How the Autumn Statement 2023 Impacts UK Startups
The Autumn Statement 2023 has rolled out, and it’s brimming with developments that directly impact the pulsating heart of the UK’s economy – startups! Chancellor of the Exchequer Jeremy Hunt announced 110 growth measures. We’ve delved into the details to analyse how some of these key changes may shape your entrepreneurial journey.
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).
- Full Expensing Made Permanent: Originally planned to run from 1st April 2023 to 31st March 2026, full expensing has now been made permanent.
- R&D Tax Relief Reform: The merger of the RDEC and SME schemes simplifies and improves R&D tax relief. The tax rate for loss-making companies drops from 25% to 19%.
- Business Rates Support Package: A £4.3 billion support package spanning five years to aid small businesses, including the extension of the 75% Retail, Hospitality, and Leisure relief for an additional year.
- Investment Zones & Freeports: Three new investment zones were announced across England, and financial incentives and tax reliefs for Freeports extended from 5 to 10 years.
- National Insurance Contributions (NICs): Class 1 employee NICs will decrease from 12% to 10% starting in January 2024. Class 4 self-employed NICs will be reduced from 9% to 8%, and Class 2 NICs will be abolished.
- National Living Wage Increase: From April 2024, the statutory minimum wage, termed the National Living Wage, will rise to £11.44 per hour, with the age threshold changing from 23 and over to anyone over the age of 21. Additional increases for 18-20 year olds, 16-17 year olds, and apprentices.
- State Pension Increase: The state pension will increase by 8.5% to reach £221.20 a week (our soon-to-be-retired founder will be thrilled!).
All Things R&D
The Autumn Statement 2023 brought a major shake-up in the realm of R&D tax relief, and startups should take note. Here’s the scoop on what’s changing:
A Unified Scheme for R&D Tax Relief
From April 1, 2024, a game-changing merger of the small or medium enterprise (SME) scheme and the R&D Expenditure Credit (RDEC) scheme will come into play. This unified scheme simplifies eligibility rules, eliminating the confusion that often plagued startups when choosing the right scheme.
The positives are clear – less red tape and a smoother path to those vital incentives. Startups can rejoice over reduced ambiguity and a more straightforward journey in contracted out R&D. Additionally, the new scheme maintains the current RDEC rate of 20%, a favourable aspect. Loss-making companies also benefit from a tax cut, with their rate dropping from 25% to 19%.
Yet, while a cohesive single scheme has obvious benefits, it’s not without its challenges and critics. Some argue that the merger might not address all the nuances and unique needs of startups engaged in R&D. The complexities of R&D can vary widely, and a one-size-fits-all approach may not cater to the diverse startup landscape.
Changes to the R&D Intensives Scheme
The R&D Intensives Scheme is also getting a makeover too. Originally, to qualify, a company had to invest 40% of its total expenditures in R&D. The Autumn Statement lowers this threshold to 30%, opening doors for approximately 5,000 more SMEs to qualify for enhanced R&D tax relief. This change is a game-changer for startups deeply committed to innovation.
In summary, these changes are set to inject an extra £280 million per year into UK innovation by 2028-29. For startups, it’s essential to closely analyse how these adjustments in relief rates and rules will specifically impact their R&D tax relief benefits.
Full Expensing Made Permanent
The Autumn Statement 2023 brought about a significant win for startups by making full expensing a permanent feature. Originally slated to run from April 1, 2023, to March 31, 2026, this policy change allows businesses to deduct the entire cost of new plant and machinery from their profits in the year of purchase. For startups, this offers immediate tax relief and eases cash flow challenges. The potential tax savings, amounting to up to 25p for every £1 spent, make it a more attractive option compared to traditional depreciation methods.
However, it’s crucial to acknowledge that the response to this measure has been mixed. While many see it as a step in the right direction, some argue that it might not be sufficient to fully support small businesses, especially those in the critical R&D phase. The need for additional support mechanisms remains a topic of debate among experts and policymakers.
On a positive note, the government’s efforts to simplify the tax process related to capital allowances are welcomed by startups. This simplification will facilitate easier navigation and utilisation of these tax breaks.
Looking ahead, investments in qualifying plant and machinery beyond April 1, 2026, will still qualify for a 100% first-year allowance for main rate assets and a 50% first-year allowance for special rate (including long-life) assets. It’s important to note that there will be exceptions for cars, leased assets, and second-hand assets.
