The Mini Budget 2022. What it Means for Startups

Thanks to the appointment of new Prime Minister Liz Truss, Kwasi Kwarteng has rapidly taken his place as the UK Chancellor and is taking the opportunity to make his mark on the British economy with his mini budget 2022.

With a strong gamble on growth, the Chancellor revealed The Growth Plan 2022 Policy Paper, otherwise known as the mini budget.

Designed to take control of the economy and tackle the cost of living crisis as inflation rates reached an all time high this year, the plan has faced criticism and praise from both ends of the financial spectrum.

But for now, let’s explore what it means for startups, and what the immediate future holds for small business owners.

Corporation tax change

Corporation tax was set to increase for the top 10% of corporation tax paying businesses from the 31st of March 2023. This increase would have seen businesses with profits between £50,000 - £250,000 paying 25% corporation tax instead of the current 19%.

Great news for larger companies with big profits, however, 70% of UK businesses would still have fallen within the lower threshold. So for your startup - nothing changes.

The income tax change, that changed again!

There were two major changes within the Chancellor’s budget in regard to income tax changes.

Firstly, the income tax rate for earners between £12,571 and £50,270 has been cut to 19%. This reduction was originally planned for 2024/25, but the Chancellor brought it forward in an effort to help employers and businesses combat the cost of living crisis.

Secondly, the 45% income tax rate for earners over £150,000 was set to be scrapped in favour of a 40% rate. This would’ve supplied top earners with even more money and in turn, place a financial burden on the treasury. However, due to backlash, investment worry and the following crash of the pound, the Chancellor made a swift U turn and insisted that no such changes were to be made.

Despite the tax reduction being made to help combat the rising cost of living, the new income tax rate will not be in place until April 2023.

National insurance reduction

2022 saw NICs increase for every employer, employee and self employed worker throughout the UK. Kwasi Kwarteng announced in his mini budget 2022 that these are now being scrapped, providing great relief to small businesses and startups throughout the UK.

In even better news, the Employee Allowance Scheme of 2022 has not been scrapped. This means that small businesses and startups with NICs of less than £100,000 can still claim back up to £5,000!

This could cause some difficulty, as startups could struggle to recalculate their payroll for employees. But with the right accounting partner, this should be a doddle.

Annual investment allowance made permanent

This form of capital allowance helps startups and businesses invest in plant and machinery and offset the cost against their tax bill.

After being extended multiple times, the Chancellor has now written that this £1 million AIA is now being made permanent for businesses. It’s a good time to be a startup that requires plant and machinery!

Investment zones

The most exciting opportunity for startups is the announcement of investment zones across the UK.

Startups willing to have premises or co locate in one of up to 38 investment zones throughout the UK will have access to lucrative tax cuts such as:

• 100% relief on business rates on new or expanded business premises

• Enhanced capital allowance relief up to 100% on plant and machinery for the first year

• Zero rate Employer NICs for new employees paid up to £50, 270

• No stamp duty on land bought for residential or commercial purposes

• Enhanced Structures and Buildings Allowance relief by up to 20% annually
  

If your startup happens to be within one of these investment zones, it could be a quick route to growth. If your startup isn’t, then it might be time to consider making a move!

SEIS bump

The early stage funding for startups is being given a boost, which is fantastic news for entrepreneurs.

Companies may raise up to £250,000 of seed money with the scheme, and gross asset limit has been increased up to £350,000. With the annual investor limit being doubled to £200,000, startups now have the chance to raise more money than before, quicker than ever before.

CSOP

The Company Shared Option Plan was designed for companies to issue tax advantaged share options to employees as another form of equity compensation.

The limit is now being doubled from £30,000 to £60,000.

Final thoughts

While the Chancellor has made it clear that he isn’t against making a U turn on his policies, things could be looking up.

If everything stays as it is, employers and employees will keep a little more in their pockets from April 2023, while the investment zones and AIA ensure that Startups have incredible tax cuts to kickstart their growth.

Hopefully, we’ll see more startups like Bettor raise massive amounts of funding and launch to become successful businesses.

Bettor

Bettor struggled to match their bookkeeping and tax obligations along with their fundraising. Luckily our AI-powered software and team of expert accountants helped them with their finances.

Bettor joined our growing network of hundreds of Startups because we provide flexible accounting services to match their needs. With R&D Tax Credit Services, dedicated CFOs and Startup guides, we’re the #1 financial partner for Startups.

Talk to a finance specialist today and plan how to make the most of the mini budget 2022!