Budget Policies Plan to Fuel SME Growth
The primary aim of government tax policy is to incentivise certain behaviours and discourage others. In this post, we consider three policy announcements from the Budget plan, that when reviewed together, have significant implications for startups and SMEs and some insight into the government’s strategy for business in the coming years.
Three Key Policies for SMEs
Policy 1: Advanced Warning of a Corporation Tax Rate Rise in 2023
Tax on company profits stays fixed at 19% until 31 March 2023. At 1 April 2023, the main rate will jump to 25% for companies with profits over £250,000. Any companies with profits below £50,000 will still pay 19% on profits. For companies between the two levels, a marginal rate will be applied.
Policy 2: A “Super-Deduction” against Corporation Tax for Capital Expenditure
To encourage companies to invest, any plant and machinery bought between 1 April 2021 and 31 March 2023 will be eligible to a super-deduction whereby the taxable profits of the company will be decreased by 130% of the value of the asset bought. For example, a £2,000 laptop would decrease taxable profit by £2,600 which leads to a tax saving of £494. This is an effective tax saving of 24.7% of the value of the asset
Policy 3: Help to Grow Scheme for SMEs (Help to Grow Management and Help to Grow Digital)
HTG Management: The government will provide a 90% funded training and mentoring programme. This 12 week programme would thus only cost £750 to the participant.
HTG Digital: Free advice will be provided to any SME seeking to improve their digital capacity. There will also be 50% vouchers for any software that:
Builds customer relationships and increases sales
Makes the most of online selling
Manages the business’ accounts and finances digitally
Implications for SMEs
Putting the first two together, what the government want to see is companies investing now to make profit later. By giving this ‘super-deduction’ for capital expenditure, the hope is that companies will invest now in capital expenditure which may not give instant profits but will lead to long term growth. Once companies do this, the government hope that they will then become significantly more profitable in the future once that capital expenditure starts to pay dividends.
This, then, is where the increase in Corporation Tax rate comes in. It is exactly at the point when these larger profits will likely kick in that a rate rise will then allow the government to claw back the extra relief given against Corporation Tax.
This combination then reveals government strategy for business in a post-pandemic world. They want companies to invest in the short term for growth in the long term and they are providing a tax break to turbocharge that growth. However, it is more than just a tax break that the government are offering. They also have set up a scheme to further power that growth.
This is where Help to Grow (HTG) kicks in. This is an innovative government scheme to provide training and resourcing for SMEs. HTG Management offers a highly subsidised management training and mentoring programme from this summer delivered by leading business schools. On top of that, there is HTG Digital where free advice will be offered to companies on boosting their performance through a new online platform. Alongside that, discounts of up to 50% will be offered on approved software. At this stage, there are not many more details available.
For now, a company would lose nothing by registering their interest here: https://helptogrow.campaign.gov.uk/.
Nearer the time, your primary contact at Dragon Argent should be able to advise specifically whether either of these schemes would be beneficial for your company.
If you would benefit from a more bespoke analysis on what the Budget means for your business, please don’t hesitate to get in touch. We offer a range of professional services for small businesses, SMEs and startups, so we’re well-placed to advise on how best to take advantage of these policies.