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Pop Art Autumn Budget
Startup Guides Published:  Nov 17, 2022 4 min read

Autumn Budget 2022: What startup founders need to know

Chancellor of the Exchequer Jeremy Hunt today announced the Autumn Budget. The aim of this Budget is to reduce inflation and restore stability to the UK economy.

But what does it mean for you and your business? In this post, we’ll explain the changes and how they might affect your business.

The Autumn Budget, also called the Autumn Statement, is one of two official annual announcements made by the Chancellor of the Exchequer, about the government’s financial plans for the following year. The changes announced in November 2022 will take effect from 1 April 2023.

R&D tax relief: rate changes to tackle fraud

SME scheme

The rates of R&D tax relief for SMEs is decreasing. If your company is loss-making, instead of being able to claim up to 33% of your R&D spend as cash back, it will drop to 18.6%.

Before the changes, the benefit for loss-making SMEs was worth 33p for every £1 of R&D spend. When changes come into effect (from 1 April 2023), the benefit for loss-making SMEs will be worth 18.6p for every £1 of R&D spend, and for profit-making SMEs it will be 16.34p.

  • The enhanced deduction rate will be reduced from 130% to 86%
  • The ‘surrender’ rate of 14.5% will be decreased to 10%, meaning that the maximum tax benefit for loss-making companies will be 18.6%

Before the changes, the benefit for loss-making SMEs was worth 33p for every £1 of R&D spend. When changes come into effect (from 1 April 2023), the benefit for loss-making SMEs will be worth 18.6p for every £1 of R&D spend, and for profit-making SMEs it will be 16.34p.

RDEC scheme

In contrast to the decrease in rate for the SME scheme, the rate of tax relief for the RDEC scheme will increase from 13% to 20%. This means that the overall tax benefit from the RDEC scheme will increase from 10.54% to 16.2%.

Before the increase in Corporation Tax, RDEC claims will be worth 10.53p for every £1 spend on R&D. When changes come into effect from April 2023, RDEC claims for accounting periods beginning on or after 1 April 2023 will be worth 9.75p for every £1 spent on R&D.

Benedict Conry Seedlegals

This reduction in the generosity of the SME R&D tax relief scheme is due to fraudulent activity detected by HMRC. The OBR states that these measures won’t have a detrimental effect on R&D investment in the UK.

R&D tax relief remains an important way for companies to unlock growth and will still remain a valuable cash flow tool for genuine claimants.

At SeedLegals, we can help you navigate the complex legislation, confirm whether you company is eligible to claim and how much you’re likely to get back as a reduction in Corporation Tax liability or a cash payment.

Ben Conry

R&D Tax Lead,

SeedLegals

Increases to SEIS/EIS limits will go ahead

There were no new announcements about the SEIS or EIS schemes.

In the written Autumn Statement for 2022 (the document published alongside the chancellor giving the speech), the government notes that they are supportive of the Enterprise Investment schemes and VC Trusts, and they aim to extend these in the future.

 

Top Income Tax band is coming down – but the others are frozen

Are you a top earner? You’ll be paying more in Income Tax. The Income Tax threshold for the top rate of Income Tax will decrease from £150,000 to £125,140, meaning thousands more people earning over that threshold will pay the top rate of 45% on their income over £125,140.

For the rest of us, there’s an Income Tax freeze until 2028 – which critics are calling a stealth tax rise. This is because while the government aren’t introducing an increase in our Income Tax rate (the percentage we’re charged), there’s no change to the tax bands (the thresholds for Personal Allowance, Basic, Higher and Additional rate). As our pay goes up (we hope, with inflation), we’ll actually be paying more in tax because the tax bands won’t go up in line with the population’s pay going up.

Before the Autumn Budget announcement, the Income Tax thresholds had been frozen until 2026.

The Income Tax bands for England and Wales are:

  • Personal Allowance: zero tax on £0 – £12,500
  • Basic Rate: 20% tax on £12,501 – £50,270
  • Higher Rate: 40% tax on £50,271 – £125,140
  • Additional Rate: 45% tax on income over £125,140
What does this mean for you? The tax band thresholds apply to all payments made to you through PAYE, so you might need to re-evaluate how much you pay yourself or whether to give yourself that pay rise through your startup if your personal income is near a tax band threshold. We recommend discussing it with your accountant or tax advisor.

Capital Gains Tax threshold (almost) halved and then halved again

Capital Gains Tax or ‘CGT’ is the tax you pay on the profit you make when you sell something (‘dispose of’ in legal jargon), for example when you sell shares. For CGT, there’s currently a tax-free allowance of £12,300 – so you don’t pay any tax on ‘disposals’ worth less than £12,300. The chancellor has announced that this tax-free allowance will decrease to £6,000 in April 2023 then to £3,000 in 2024.

If you have an EMI options scheme, this decrease in the CGT allowance will affect your employees when they sell their shares (after exercising them). You can read more about this in our post: Share options explained

 

Dividend Tax threshold halved – and then halved again

Currently, there’s a £2,000 tax-free allowance on dividend earnings. When changes come into place in April 2023, this will reduce to £1,000 in 2023-24 and then to £500 in 2024-25.

If you’re paying yourself from your company via dividends, this change will affect how much tax you pay on your dividend income. Ask your accountant or tax advisor to help work out the most tax efficient way to pay yourself.

 

VAT threshold frozen – more small businesses will need to register

The threshold for VAT registration will be frozen at £85,000 until April 2024. With inflation at its current rates, thousands of small businesses who turnover just under this amount will soon go over the threshold.

If your small business is about to go over that threshold, you’ll need to register for VAT – get help from your accountant or tax advisor.

 

Key takeaways for startup founders

  • Both R&D tax relief schemes (SME and RDEC) will see a significant shake-up in April 2023, with changes to the process and qualifying criteria as well as the changes announced today in the tax relief rates for both.
  • Increases to SEIS and EIS limits are going ahead
  • Income Tax thresholds for Personal Allowance, Basic and Higher tax rates are frozen until 2028, so earners will take home less pay as they earn more over the next 6 years
  • Capital Gains Tax threshold will decrease – this will affect you if you sell business assets or shares, and your employees if they sell shares gained from your company’s EMI options scheme
  • Dividends tax threshold will halve and then halve again, making it a less tax efficient way to earn
  • The VAT threshold will freeze at £85,000 – as inflation means companies will charge more and earn more, many more small businesses will need to register for VAT for the first time

 

Talk to an expert

Need some ideas on how to boost your cash flow during a recession? Want to keep your employees motivated with share options? We can help. Book a free call with our experts.

 

Benedict Conry Seedlegals

Benedict Conry

Ben is a Tax Specialist with over five years' experience in R&D.
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