Did the chancellor overlook small firms in the Budget?

Chancellor Jeremy Hunt delivered a Budget focused on getting people back to work and helping businesses to grow. But the Federation of Small Businesses says the Budget shows that small firms are "overlooked and undervalued".

The Office for Budget Responsibility (OBR) expects the size of the economy to fall by just 0.2% in 2023 - having predicted a 1.4% drop six months ago. It says the UK will now avoid entering a recession and predicts that inflation will fall to 2.9% by the end of 2023.

Against this backdrop, chancellor of the exchequer Jeremy Hunt set out his economic plans in a Budget that focused on getting people back to work and helping businesses to grow. Headline measures include significant new funding for childcare, an extension of the household energy bill subsidy until June and a higher tax-free pension yearly allowance.

For businesses, Hunt confirmed the planned increase in corporation tax from 19% to 25% in April 2023 on taxable profits over £250,000. Companies with profits between £50,000 and £250,000 will pay between 19% and 25%. According to the chancellor, just 10% of UK companies will pay the full 25%.

Hunt also unveiled "full expensing" rules for businesses which means every pound invested in IT equipment, plant or machinery can be deducted immediately from profits. The chancellor described it as "a corporation tax cut worth an average of £9bn a year for every year it is in place" and the OBR has predicted that this measure will increase business investment by 3% every year.

Lack of new support for SMEs

However, the Federation of Small Businesses (FSB) said the budget has overlooked small firms. FSB national chair Martin McTague said: "Today's Budget will leave many feeling short-changed. The distinct lack of new support in core areas proves that small firms are overlooked and undervalued. Budgets are about tough choices, and with today's billions being allocated to big businesses and households, 5.5 million small businesses and the 16 million people who work for them will be wondering why the choice has been made to overlook them."

Commenting on the announcements, Joanne Thorne, technical compliance manager at SJD Accountancy, said: "The self-employed contractors will be pleased to hear the chancellor confirm the 50% increase to annual pension allowances from £40,000 to £60,000 alongside the abolishment of the lifetime allowance. Recent cuts to benefits such as dividend tax allowances have left many looking at the most efficient way to manage their tax liabilities. Workers of this type are traditionally reluctant to lock money away into a pension, but this move will undoubtedly act as a good incentive to invest more in a personal pension, without concerns about tax liabilities."

She added: "While It's also positive to see the replacement of the super deduction tax with a policy allowing every pound invested by businesses into IT equipment, plant or machinery can be deducted in full from a company's taxable profit, the planned corporation tax increases will still be a significant tax liability for the self-employed. The chancellor's attempt to mitigate the impact of tax rises and encourage investment is good to see, but there are concerns that today's announcements still don't go far enough to ensure the self-employed community is onside - especially with a general election on the way."

A "real disappointment" for small business owners

Roan Lavery, ceo and co-founder of FreeAgent, said: "On the face of it, this Spring Budget is a real disappointment for hard-working small business owners who have been badly impacted during the cost-of-living crisis. While it's positive to hear that the wider economy will not fall into recession in 2023, the reality is that the SME sector is still in a precarious position … There is nothing new about helping businesses with their rising energy and other costs; nothing about helping new start-ups and entrepreneurs access the finance they need to thrive - and nothing to address seismic issues for SMEs like chronic late payment and cash flow management … We need bold thinking and creative solutions to help protect millions of small businesses across the country, so they can help kick-start our economic recovery. Once again, it looks like they are an afterthought compared to their larger counterparts and the wider macro-economy."

Emma Jones, founder of Enterprise Nation, said: "This was a Budget for the high growth industries and returning workers … Today's Budget was touted as one for growth but there's not much small businesses will have taken from it. While small firms are busy creating the jobs, the news that returning mothers and returnships for the over-50s may help them fill their vacancies will be welcome - but no amount of tax tinkering can make up for the incremental rise in corporation tax that hits well before £250K in profits and effective slash in their incomes especially when energy costs are still so high."

Reaction from UK business groups

Federation of Small Businesses

Martin McTague, FSB national chair: "While there are some positive words in today's Budget, the government's lack of support for small firms in critical areas is glaring ... small businesses need more ambition and more focus. Action is what counts if we are to reverse the 500,000 small businesses lost over the last two years. It's high time the government put small firms at the top of the agenda and lend them the necessary support on the path to economic recovery … The enhanced R&D tax credit is a significant step towards promoting innovation. However, the large proportion of firms who fall outside of the 40% intensity threshold will be left feeling mystified by the change in policy since last Autumn. R&D tax credits have been the most effective industrial policy of the last ten years, creating cutting edge products and services in the small business community."

The British Chambers of Commerce

Shevaun Haviland, BCC director general: "The plans for full capital expensing are … a step in [the] right direction to offset the rise in corporation tax, but the jury is out on how it will impact businesses compared to the Super Deduction Scheme. Almost half of businesses have told us they will struggle to pay their energy bills from April, and they cannot invest when they are fighting to survive. There is little in today's announcement that will provide comfort to these firms."

Institute of Directors

Kitty Ussher, IoD chief economist: "The introduction of 100% full expensing for the next three years is … very welcome and we urge it to be continued thereafter. It simplifies the system, removes confusion about whether digital investments count as capital and crucially incentivises investment by reducing the up-front cashflow risk."

The Association of Independent Professionals and the Self-Employed

Andy Chamberlain, director of policy at IPSE: "The small profits threshold for corporation tax was too low when first announced two years ago, and it's too low today; historic levels of inflation since the policy was announced will see even more of the UK's smallest businesses entangled in yet another tax increase, on top of recent raids on the dividends of single-person companies … Increasing the pension annual allowance and abolishing the lifetime allowance are positive measures for experienced professionals [but] the government needs to go much further to address the crisis in self-employed pensions. Hundreds of thousands of self-employed people are set to have inadequate pension pots to retire on, with many not saving for later life at all. Government must make rapid progress on plans to boost self-employed pension pots."

Written by Rachel Miller.