New analysis reveals the real impact of Budget tax changes on small businesses

New analysis reveals the real impact of Budget tax changes on small businesses

Posted: Wed 5th Apr 2023

Small businesses are bracing themselves ahead of the new tax year as the penny drops on the real impact of the Spring Budget.

A new analysis commissioned by Enterprise Nation found that businesses could see annual tax bills increase by around £9,000 for the bigger earners from this month.

The figures show that for firms who make a profit of £200,000, tax bills will climb from £39,723 to £49,361 compared to the 2022/23 tax year.

With a £150,000 profit, total tax take could rise by as much as £5,888 for a company with two company directors taking a salary of £11,908 each.

The new tax regime was announced along with the confirmation of the end of the 50% energy relief scheme and research and development tax credits reform.

Tax burden graph

Graph shows post-Budget increase in total tax burden. Comparisons show typical scenarios of £50,000, £100,000, £150,000 and £200,000 gross profit, prepared on the same basis between the two years.

Emma Jones, CBE, founder of Enterprise Nation, said:

"Rather than focusing on creating jobs and growing, small businesses will be distracted by having to juggle their tax affairs.

"They will feel these incremental rises hit their pocket at a time when they are paying out more for salaries, goods and services than ever before - and on top of that, they will also see the removal of existing support for energy and innovation.

"Entrepreneurs already invest their own money into their businesses, at their own risk. As the tax reality of the Budget bites, we see that in some instances businesses will be paying out 26.5% in corporation tax alone and seeing chunks of hard-earned cash swallowed by the state."

The analysis looked at different levels of profit and compared the tax take for a business based on amounts directors take out of the business in dividends.

The comparison found a business with a profit of £50,000, in 2023/24 would see hardly any difference from 2022/23, partly because corporation tax remains at the same level.

They also get a little a light relief because the 1.25% rise in National Insurance that kicked in last year has been reversed.

But when businesses reach £100,000 in profit, the increases take hold. For example, a director that takes a salary of £12,570, plus dividends could pay an extra £1,950 in tax compared to last year.

Paula Tomlinson, Enterprise Nation adviser member and founder of On the Spot Accountants, who crunched the numbers for this analysis, said:

"We are seeing absolute tax levels increasing from 20% to 26% in some circumstances. We are not talking about extremely rich people here. We're talking about people who work all day every day, at their own risk.

"There are of course optimal mixes that can help to mitigate some of this, but that will require action and a pro-active approach with an accountant to understand solutions based on each business's needs."

At the Spring Budget, chancellor Jeremy Hunt confirmed corporation tax increases from 19% to 25% for businesses with profits over £250,000 from 1 April, with businesses with profits below £50,000 paying a 19% small profits rate.

Businesses with profits between £50,000 and £250,000 will pay the main rate reduced by a marginal relief which provides a gradual increase in the effective corporation tax rate. But the sliding scale will see some businesses paying more than 26% on profits above £50,000.

April also sees changes to research and development tax credits, which the Coalition for a Digital Economy (COADEC) calculated could see tech start-ups lose up to £100,000 a year in savings.

Connect with a tax accountant for free

Businesses can connect with a tax accountant for a free discovery call on the Enterprise Nation platform. Joining Enterprise Nation as a member is free.

Enterprise Nation has helped thousands of people start and grow their businesses. Led by founder, Emma Jones CBE, Enterprise Nation connects you to the resources and expertise to help you succeed.

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