of expenditure that will be covered.
Elsewhere across the sector, tax reliefs introduced to help theatres, orchestras and exhibitions during Covid will be made permanent, and a new Independent Film Tax Credit was also announced at a rate of 53% for all productions with budgets of under £15 million.
Regional initiatives were also unveiled, and the Tees Valley Investment Zone was set to be the first to feature the creative industries as a priority industry. Designating the region as an Investment Zone can help establish the area as a creative hub, encouraging growth in the cultural and creative sector and R&D.
Overall, the Treasury estimates that the measures announced in the Budget will equal £1 billion in support over the next five years.
Notably, Hunt also announced that business rates for studio space will be cut by 40% until 2034, perhaps recognising that film studios collectively faced the largest rateable value increases at the 2023 revaluation. However, there was noticeable silence on the issue of broader business rates. While the Retail, Hospitality and Leisure Relief Scheme will be extended for a further year until 31 March 2025, many other businesses will face significant costs when planned business rates come into effect in April.
The hospitality sector will also likely be cheered by the news that the freeze on alcohol duty will be extended until February 2025.
10. Tech Sector
The tech sector was another area of focus for the Chancellor with news of investment in several tech clusters across the UK, including a spaceport in Scotland and a health tech cluster in Canary Wharf. Responding to concerns raised about how the R&D tax credit is being implemented, it was also announced that HMRC will establish an expert advisory panel to support the administration of the tax reliefs and provide insights into critical sectors. In addition, a £7.4 million AI upskilling fund pilot was announced to help SMEs develop AI skills, while plans to raise the income and net asset thresholds to qualify as an angel investor have been reversed.
11. Furnished Holiday Lettings
Finally, the Chancellor also announced the abolition of the Furnished Holiday Lettings tax regime, something he said would raise £245 million a year. Under the current rules, rental income from qualifying properties is subject to favourable rules and provisions – including Capital Gains Tax reliefs and capital allowances. These allowances will be scrapped from 6 April 2025. While owners of these properties will be impacted by the changes, the hope is it will make it easier for people to find homes in their local area.
Further Reading
A Guide to Sick Pay for the Self-employed or Company Directors