Business rates and employers’ National Insurance under Chancellor’s spotlight

The Chancellor has revealed several measures that will directly impact businesses as he aims to ‘stabilise the economy and bring down inflation.’

Alongside several announcements regarding personal tax cuts, he has announced changes to R&D reforms, NICs, and business rates.

R&D reforms

Hunt will implement reforms aimed at making sure multinational corporations pay the right tax.

Alongside further measures to tackle tax avoidance and evasion, this will raise an additional £2.8bn by 2027-28.

Following reports of abuse and fraud in R&D tax relief for SMEs, Hunt said he is cutting the deduction rate for the SME scheme to 86% and the credit rate to 10% but increase the rate of the separate R&D expenditure credit from 13% to 20%.

He said: “Despite raising revenue, the OBR have confirmed that these measures have no detrimental impact on the level of R&D investment in the economy.

“Ahead of the next Budget, we will work with industry to understand what further support R&D intensive SMEs may require.”

Employer NICs threshold 

The Chancellor will freeze the Employers NICs threshold until April 2028.

However, the Government will retain the Employment Allowance at its new, higher level of £5,000.

Around 40% of all businesses will still pay no NICs at all, he said.

Hunt will maintain the VAT registration threshold until March 2026.

Business rates

Hunt said business rates revaluation will go ahead as it is “an important principle that bills should accurately reflect market values.”

He will proceed with the revaluation of business properties from April 2023 but added that he will ‘soften the blow on businesses’ with a nearly £14bn tax cut over the next five years.

“Nearly two thirds of properties will not pay a penny more next year and thousands of pubs, restaurants and small high street shops will benefit,” he said.

“This will include a new government funded Transitional Relief scheme as called for by the CBI, the British Retail Consortium, the Federation of Small Businesses, and others, benefitting around 700,000 businesses.”

Windfall tax

Gas and oil companies will be hit by an extra windfall tax.

The Chancellor has increased the windfall tax on energy firm from 25% to 35% and expanded the levy to electricity generators which will be hit with a windfall tax of 45%.

Sam Newton, co-founder at Gravitate Accounting, said: “Overall, the UK has historically supported small businesses to set up a Limited company and be entrepreneurial, taking the risk with generous corporation tax and dividend rates. My worry is that we are starting to get to the point where the benefits are minimal, potentially even non-existent.”

He added: “We all accept that taxes are necessary but I think the VAT tax freeze is totally unfair and has the potential to stifle small and medium businesses who would otherwise have the potential to grow and support regional economies. We already have clients choosing to stop generating revenue above £85k to avoid instantly paying over £12k in tax. Businesses will be severely impacted by this freeze. VAT should be banded, like other taxes.

“The rise in dividend tax was already confirmed but reducing the tax free allowance is a double blow. As for income tax, the removal of the additional rate of tax, which brings it in at a far lower rate, is a worrying inconsistency and makes it harder to trust there is a true plan.

“Cuts were always going to be required and the Government has masked some of the effects by announcing freezes. However, in real terms, this is a tax cut, especially now inflation exceeds 10%. Freezing these rates over a five year period will have a significant impact on individuals, especially as we get into the latter years.”