Spring Budget 2024: The key takeaways for SMEs

With this week’s Spring Budget likely to be the incumbent Conservative government’s final major fiscal intervention before the next general election, UK SME owners will have been keenly watching for any measures that will impact them.

While it may ultimately have stopped short of any major new policies or changes, Chancellor Jeremy Hunt’s budget did bring with it several announcements that will be pertinent to small business owners. Here are the main takeaways for UK SMEs.

National Insurance
The headline announcement of the budget was a two percentage point cut in employee National Insurance Contributions (NICs), on top of the two per cent cut announced at last year’s Autumn Budget, which brings employee NICs down to 8 per cent. The latest cut will come into effect from April 6, meaning SME owners with PAYE employees will need to adjust their payroll processes promptly.

For self-employed small business owners, the changes are a little more complex. Firstly, the Chancellor announced a further cut to Class 4 National Insurance contributions. At the Autumn Budget, it was announced that Class 2 contributions (mandatory payments of £3.45 per week for self-employed workers earning profits over £12,570 a year) would be scrapped from April 6 2024 – the start of the new tax year.

The Autumn Budget also saw Class 4 contributions (also paid by self-employed workers earning over £12,570) cut from 9 per cent to 8 per cent on profits between £12,570 and £50,270. The Spring Budget brought with it a further 2 per cent cut on Class 4 NICs, bringing the rate down from 8 per cent to 6 per cent for profits between £12,570 and £50,270. According to Hunt, the reduced NICs announced at the Autumn and Spring Budgets will save the average self-employed worker £650 per year.

VAT registration threshold increase
A measure that could be significant for small and micro-businesses was the announcement that the government will increase the VAT registration threshold (the amount of money a business earns before having to register for VAT) in an effort to reduce the financial and administrative burden of VAT facing many small companies.

From April 2024, the VAT registration threshold will rise from its current level of £85,000 to £90,000. While businesses can, of course, turnover far more than this and still be classified as small, the increase could still be a significant policy change for micro companies and very early-stage startups, with the Chancellor claiming that it will lead to approximately 28,000 businesses no longer paying VAT at all.

Growth Guarantee Scheme
The budget also brought with it a further extension of the Recovery Loan Scheme first introduced in the aftermath of the COVID-19 pandemic. The scheme, which had been due to expire in June 2024, will now run from July 1 2024 to March 31 2026 and be renamed the Growth Guarantee Scheme.

The scheme will continue under the same terms, providing a 70 per cent guarantee to participating lenders on finance of up to £2 million for smaller businesses. A further £200 million of funding will be committed to the scheme, which is open to businesses with turnover of £45 million or less, and the government claims it will help 11,000 small and medium-sized UK businesses.

Full expensing on leased assets
The budget also came with the announcement that full expensing would be extended to leased assets. Full expensing refers to a capital allowance which enables businesses to deduct the entire cost of qualifying investments in assets (such as equipment, machinery and certain vehicles) from their taxable profits in the year that they made the investments.

In the Autumn Budget, full expensing – which was previously a temporary measure - was made permanent for assets purchased by the qualifying business, with the Spring Budget extending this to leased assets “when affordable to do so”. This will enable businesses investing in their growth by leasing certain assets to claim full deductions, with the government claiming this will amount to a £10 billion annual tax cut for companies investing in the UK.

Alcohol duty freeze
A significant announcement for small businesses (such as pubs and restaurants) in the beleaguered hospitality sector was that the freeze in alcohol duty will be extended to February 2025, delaying a three per cent rise that had been forecast to come in when the initial freeze announced at the Autumn Budget was scheduled to end in August 2024.

As well as reducing the tax burden on pubs that have experienced years of challenging trading conditions and soaring insolvency levels, the hope is that the duty freeze will enable them to keep their prices lower and attract more customers.

What has the response been?
While numerous measures announced at the Spring Budget will help UK SMEs, most of the praise from the small business community has been largely muted, with some criticising the Chancellor for not going far enough to help small companies.

FundOnion CEO James Robson said that business owners will feel “left out in the cold and undervalued by the Chancellor at a time when Government support and investment in UK small business growth is vital.”

Robson continued: “Businesses need a Chancellor that supports long term economic growth, enterprise, and innovation, and is prepared to provide tax relief and incentives alongside greater access to alternative finance for quicker and easier funding."

“The ‘small gestures’ that were tabled are not enough to make a difference in the short term, let alone the long term. This was certainly a wasted opportunity to keep businesses on side, especially at a time when their heads are being turned by Labour in the run up to the election.”

Despite praising many of the measures, YFM Equity partner Jamie Roberts said: “That being said, we are still waiting for meaningful reform on business rates, which continue to create barriers for businesses and hold back growth. Not only are the current level of business rates placing a burden on individual businesses, but the lack of clarity is making longer-term cost and taxation planning for many businesses extremely challenging.”