On the 23rd September, following on from Chancellor Kwasi Kwarteng’s “mini budget”, we look at what this means for businesses.

Reversal of national insurance contributions increase

The Chancellor announced that he would be reversing the increase in national insurance contributions (NICs) which came into force in April 2022. The increase would have seen employers’ and employees’ NICs rise by 1.25%, meaning that they would pay an additional £2 billion per year between them.

Corporation tax increase scrapped

The Chancellor has scrapped the increase in corporation tax due to take effect from April 2023.

The increase from 19% to 25% was announced in the Spring Budget.

The change will save businesses an estimated £1.1bn over five years, according to HM Treasury figures.

Annual investment allowance to remain at £1m

The annual investment allowance (AIA) is the amount of capital expenditure that can be claimed against corporation tax. As a result, it can reduce the amount of profit subject to UK corporation tax by the same amount. The AIA was introduced in 2001 and has been set at £1m since then.

The Chancellor has confirmed that it will remain at £1m indefinitely, but this is not expected to have any impact on businesses as they will still be able to claim depreciation on assets costing up to £500k under normal rules – this means their effective annual investment limit is closer to £2m than just £1m anyway!

IR35

IR35 is the name given to a set of rules that govern how public sector bodies (such as government departments and their sub-contractors) pay people who work through personal service companies. The rules were originally designed to stop contractors from avoiding tax by being paid as “independent” contractors and therefore avoiding paying National Insurance contributions.

However, it has been controversial in recent years because they affect many businesses where the relationship between an employee and their company is not always clear cut (especially in areas like technology). It has also made it difficult for some employers to hire staff because they don’t know if IR35 applies or not, potentially leaving them facing huge bills under PAYE rather than being able to pay contractors through a limited company.

Conclusion

Overall, the mini-budget appears to provide SMEs with some relief. That being said, many businesses still require funding.

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