Spring Budget 2023: what's new, what's changing and how will your business be affected?

On 15 March 2023, Chancellor of the Exchequer Jeremy Hunt announced the Spring Budget, which he called a ‘Budget for growth’.

Hunt began his announcement saying that the UK has avoided a recession. Big tax cuts weren’t expected – and didn’t happen – but Hunt has pledged billions for businesses and measures to tackle the 1 million job vacancies in the UK.

In this post, we’ve set out the announcements most relevant for startups and SMEs and how they could affect your company. We’ve also delved into the documents published by the government to include more details about how the R&D tax credits scheme is changing.

Contents

• Inflation predicted to fall
• Hundreds of millions for new Investment Zones
• Super deduction replaced with full expensing
• New ‘enhanced credit’ for R&D expenditure
• Reforms to R&D tax credits going ahead
• Delay to rule banning overseas subcontractors in R&D claims
• More initiatives for carbon capture and nuclear energy
• Opening up investment in startups to more investors
• More funding and support for AI
• Reforms to get more people into jobs
• More help for working parents
• Annual pension allowance raised to £60,000
• TL; DR? Here are the key takeaways
• Talk to an expert

Inflation predicted to fall

To set a positive tone for the Budget, Hunt reported that according to the World Bank, the UK is the best place in Europe to do business, ‘global chief executives’ said that apart from the US and China, the UK is the best country to invest in, and that London is ahead of New York and 53 other cities as the best place in the world for female entrepreneurs.

To demonstrate that the UK is avoiding a recession, Hunt said that the Office for Budget Responsibility predicts that inflation in the UK will fall from 10.7% in Q4 2022 to 2.9% by the end of 2023. The predicted decrease will be partly as a result of the Budget changes he announced today.

If this prediction proves correct, this is good news for everyone. For individuals and businesses, our money will go further.

Hundreds of millions for new Investment Zones

Today Hunt announced 12 new Investment Zones, as part of the Government’s Levelling Up scheme. These areas will host the zones:

• West Midlands
• East Midlands
• Greater Manchester
• North East
• South Yorkshire
• West Yorkshire
• Teeside
• Liverpool
• Scotland
• Wales
• N Ireland

Hunt announced £200 million for local regeneration projects, and over £400 million for further Levelling Up projects.

Super deduction replaced with full expensing

Hunt said he’s aiming for the ‘most pro-business taxes’ of any country in the world, and claims only 10% of companies will pay the higher rate of 25% Corporation Tax.

As the super deduction for small businesses ends this April, Hunt has announced another incentive to make investment in SMEs more attractive: full capital expensing for the next 3 years with the aim of making this permanent.

Full expensing means that for every £1 your company invests in IT equipment, plant or machinery, it can be deducted in full and immediately from your profits. Read more in the factsheet about business taxes available on the gov.uk website.

New ‘enhanced credit’ for R&D expenditure

Hunt announced a new enhanced credit for qualifying small or medium companies. If your company spends 40% or more of your total expenditure on R&D, you’ll be able to claim a credit worth £27 for every £100 you spend on R&D.

This is still a reduction on the current rate of R&D tax relief (33%) but this initiative will help R&D intensive companies who are facing both the cut in the rate for R&D relief and the increase in Corporation Tax (see box above).

Reforms to R&D tax credits going ahead

Other than the new enhanced credit, Hunt didn’t mention changes to R&D tax relief in today’s Budget. There has been industry-wide objection from business groups to the changes Hunt proposed to the SME R&D scheme in his Autumn Budget, and the government’s consultation on these changes is still underway.

The sweeping changes going ahead are designed to counteract fraud and inaccuracy in R&D claims. Here’s a recap of rate changes, which apply to what you spend on R&D on or after 1 April 2023:

• Enhanced deduction rate
  ⬇️ Decrease from 130% to 86%
• Surrender rate
  ⬇️ Decrease from 14.5% to 10%
• RDEC
  (For larger companies and SMEs which receive state aid, such as a grant from Innovate UK)
  ⬆️ Increase from 13% to 20%

Delay to rule banning overseas subcontractors in R&D claims

A change to the R&D tax relief rules that wasn’t mentioned in Hunt’s speech in the House of Commons (it’s published in the Spring Budget document) is that the government will delay introducing the new rule which says you can’t claim for subcontractor costs if they’re overseas. This rule will now come into effect from April 2024.

This is good news if part of your R&D work is carried out by subcontractors outside the UK – for this year, you’ll be able to claim tax relief on that spend. This delay also buys companies more time to find alternative solutions.

More initiatives for carbon capture and nuclear energy

The Chancellor announced initiatives to fund and expand the UK’s capacity for carbon capture and nuclear power, decreasing reliance on other countries for our energy and, with Hunt today announcing that the government will reclassify nuclear power as ‘sustainable’ energy, increasing the UK’s use of renewable and sustainable energy.

Hunt also announced a competition for small modular reactors. If this technology proves viable, the government will co-fund development.

If your startup is working in carbon capture or nuclear power, then look out for more grant funding available in your sector.

