Small businesses boosted as VAT threshold raised and rates frozen

As of the 1st April, small businesses have received a boost as the VAT registration threshold is raised from £85,000 to £90,000, and £4.3 billion of business rates relief comes into force.

In response to the inflationary challenges that small businesses face, particularly with energy costs, Chancellor Jeremy Hunt unveiled a series of supportive measures during the Spring Budget. These initiatives are part of the government's commitment to economic growth and rewarding diligence. A significant adjustment is the increase in the VAT threshold, which will exempt 28,000 businesses from VAT, positioning the UK with the highest threshold across the European Union and tying for the highest in the Organisation for Economic Co-operation and Development (OECD).

The small business rate multiplier will be maintained at its current rate for the fourth consecutive year, shielding over a million ratepayers from a 6.6% surge in their business rates. This action is a component of the £4.3 billion business rates relief scheme introduced in the Autumn Statement, which also includes a 12-month continuation of 75% relief for 230,000 Retail, Hospitality, and Leisure (RHL) properties.

In a move to highlight the positive impact of these adjustments on small businesses, Exchequer Secretary to the Treasury, Gareth Davies, paid a visit to Chai Guys in London with Enterprise Nation, a small business support network. The visit aimed to discuss the benefits that the changes in VAT and business rates will deliver to businesses throughout the nation.

Exchequer Secretary to the Treasury, Gareth Davies, said: “We’re rewarding work and backing Britain’s small businesses– the lifeblood of the economy and beating heart of communities – with support on VAT and business rates.

“Combined with our decisive action to reduce inflation from over 11% to 3.4%, these measures will help ensure the local, independent businesses that many of us cherish most will continue to thrive and help our economy grow.”

Having joined the Exchequer Secretary on his visit, Enterprise Nation’s Head of Policy & Government Relations, Daniel Woolf, said: “Enterprise Nation welcomes this timely support from the government. Freezing business rates for the fourth-year running offers some stability for over a million small property owners. Extending the 75% discount for retail, hospitality and leisure firms will see 230,000 businesses breathe a sigh of relief. And the 10-year rates relief for film studios shows the creative sector is being prioritised.

“Our innovative startups and entrepreneurs drive job creation and economic growth. Targeted relief like this provides a timely boost as small businesses navigate turbulent times. It’s great to see their needs being addressed.”

Welcoming the extra support for small businesses, Tina McKenzie, Policy Chair, Federation of Small Businesses (FSB), said: “This is a big day for small businesses. FSB has campaigned for decisive action to increase the VAT threshold, freeze business rates, and extend the retail, hospitality, and leisure discount and we’re pleased to these come in today.

“April 6 will also mean a cut in National Insurance for the self-employed – the Government is right to take forward practical, impactful measures that help small businesses drive growth in all of our local communities.”

In the recent Spring Budget, the government unveiled a NICs reduction for 29 million workers, marking a significant stride towards eliminating the dual burden of NICs and Income Tax. This move is aimed at encouraging employment and stimulating economic growth.

Accompanying this tax reduction are additional measures activated by the onset of the new business tax year on 1 April. The government's successful economic management, evidenced by a significant reduction in inflation and superior economic performance compared to European counterparts, has enabled the introduction of tax reductions for businesses and the implementation of expansive policies to foster economic expansion.

A notable announcement from the Spring Budget is a £1 billion tax relief package for the creative sector. Film studios in England will benefit from a 40% discount on gross business rates until 2034, amounting to a £470 million tax reduction. This initiative is designed to maintain the UK's appeal to film and TV companies, contributing to the growth of the £11.9 billion industry.

Additionally, the UK Independent Film Tax Credit (IFTC) has been introduced to support the production of independent UK films and nurture domestic talent, offering an enhanced credit rate of 53% on eligible expenditures.

These tax cuts are integral to the government's 'Help to Grow' scheme, which aims to make 2024 a pivotal year for SMEs. This includes providing easy access to finance, with the British Business Bank distributing £1 billion in loans to over 100,000 businesses, and UK Export Finance offering £6.5 billion in support for SMEs' international ventures.

The inaugural SME Connect event, convened by the Prime Minister and Cabinet Ministers on 18 March 2024, saw about 150 SMEs and business groups engage in dialogue about government initiatives to assist small firms.

At this event, the Prime Minister introduced a comprehensive reform package, which includes reducing bureaucracy for SMEs, increasing private investment in female-led ventures, and allocating £60 million to create up to 20,000 additional apprenticeship opportunities.

Marking its first anniversary, the introduction of full expensing—a significant request from the business community—allows companies to deduct up to 25p from their tax bill for every £1 spent on eligible plant and machinery investments. This policy, one of the largest business tax cuts in recent British history, is projected to provide over £50 billion in tax relief over the next five years.

Following consultations with the industry, the Chancellor announced plans to potentially extend full expensing to leased assets when fiscal circumstances permit and will issue draft legislation for consultation soon.