U-turn on mini-budget: How will your startup be affected?

On 17 October, the new Chancellor of the Exchequer, Jeremy Hunt reversed almost all of the tax changes announced by his predecessor, Kwasi Kwarteng on 23 September 2022.

Hunt announced that the Treasury will ‘reverse almost all the tax measures announced in the mini-budget that have not started parliamentary legislation’. This means that the only survivors from the mini-budget announcement are:

• scrapping the Health and Social Care levy on National Insurance
• changes to Stamp Duty
• increasing the Annual Investment Allowance to £1 million
• ‘wider reforms to investment taxes‘
  We believe this means the increased limits for SEIS investments will go ahead.

The announcement today comes after increasing pressure on the government to revive the pound and establish stability in UK spending. Some of the changes announced have short and medium term impact on UK companies. In this post, we’ll explain what the changes are and how they might affect your business.

Contents

• Increases to SEIS limits will go ahead
• Proposed rise in Corporation Tax will go ahead
• Decrease in National Insurance will go ahead
• Increase to dividend tax rate is back on
• IR35 rules won’t be phased out
• No changes announced to R&D tax relief schemes
• Increase in share options limit
• Ask our experts

Increases to SEIS limits will go ahead

On 17 October, Chancellor Jeremy Hunt said:

We will continue with the abolition of the Health and Social Care Levy, changes to stamp duty, the increase in the Annual Investment Allowance to a million pounds, and the wider reforms to investment taxes.

The government hasn’t yet published full details of what this means but at SeedLegals, we believe ‘the wider reforms to investment taxes’ includes the changes to the Enterprise Investment Schemes (EIS and SEIS) announced by former chancellor Kwasi Kwarteng:

1. limit increases to the Seed Enterprise Investment Scheme
   Kwarteng announced that from April 2023, companies will be able to raise up to £250,000 under the SEIS scheme – an increase from £150,000. And SEIS investors, will be able to invest up to £200,000 a year, up from £100,000 a year.
2. both EIS and SEIS will be extended beyond 2025
   There was previously a ‘sunset clause’ for the Enterprise Investment Schemes – this meant that the government could decide to discontinue them from 6 April 2025. This has been now been scrapped so the government now plans to continue the schemes beyond 2025.

Read full details in our post: Big SEIS changes in April 2023

Proposed rise in Corporation Tax will go ahead

In 2021, the government announced a new Corporate Tax rate rise which was intended to come into effect on 01 April 2023.

The rate of Corporation Tax you pay depends on how much profit your company makes (source: HMRC):

• Up to £50,000
  You’ll continue to pay 19% Corporation Tax
• £50,000 to £250,000
  You’ll pay 25% Corporation Tax but you’ll also be able to claim ‘marginal rate relief’ which should reduce your rate to between 19 to 25%
• Over £250,000
  You’ll pay a new increased main rate of 25% Corporation Tax

If you make an R&D tax relief claim, you can decrease your Corporation Tax liability. This change to Corporation Tax will reduce the value of RDEC claims for R&D tax relief because claims are above the line – the tax benefit will decrease from 10.5% to 9.75%

Decrease in National Insurance will go ahead

On 6 April 2022 the National Insurance (NI) rate increased by 1.25%. The government announced that this change would be ‘reversed’ on 6 November 2022. Today Jeremy Hunt announced that because this reversal has already started the process of parliamentary legislation, it won’t change.

Quick recap: in April 2022:

• Employer’s NI increased from 13.8% to 15.05%
• Employee’s NI increased from 12% to 13.25%

The government introduced this increase as a way to fund the Health and Social Care levy which sought to support the NHS after the Covid-19 pandemic. Instead, the levy will be funded by government borrowing so these changes will be reversed on 6 November 2022:

• Employer’s NI will decrease from 15.05% to 13.8%
• Employee’s NI increased from 13.25% to 12%

Increase to dividend tax rate is back on

The dividend tax rates will increase by 1.25% in 2023.

The rate self-employed directors pay depends on your Income Tax band – the new rates will be:

• Basic rate Income Tax: 8.75%
• Higher rate Income Tax: 33.75%

IR35 rules won’t be phased out

The government planned to scrap changes to the rules about how off-payroll workers are treated – known as IR35.

Today Hunt announced that IR35 rules will continue as they are. This means that the responsibility for complying with IR35 remains with the company (rather than the worker).

No changes announced to R&D tax relief schemes

There hasn’t been a direct announcement about changes to the R&D tax relief schemes.

However, now that the rise in Corporation Tax is back on, any claims made under the RDEC scheme from April 2023 will be less beneficial: they’ll be worth 9.75p for every £1 spent on R&D instead of 10.5p

There’s an ongoing sub-committee inquiry into reforms to R&D tax relief which is open for written contributions until 2 November 2022.

Increase in share options limit

We believe that the government is going ahead to increase the limits for company share option plans (‘CSOPs’).

The changes announced in September 2022 states that from 6 April 2023 companies will now be able to offer staff share options worth up to £60,000, up from the current maximum of £30,000.

You can read more about this change at the gov.uk website.

Ask our experts

The changes announced today by the chancellor show (another) change of direction, aimed at restoring the wider stability caused by the mini-budget.

It seems that the proposes limit increases to SEIS and share option schemes – both of which will benefit the UK’s startup ecosystem – have survived this round of announcement and they’re already on their way to being made law. But brace yourselves for more announcements in the medium term fiscal plan – due to be announced on 31 October 2022.

Chancellor Hunt said:

There remain, I’m afraid, many difficult decisions to announce in the medium term fiscal plan on 31 October.

With costs rising and Corporation Tax going up to 25% for companies with bigger profits, you’ll need to make sure you consider all funding, incentives and reliefs you’re eligible for.

At SeedLegals, we’re experts in helping businesses fundraise, grow and scale. If you have any questions about how to use our services to extend your runway, claim tax relief or offer share options to your team, hit the chat button to get in touch with us.

Main image adapted from original by maniacvector on Freepik