A mixed bag for SMEs as business rate changes and tax changes announced: Budget 2022

Speaking in today's Autumn Statement, Chancellor Jeremy Hunt announced that the tax-free allowance on dividends would be halved in 2023.

In April 2023, the allowance will be cut from £2,000 to £1,000, with a further cut to £500 for 2024-25.

The Chancellor also announced major changes to the R&D tax credits scheme and allowances, and said there would be a full review of support for SME R&D investment before the next budget. The enhanced deduction rate for SMEs will reduce from 86% from 130% of qualifying expenditure, and the tax credit for loss-making SMEs will be reduced to 10% from 14.5%. The changes were more generous for large businesses, with the taxable expenditure credit for R&D increasing from 13% to 20% of qualifying expenditure.

Capital Gains Tax was also subject to change - the annual exempt amount for CGT will reduce from £12,300 to £6,000 in April 2023, followed by a further cut to £3,000 in 2024.

A 'significant' package of support with business rates was announced, with £13.6 billion earmarked to help reduce bills for businesses - designed, the Chancellor said, to 'soften the blow' of coming revalutation of properties for business rates.

Simon Montgomery, COO at tech firm ID-Pal commented:

“Today’s tax reforms will no doubt impact small businesses, who will see their tax bills rise on top of existing pressure from inflation and rising energy costs. While global tech companies dominate the headlines with their cost-cutting measures, it’s the smaller businesses that will feel the impact from these increases the most.

“Any organisation tasked with reducing costs must avoid making long-term decisions to combat short-term issues. Technology and automation can be leveraged to reduce costs, freeing people to pursue strategic work that is commercially beneficial and be more agile. Ultimately these solutions are saving money and adding efficiency, putting organisations in a better position to compete in the market when it normalises.”

Mark Tighe, CEO of innovation funding specialist Catax, said: “The change announced to SME R&D tax relief lets smaller UK businesses down at a time when they need it most, and it represents a spending cut that is just as harmful as cuts to public services in the long run. The revenues generated by businesses claiming R&D tax credits are the same pounds that end up running our hospitals and our schools.

“When you break this kind of spending down, these are risk-taking companies who are attempting to do something genuinely new in a bid to grow their businesses and benefit the economy.

“At a time when companies are still yet to see any kind of dividend from Brexit, greater innovation investment is what the UK needs if GDP is to grow. No government in their right mind should be ripping the carpet out from underneath those firms still willing to embark on these kinds of projects in the face of a long recession.

“As late as 2015 HMRC was embarking on publicity campaigns to encourage more SMEs in particular to claim. These same SMEs are now being told they and their R&D doesn't matter when it’s their innovations that can prove just as disruptive as those introduced by larger companies.

“It has taken industry two decades to get SMEs to realise that they’re an important part of the innovation pie. This u-turn is about as counterproductive as it gets when other countries are using exactly the same kind of incentives to get ahead and stay there.”