Adjustments to National Insurance
The Autumn Statement 2023 ushered in significant alterations to National Insurance, and these changes are poised to make waves in the startup landscape. Here’s a quick breakdown of what’s changing and how it might affect startups:
- Employee National Insurance Rate Cut: Starting from January 6, 2024, the main rate of Employee National Insurance (Class 1 NICs) will drop from 12% to 10%. This is a welcome relief for both employees and employers.
- Lower Combined Basic Rate: Employees paying the basic rate of tax will witness a decrease in their combined rate of income tax and National Insurance from 32% to 30%. This marks the lowest combined basic rate since the 1980s.
- Reduction in Class 4 NICs: For earnings between £12,570 and £50,270, Class 4 NICs will see a reduction from 9% to 8% starting in April 2024. This change is particularly beneficial for self-employed individuals and sole traders, giving them more capital for business investment or personal use.
- Abolishment of Weekly Class 2 NICs: From April 2024, the weekly Class 2 NICs, currently at £3.45 and paid by self-employed individuals earning over £12,570, will be abolished. This simplifies the system and reduces the financial burden on the self-employed.
These cuts translate to an annual tax reduction of approximately £350 for the average self-employed individual earning £28,200. This change will positively impact around 2 million individuals across the UK. For startups, where resources are often stretched thin, and every penny counts, this tax cut provides a much-needed boost. It frees up funds that can be reinvested in the business or used for personal needs, contributing to the overall financial health of startups.
Business Rates Relief Extension
In a welcome move for businesses in the retail, hospitality, and leisure sectors, Chancellor Hunt unveiled a business rates support package totalling £4.3 billion over the next five years. The headline news is the extension of the 75% business rates discount for an additional year, with a cap set at £110,000. Alongside this, he announced that while the standard business multiplier would rise by 6.4% to 54.6p to account for inflation, the small business multiplier would remain frozen at 49.9p for the next year. This decision offers vital relief to startups in these sectors, providing stability and support during challenging times.
VCT & EIS Sunset Clauses Pushed Back to 2035
The government has extended the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) sunset clauses to 2035. These schemes have been a lifeline for startups, injecting billions into the ecosystem. Originally, VCT relief was limited to shares issued before April 6, 2025. This extension means startups have more time to secure crucial funding, and investors have an extended window to support innovative ventures.
Investment Zones & Freeports
With the Spring Budget 2023, the government introduced a revamped Investment Zones programme, and the Autumn Statement 2023 took it a step further. The programme’s duration has been extended from five to ten years, doubling the financial incentives available in each Investment Zone from £80 million to £160 million.
The Autumn Statement 2023 unveiled advanced manufacturing investment zones across England, strategically located in the East Midlands, West Midlands, and Greater Manchester to harness the industrial strengths of each region. Projections indicate a potential injection of over £3.4 billion in private investment and the creation of approximately 65,000 new jobs. For startups in these sectors, this expansion opens doors to enhanced funding opportunities, be it through direct investments, partnerships, or the flourishing venture capital landscape.
In parallel, the government extended the duration of tax reliefs for Freeports, unique economic zones exempt from standard tax and customs regulations, from five to ten years. Moreover, a fresh £150 million Investment Opportunity Fund has been established, earmarked for Investment Zones and Freeports. This fund aims to swiftly seize new investment prospects, propelling economic growth.
Addressing the Issue of Late Payments
Late payments have been a persistent headache for startups across the UK, but the recent Statement took a stand on this issue. Tougher regulations aimed at late payers are set to pave the way for more punctual payments, ultimately boosting the cash flow and financial resilience of small businesses. This move has garnered widespread applause from business groups, addressing a longstanding problem that directly impacts the liquidity and sustainability of small businesses. It’s a step in the right direction for fostering a healthier business environment for startups.
The Autumn Statement 2023 presents a mixed bag of opportunities and challenges for UK startups. While there are positive developments, many tax and fiscal complexities announced will require careful consideration.
At Standard Ledger UK, we’re here to support you in navigating these changes. Stay tuned for more insights and assistance on your entrepreneurial journey. Together, we can tackle challenges and make the most of the opportunities ahead.
If you’d like to discuss how these changes specifically impact your startup and explore strategies, don’t hesitate to book a call with our Founding UK Director, Elliott Gaspar!