Opening up investment in startups to more investors

Reacting to the collapse of Silicon Valley Bank the previous weekend, Hunt announced that the government acknowledges the UK needs a more diverse financing system where the benefits of investing in high growth companies are available to more investors. He’ll announce a plan for this in the Autumn Statement later this year. Proposals will include:

• allow investment from defined contribution pension schemes
• make the London Stock Exchange a more attractive place to list when you exit your company via IPO
• the government’s response to the US Inflation Act

For startups, this could mean more investors and funds interested in investing in your company.

Faster approvals for medtech

Hunt announced £10 million of funding for a swift, new approval process for cutting-edge medicines, medical devices and tech, with the aim of making the UK a more attractive place to develop these products and services.

If you’re running a medtech startup, this could mean less red tape and a faster route to market.

More funding and support for AI

The UK already has a growing AI sector – Hunt said that the UK hosts one third of all AI companies in Europe and from today’s announcement, it’s clear the government wants the UK to become even more attractive for AI entrepreneurs.

In the Autumn Budget last year, Hunt announced that he was commissioning a review of the AI sector and in this Spring Budget, he confirmed the government will implement all the recommendations published in that review. These include the launch of an AI sandbox to help innovators get cutting edge products to market, and to work with the IP Office to clarify IP rules about generative AI so companies have the information they need.

There was more good news for AI companies. To help supply AI research in the UK with the computing power it needs, the Chancellor committed £900 million to fund an exascale computer and today publishes a strategy on quantum computing. He said the government aims to be a world-leading, quantum-enabled economy by 2033 with a £2.5 billion research and innovation programme.

The Chancellor also announced an annual £1 million prize for individuals or companies with the most ground-breaking AI research (to be called The Manchester Prize in honour of the world’s first stored-program computer which was known as The Manchester Baby).

Reforms to get more people into jobs

In the UK there are currently over 1 million job vacancies and over 7 million adults not working. Hunt announced measures to encourage more people to join the workforce. These measures include scrapping the Work Capability Assessment for disabled people and funding up to 50,000 places for the disabled in an employment scheme called Universal Support.

Hunt pledged more support for occupational health and is doubling the funding for a pilot scheme which subsidises small companies to offer occupational health services.

There are 3.5 million people pre-retirement but over 50 (who Hunt says his younger officials label ‘older’ workers but he, as a 56 year old, prefers the term ‘more experienced’) who aren’t working, up by 320,000 since before the pandemic. To encourage more over 50s to remain in work or to restart work, Hunt announced an increase to the Mid-life MoT scheme run by the Department for Work and Pensions, and Returnerships, a new type of apprenticeship for over 50s who want to retrain and return to work.

More help for working parents

Hunt said that if the UK were to match what’s offered by the Dutch government, the UK could help 1 million more mothers start or return to work.

The measures announced include plans to increase the number of childminders, increase funding to providers of free childcare, change the minimum staff-to-child ratio from 1:4 to 1:5, and increase ‘wrap-around’ care for school-age children.

In a significant reform to subsidised childcare, for eligible households, Hunt will phase in up to 30 hours of free childcare a week for working parents, for all children from the age of nine months.

Childcare that’s more accessible and affordable is great news for you and your employees if you have children – and if you have job vacancies, these measures could mean you get more applicants.

Annual pension allowance raised to £60,000

As well as the measures listed above, Hunt also announced pension reforms to encourage more higher earners over 50 to stay in work for longer.

Currently you can put up to £40,000 a year tax free into pensions. This hasn’t changed for nine years and will now be increased to £60,000.

The lifetime allowance on tax-free pensions has been abolished. The lifetime allowance is how much you can save into pension pots before you pay extra tax – previously it was £1.07 million.

As an employer, this doesn’t affect how you pay pension contributions to your staff. But it’s good news for anyone paying into a pension and could encourage more over 50s – ‘more experienced’ workers, as Hunt called them – to stay with or join your company.

TL; DR? Here are the key takeaways

• Inflation predicted to fall to 2.9% by the end of 2023
• 12 new Investment Zones
• Full expensing to replace super deduction
  For every £1 that your company invests in IT equipment, plant or machinery, it can be deducted in full and immediately from your profits.
• New ‘enhanced credit’ for R&D expenditure
  If your company spends 40% or more of your total expenditure on R&D, you’ll be able to claim a credit worth £27 for every £100 you spend.
• R&D claims rule banning overseas subcontractors delayed until 2024
• More initiatives for carbon capture and nuclear energy
• Open up investment in startups to more investors
  Hunt will announce more on this in the Autumn Budget later this year.
• Faster approvals for medtech
• More funding and support for AI
• Reforms to encourage more people to join the workforce
  Measures to support disabled people, over 50s and parents.
• Pension reforms
  Annual pension tax-free allowance increased to £60,000 and the cap on tax-free pension pots has been scrapped.

Talk to an expert

Running a business is a challenge – but you don’t have to go it alone. If you’re fundraising, want to make your money go further with R&D tax credits or set up a share option scheme to attract talent, book a free call with one of our experts to get answers fast.