2024 Spring Budget: Unpacking the Essentials for UK Startups

On Wednesday 6th March, Chancellor Jeremy Hunt unveiled the 2024 Spring Budget, with several pivotal changes that directly impact the UK’s startup community. With the government aiming to balance economic momentum without sacrificing progress on reducing the inflation rate, there’s a lot to unpack! In this article, we’ll run you through the key Spring Budget takeaways for startups.

As with all our articles, please don’t take this as personal tax, financial or other advice (you need to speak to us for that).

At a Glance

• Increased eligibility criteria for angel investors have been reversed
• National Insurance contribution rates have been cut further
• The Recovery Loan Scheme has been extended, rebranded & injected with a £200m boost
• VAT thresholds increased from £85,000 to £90,000
• Government to plan for full expensing to also cover leasing
• HMRC set to establish advisory panel for new merged R&D tax relief scheme
• Government outlining plans for new investment platform for startups, PISCES

Now, let’s dive into the details!

Previous Angel Investor Thresholds Reinstated

Along with our partners, including the UK Business Angels Association (UKBAA), we welcome the announcement that the government is reversing plans to raise the eligibility criteria for the UK’s angel investors, in direct response to advocacy efforts within the startup community, notably the InvestHER campaign.

As explored in our article on the 2024 Financial Promotion reforms, January saw the introduction of new thresholds for qualifying as a High Net Worth (HNW) individual or Sophisticated Investor – a move that was set to considerably narrow the angel investor pool and reduce available funding for early-stage startups. This reversal, enforced by legislation due to be passed on 27th March, will enable thousands to continue benefitting from the FPO exemptions as angel investors. This will facilitate easier access to equity funding for startups nationwide, and is a positive step especially with the decrease in VC funding worldwide.

Reduction in National Insurance Contribution Rates

As one of the main headline-grabbers, the 2024 Spring Budget also announces another decrease in National Insurance (NI) contribution rates – a further two percentage points on top of the two percentage point cut announced in the 2023 Autumn Budget. This brings employee NI contributions down to 8% effective from 6th April 2024 in the new tax year.

For the self-employed, the 2023 Autumn Statement ushered in the elimination of Class 4 NI contributions and a reduction from 9% to 8% for profits between £12,570 and £50,270, effective from 6th April 2024. The 2024 Spring Budget further reduces self-employed Class 4 National Insurance contributions from the proposed 8% to 6% for profits in the same bracket, with the Chancellor stating that these reductions will create average annual savings of £650 for the self-employed in combination with previous cuts from the 2023 Autumn Statement.

Extension of Recovery Loan Scheme

The Chancellor announced a £200 million funding commitment to support small businesses aiming to invest and grow, as an extension of the government’s post-pandemic Recovery Loan Scheme. Hitting £1 billion in its third phase this January, the Recovery Loan Scheme includes over 60 participating lenders offering an array of finance types from term loans to asset finance. Over half of the scheme’s facilities are for growth capital for UK startups, with many also supporting working capital. 

Now rebranded as the Growth Guarantee Scheme and not limited to those affected by the Covid-19 pandemic, this initiative targets UK businesses with a turnover of £45 million or less, requiring them to be viable and not in financial difficulty to qualify. The Growth Guarantee Scheme will run until the end of March in 2026, offering a 70% government guarantee on loans to SMEs of up to £2 million in Great Britain, and £1 million in Northern Ireland.

VAT Threshold Increased from £85,000 to £90,000

In a move aimed at supporting small businesses and fostering economic growth, the 2024 Spring Budget has increased the VAT registration threshold from £85,000 to £90,000. For startups on the brink of expansion, this change provides additional leeway before crossing the VAT registration threshold – and is the first increase in seven years. The government will also increase the taxable turnover threshold from £83,000 to £88,000, increasing the limit at which a business can apply for voluntary VAT deregistration. 

The Chancellor commented, “This will bring tens of thousands of businesses out of paying VAT altogether and encourage many more to invest and grow.”

For startups hovering near the previous threshold, this change may delay the need to register for VAT, thereby temporarily preserving cash flow and reducing administrative burdens. However, it’s essential to use this threshold wisely, as preparing for VAT registration ahead of time can smooth the transition when your turnover exceeds this new limit. Need help? Let’s chat VAT!

Introduction of the PISCES Platform

The Chancellor also outlined plans for a noble platform for startups – the Private Intermittent Securities and Capital Exchange System, or PISCES. PISCES will be designed to facilitate easier access to capital by connecting early-stage startups with investors in a regulated environment, helping them to raise funds and scale up as an alternative to VC and angel investment. Set to boost the pipeline of future IPOs in the UK, we’re excited to see what’s to come. 

Full Expensing for Leasing

Following the 2023 Autumn Budget’s landmark decision to cement full expensing in the UK’s fiscal framework, the 2024 Spring Budget takes a step further with the announcement of plans to extend this benefit to include leasing. This upcoming expansion will allow companies to immediately write off the total cost of leased assets against their taxable income within the year the expenses are incurred, in comparison to the traditional practice of depreciating costs over the asset’s lease period.

This move will be especially beneficial for startups, as leasing offers a financially savvy route to access crucial equipment, technology, and other assets necessary for growth without the upfront CapEx burden. With this latest extension to full expensing, leasing will emerge as an even more attractive option for startups, simplifying financial planning and enhancing their ability to innovate and scale.

In his speech, the Chancellor stated: “Having listened to calls from the CBI, Make UK and the BCC, we will shortly publish draft legislation for full expensing to apply to leased assets, a change I intend to bring in as soon as it is affordable.”

R&D Tax Relief

In response to concerns raised around HMRC and the new merged R&D tax relief scheme announced in the 2023 Autumn Budget, the Chancellor announced that HMRC would establish an expert advisory panel to support the scheme’s administration, whilst confirming its go-ahead for accounting periods starting on or after 1st April 2024. The panel will aim to provide clarity as to what qualifies for tax relief, helping to ensure legitimate claims are accepted and therefore driving innovation and economic growth. 

Investment Updates

• A new British ISA was announced to encourage more people to invest in UK assets, offering an additional £5,000 tax-free allowance on top of the existing ISA limit.
• A £7.4 million AI upskilling fund pilot was announced to support the adoption of AI and digital tech by UK small businesses.
• A range of “levelling up” investments were announced, supporting high tech clusters across the UK including a health tech cluster in Canary Wharf.

Take a read of the full 2024 Spring Budget documentation here.