What does the mini-budget mean for small businesses?

In our last piece, we discussed how small businesses could adjust to the prospect of soaring energy bills over the autumn and winter. Despite the chaos that has consumed Liz Truss’ short tenure as Prime Minister, small business owners will have been encouraged by the introduction of a temporary energy price cap for businesses.

Aside from the price cap, the most significant development so far under the new government has been the controversial “mini-budget” unveiled last week by Chancellor Kwasi Kwarteng, which brought with it a raft of tax cuts, among other announcements.

Here, we take a look at the main points of interest for small business owners in the new budget.

Scrapping the National Insurance increase
Earlier this year, former Chancellor Rishi Sunak announced a controversial 1.25 per cent increase in National Insurance contributions to help pay for a new Health and Social Care Levy. With Truss having run for the Conservative leadership on a platform of tax cuts, the mini-budget duly came with the announcement that this increase would be scrapped.

This will mean that, from November 6 onwards, small business owners will see their Employer National Insurance Contributions and dividend tax payments slashed by 1.25 per cent, with the Class 1 Employer's NI reverting to the previous rate of 13.8 per cent. The interim National Insurance rate increase will also be scrapped.

Annual Investment Allowance set to £1m
The mini-budget also revealed that the Annual Investment Allowance for businesses will, from April 1 2023, permanently be fixed at £1 million – its highest level. This means that business owners investing up to £1 million in plant and machinery will be able to benefit from 100 per cent tax relief.

IR35 reforms repealed
The major announcement from the mini-budget for the self-employed was that IR35 reforms, introduced in the public sector in 2017 and for the private sector last year, will be repealed from April 2023.

The reforms moved the responsibility for determining the tax status of self-employed workers from the workers themselves to the businesses that engaged them. As well as often leading to contractors taking home less pay, the controversial reforms also created a significant administrative burden for businesses that engaged self-employed workers.

Commenting on the repeal, IR35 Shield CEO Dave Chaplin said: “[…] the Chancellor has done the right thing and removed an unnecessary burden for firms of trying to solve a complex riddle every time they hire a worker.”

Corporation tax increase cancelled
While it will not have applied to many of the UK’s SMEs, the planned corporation tax increase from 19 per cent to 25 per cent was also scrapped as part of the mini-budget, again signalling the new government’s focus on reducing the tax burden for UK businesses.

New investment zones
The government has also announced plans to engage with local authorities across the UK to create new investment zones, which will offer temporary, targeted tax cuts for businesses, as the new Prime Minister seeks to increase the UK’s productivity.

The government is currently in discussions with 38 of England’s local and mayoral combined authority areas over creating these zones and is also set to begin talks over setting them up in Scotland, Wales and Northern Ireland.

SEIS fundraising limit increased
The government has confirmed that the seed enterprise scheme (SEIS) fundraising limit has also been raised, meaning that businesses can now use the scheme to raise up to £250,000 – 66 per cent more than was previously possible.

The Chancellor also announced that the EIS scheme will be extended, providing high-growth UK startups with up to £1.7 billion a year in funding.