What the Budget Means for Small Businesses

Chancellor Jeremy Hunt described the recent Budget as ‘A Budget for working families and small businesses’. The anticipated cut in National Insurance from 10p to 8p could save the average worker £450 per year, which could alleviate wage pressures. But what does the Budget mean for SMEs? For us, the most striking points are:

Reduction in National Insurance

A 2p cut in National Insurance will make someone who’s working full-time and earning £35,000 per year £450 better off. It will cost an estimated £10bn and is intended to help working families cope with the cost-of-living crisis. For SMEs, the impact could be two-fold. It could see demand for goods and services rise as people have more money in their pockets – this is the Government’s hope – and it could ease pressure on wages as it will ‘feel’ like a pay rise.

Fuel Duty Freeze

Fuel duty was ‘temporarily’ frozen in 2022 when prices soared owing to the war in Ukraine. It was due to expire at the end of this month, but it has been extended for another 12 months. While pump prices have come down from their summer 2022 record highs of £1.99 a litre for diesel and £1.91 for petrol, they are still historically high at £1.52 and £1.44, respectively. With no end to the war in sight and analysts agreeing that prices are likely to rise again this year, this freeze will be welcomed by many. It will mean a £50 a year saving for motorists, and significantly more for fleet and HGV owners.

For heavy fuel users such as hauliers, motor traders, and operators of plant equipment, the freeze is significant. Costs in these businesses have been rising post-pandemic and this will be relief that they are not to be burdened with more expense.

A replacement for the Recovery Loan scheme

There’s been a worrying rise in the number of SME insolvencies, which reached a 30-year high in January. One of the reasons for this has been small businesses difficulty in accessing finance from banks. Surveys in 2023 found that 26% of UK businesses had struggled to get loans and that 37% hadn’t found finding finance easy. The Recovery Loan Scheme – the government’s programme to give small and medium-sized businesses access to the finance they need to grow and invest – was due to end in June.

The loan scheme for small businesses was introduced in response to Covid and will now run until 2026.  The scheme, which sees the government guarantee 70% of loans up to £2m for companies turning over less than £45m, was initially founded in 2021 and extended in 2022. It will now run to 2026. This will come as welcome news to SMEs who are struggling to get finance.

An Increase in the VAT threshold

Under current legislation, there is an £85,000 VAT threshold for businesses exceeding a taxable turnover of over £85,000 within 12 months, which was to be in place until March 2026.  This has remained unchanged since 2017 and if it had kept pace with inflation, it would now stand at £103,000, according to the Chartered Institute of Taxation.

Cited by many as a barrier to SME growth as firms deliberately keep their turnover below £85,000 so they don’t have to pay VAT. The Chancellor has raised this to £90,000 to help eliminate ‘fiscal drag’ – a tax disincentive to growth.

Extended energy bill support

The Energy Price Guarantee (EPG) will be kept at £2,500 for an additional three months from April to June, saving a typical household £160. While the Energy Bill Discount Scheme will now end at the end of the month, it’s hoped that the EPG will help households manage their energy bills until prices come down.

More green energy money

Jeremy Hunt announced a further £120M government investment increase for the Green Industries Growth Accelerator (Giga) fund in the Spring Budget on  6 March. The Giga fund is a £1.1bn investment programme for the expansion of low-carbon manufacturing supply chains in the UK. This will feed into supply chains and could see cash going to green energy SMEs.

What wasn’t included in the Budget

Reform of business rates was widely hoped for, with retailers in particular calling for change.  Business rates are charged on shops, pubs and other business properties based on their rental value. Critics say the system unfairly punishes those with a physical presence in town centres, while online retailers face lower bills.

A VAT cut for hospitality businesses. It was cut to just 5% post-pandemic, raised to 12.5% and then back to 20%. UK Hospitality has been calling for a cut as pubs, restaurants, and bars struggle with energy and staff costs.

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