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Boosting UK SMEs: Key Highlights from the Chancellor’s 2023 Autumn Statement

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The Chancellor of the Exchequer delivered his Autumn Statement to the House of Commons on 22 November. FD believes the Autumn Statement will be broadly positive for SMEs in the UK with a number of key changes and initiatives confirmed or introduced to support the UK’s most innovative businesses. The key takeaways were:

Relaxation of the “R&D Intensity Threshold”

The R&D intensity ratio was announced in the Spring Budget of 2023. It followed lots of lobbying by SMEs, particularly in the Life Sciences sector, who would have been adversely affected by the reductions in the rate of R&D tax credits for SMEs. The R&D intensity ratio enabled companies that spent at least 40% of their operating expenses on R&D activities to qualify for a higher rate of relief. The initial enthusiasm for these changes became more subdued as companies started to appreciate the difficulty of meeting this requirement. In a reassuring move for R&D tax credit claimants, the Chancellor has now announced that the 40% threshold will be reduced 30%, meaning many more companies will now be eligible for the enhanced scheme giving a boost to cashflows from larger payable tax credits. The new threshold applies to expenditure incurred from 1 April 2024.

Introduction of a “Year of Grace”

Coupled with the change to the R&D intensity threshold, companies that meet the 30% threshold but will fail this threshold test in future years won’t now be driven off a cliff seeing their tax credit decrease by nearly 30%. This change means that when qualifying R&D expenditure drops below 30% of operating expenditure, a year of grace will apply, allowing that company to continue to claim the enhanced deduction for another year. Effectively, the claimant will need to fall below the 30% threshold for two consecutive years before having to make a claim without the enhanced deduction included.

Reduction in Set-off Rate for Loss Making Companies

The companies that don’t meet the 30% threshold and are only eligible for the R&D expenditure credit will also see some additional upfront cash benefit. The current draft legislation would see the gross RDEC credit subject to taxation at the main corporation tax rate of 25%, however loss-making companies making a claim will now see a set off of 19%. In the long term, the tax effect of this will be the same, but in the short-term, loss-making companies will get a slight increase in their claimable credit, with a slight reduction in the downstream tax benefit against future profits.

Full Expensing Made Permanent

Following the demise of the “Super Deduction,” the government introduced full expensing on qualifying plant and machinery, allowing companies to get the full tax benefit of capital investment in the year of purchase. Initially introduced as a temporary measure, the full expensing regime is to be made permanent.

Changes to National Insurance

From January 2024 onwards, the main rate of Class 1 Employee National Insurance Contributions (NIC) will be cut from 12% to 10%. The main Employee Class 1 NIC rate applies to an employee with annual earnings between £12,570 and £50,270, with a rate of 2% NIC payable on the balance of earnings exceeding £50,270 p/a. For an employee with gross earnings of more than £4,189 per month, this represents a c.£63 per month (over £750 annual) NIC saving for the employee. Employers should ensure that their payroll software is updated to reflect this new rate of 10% from the 6 January 2024.

In addition, the Chancellor announced that for self-employed workers, Class 2 NIC will be abolished and the main rate of Class 4 self-employed NIC will be reduced from 9% to 8% from 6 April 2024 saving the self-employed hundreds of pounds per year.

EIS and VCT Venture Capital Relief Schemes

FD welcomes the Chancellors announcement in the Autumn Budget to extend the existing sunset clauses in the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes from 6 April 2025 to 6 April 2035. The EIS and VCT schemes help early-stage and innovative companies attract the private investment they need to grow and develop. These schemes do this by offering attractive tax reliefs to individual investors who invest in qualifying small and medium-sized enterprises (SME) under the schemes. Many of our clients rely on and use the EIS and VCT schemes to attract new investors during equity financing rounds and we’re delighted that the government has confirmed that these schemes will remain in place for new and continued investment until at least 2035.

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