Last week’s Autumn Statement contained several generous measures to support British business, focussing on investment, growth and productivity and included some helpful and targeted initiatives for SMEs.
Below we look at details of three of the key measures; the extension of “full expensing”, help to combat late payment of debts and changes to R&D tax credits.
Full Expensing
Rather than claiming tax relief on CAPEX over several years (via writing down allowances), “full expensing” was originally implemented in 2023 to replace the previous “super deduction” scheme. The initiative allows companies to claim 100% capital allowances in the year in which the CAPEX is incurred.
Originally set to come to an end in 2026, full expensing has now been made permanent.
The rationale is to incentivise investment in growth and the rule will continue to cover a wide range of qualifying capital investments, from plant and machinery to security and hardware. The equipment must be new and, typically, assets purchased for leasing will also not be eligible for the relief.
One of the key benefits for SMEs will be the enhancement to cash flow (as the reduction to their tax liability is immediate). It is also hoped that full expensing will encourage enduring investment projects, meaning that SME’s can place improved productivity and efficiency at the heart of their long-term business planning.
Late Payment of Invoices
In another cash-flow boosting initiative, the Autumn statement included a practical development to support small and medium sized businesses (SMEs) with the challenge of unpaid invoices.
From April 2024, a “late payer” condition will be introduced for any company wanting to tender for a large government contract. The result is that big businesses will need to demonstrate that they have paid their own trade creditors in a timely fashion.
SMEs can be crippled by debt lock-up. Late payment from only a few large customers can have a significant impact on cash flow which, in some cases, could even threaten the company’s viability. Some bigger businesses can either fail to appreciate this impact or treat small businesses as a form of free credit, which can be difficult for SMEs to address due to the inequality of bargaining power.
By disqualifying larger companies from Government contracts (along with the associated reputational risk), the Government has made a positive contribution to addressing the issue.
Research and Development Schemes
Following a consultation to review the UK’s R&D tax regimes, the Autumn Statement announced several changes, including:
- the merger of two existing schemes (the SME Scheme and the Research and Development Expenditure Credit (RDEC) scheme) from April 2024; and
- enhanced support for R&D intensive SMEs.
The merger will lead to a single R&D tax credit, initially at the rate of 20% (as per the RDEC regime) plus the PAYE and NICs cap (as per the SME scheme).
SMEs that are “R&D intensive” and loss-making (such as many early-stage tech businesses), qualify for a higher rate of R&D credit and there will be an extension of the definition of “R&D Intensive”. In short, the current requirement is for R&D expenditure to comprise at least 40% of the company’s total expenditure and, from 1 April 2024, this will be reduced to 30%.
This should extend the number of R&D intensive SMEs eligible for the enhanced relief by around 5,000.
The R&D changes announced at Autumn Statement are designed to make the system easier to navigate and to further encourage R&D at a time when UK businesses can least afford to slow down innovation, particularly in the life sciences and technology sectors.
In addition to the above measures, the Chancellor included help for small businesses that comprise the backbone of many communities with the announcement of a business rates support package.
Also, whilst not included in the speech in Parliament, the full statement confirmed the Government’s continued support for the current VCT and EIS schemes. These schemes, which are policy interventions to support the growth of new SMEs, have been granted an extension to their sunset clause (expiry date) for a further decade, until 2035.