Dr Andres Perez Ruiz at The University of Law Business School shares his watch outs for the 2023/24 tax year.
The total number of SMEs in the UK fell in 2022 by around 1.4%, following a 6.5% drop the previous year[i]. As SMEs continue to face the backlash from Covid and cost of living crisis, many will be carefully planning for the 2023/24 tax year to ensure they can prosper.
The Chancellor’s latest budget included several measures aimed at boosting the economy by providing support to SMEs and small business owners. With the right guidance and advice, there are opportunities to be had in the year ahead.
Dr Andres Perez Ruiz, Director at The University of Law (ULaw) Business School shares the questions SMEs need to ask their accountants and finance teams to thrive this year.
- What are we doing to mitigate the increase in Corporation Tax?
One major announcement in the Spring Budget is that the hike in Corporation Tax will be going ahead from April 2023. This increase will see the rate of Corporation Tax increase from 19% to 25% for companies with over £250,000 in profits.
The idea behind the increase is to provide a boost to the economy by encouraging businesses to bring forward investments. A report from the Office for Budget Responsibility (OBR), which provides independent analysis of the UK's public finances, says the measure could see business investment increase by up to 3%.
It’s vital that businesses plan with this increase in mind and look at areas of the business they can mitigate any financial impact. Investing in growth will certainly help, so carefully consider with your finance team how you might manage this in the year ahead.
- How can I invest more intelligently?
All business owners know that typically investment equals growth. The change to the Annual Investment Allowance is encouraging and should create opportunities for SMEs.
The plan was to scrap the temporary limit of £1million and bring it down to just £200,000. However, this latest Budget has seen the £1millon limit become permanent to help drive growth and provide more stability for those businesses investing in plant and machinery.
It is also worth researching the new proposed Investment Zones. These are likely to be in areas around Blackpool, Falmouth, Plymouth, Sunderland and Hartlepool and will provide various tax incentives and wider support for the local economy.
- Can I still make the most of research and development tax relief?
Many business owners will have been watching the Budget closely, perhaps anticipating a turnaround on the previously announced plans to bring the R&D tax reliefs down from 33% to just 19%.
This decrease is still happening and will most definitely impact SMEs; however, the Chancellor did announce plans to help limit its effects.
As part of the new Budget, businesses that spend greater than 40% of their expenditure on research and development will be able to claim £27 of tax credits for every £100 they spend on R&D. Positive news for those in fields such as AI, FinTech and Life Sciences.
- How are our tax systems being simplified?
Tax is one area of business management that can be complex, yet when managed well it opens up significant financial opportunities.
The Spring Budget includes a range of admin changes, which are designed to make the tax system much easier for businesses to interact with. Updates to the Enterprise Management Scheme, consultation on the Help to Save process, new IT systems and measures to simplify the customs import and export processes are all changes designed to save business time when it comes to tax management.
It’s important to work with your finance teams to ensure you are not only aware of these changes but are fully capitalising on them to save time and money.
- Are we using the 50% First Year Allowance (FYA)?
Originally introduced alongside the super-deduction, this allowance means taxpayers can deduct half the cost of plant and machinery from their profits during the first year of purchase.
The allowance was due to end on the 31st March this year but has been extended by a further three years. Encouragingly, the long-term ambition from the Chancellor is to make this a permanent fixture, in an effort to maintain a stable economy.
Making the most of this allowance will provide faster relief for businesses than they would see under the default WDAS-only scheme, which is only worth 6% each year, including the first year.
Dr Andres Perez Ruiz continues: “The business landscape in the UK isn’t going to get much easier any time soon. It is a challenging environment most certainly, however there are opportunities for growth that can be found with careful planning and management. For SMEs and small business owners, it’s important to take the time to review your business on a regular basis. Identify those areas for savings, investments and growth, then ensure you’re making the most of every single opportunity presented. That is how businesses can not only survive but learn to thrive in the current climate.
To find out more about The University of Law Business School, visit: https://www.law.ac.uk/business
Sources:
- https://www.gov.uk/government/publications/spring-budget-2023/spring-budget-2023-html
- https://www.gov.uk/government/publications/spring-budget-2023-factsheet-cutting-simplifying-tax-for-businesses-to-invest-and-grow/spring-budget-2023-media-factsheet-cutting-simplifying-tax-for-businesses-to-invest-and-grow
- https://gosuperscript.com/news-and-resources/spring-budget-small-business/#r-d-relief
[i] https://www.gov.uk/government/statistics/business-population-estimates-2022/business-population-estimates-for-the-uk-and-regions-2022-statistical-release-html#headline-statistics