18 Nov 2022
Claire Lea, director and head of advisory tax here at Prime says the Autumn Statement announced by the government on Thursday, November 17 will do little to reassure people and businesses who face a tough road ahead.
In our latest blog, she shares how the announcement from chancellor of the exchequer, Jeremy Hunt, falls short in its support for SMEs.
She said, Mr Hunt’s announcement comes amid a spiralling cost of living crisis and rising inflation rates.
Research and Development changes
The Autumn Statement included measures aimed to reduce abuse of Research and Development (R&D) tax claims from SMEs, by cutting the deduction rate for the SME scheme to 86 per cent and the credit rate to 10 per cent.
The rate changes announced are anticipated to take effect from April 2023, with suggestions that the R&D relief schemes may change further, potentially merging so that there is a single scheme aligned to the large company scheme.
What will this mean for businesses?
While we can see what the chancellor is trying to do by addressing abuse in claims, by blanket cutting R&D relief rates, this change will have huge repercussions for genuine SMEs involved in R&D. Many of these companies use the money generated from the R&D credits to plough straight into the business, reinvesting in staff recruitment and capital equipment to grow and develop.
From a tax point of view, it appears the new chancellor is trying to balance the impact this will have by offering an increase in RDEC expenditure credit of seven per cent.
RDEC is a tax relief primarily used by larger companies and a small minority of SMEs where they do not qualify for the more generous SME scheme.
R&D relief has been a lifeline for some SME clients of ours which have struggled following the pandemic, and it’s a shame to see this support being curtailed when we have seen it help to keep fledgling, innovative SMEs on their feet and continuing to develop during difficult times.
At a time when the government itself is championing innovation in particular, it seems a knock to those enterprising individuals who will ultimately make this possible, however it is good news on the overall level of investment in R&D announced today.
The announcements come on top of a hike to corporation tax to 25% in April 2023 and reduced relief for capital purchases by the removal of the capital allowances ‘Super deduction’.
Freezing tax thresholds
From a personal tax perspective, the Autumn Statement froze tax thresholds for income tax, NICs and inheritance tax until 2028.
This will bring in significant amounts of tax revenue and mean individuals are effectively worse off in the coming years, particularly with the impact of inflation. Cuts were announced to dividend allowances and capital gains annual exemptions.
As we head into what forecasters are predicting will be a long recession, from speaking to individuals and business owners in an already difficult environment, they fear today’s announcements could be creating bigger problems for further down the line.