Autumn Budget 2021: how it will affect UK small businesses

The Autumn Budget 2021 announcement is a crucial day for UK small businesses. Chancellor Rishi Sunak has outlined how he proposes to support the country’s economic recovery and help small businesses reeling from the already announced increases to National Insurance rates and the National Living Wage.

It’s a mixed bag of announcements, all in all. Among some promising news for the retail, leisure and hospitality sectors – which will see a 50% business rate cut for 12 months – there are also missed opportunities, including any more revolutionary overhaul to the creaking business rates system.

Many groups have already had their say and, to find out what’s on the budget wishlist of UK SMEs, check out our piece on what small businesses want from the budget. Below, we detail the main headlines from the Autumn Budget, and what their impact on SMEs will likely be.

Highlights of the Autumn Budget 2021

Corporation Tax increase in 2023

Another measure that was leaked ahead of time, the main Corporation Tax rate will increase to 25% from April 2023.

This will only apply to companies who make annual profits of more than £250,000, but is something to bear in mind for SMEs that want to plan for the future.

Business rates changes

It was widely expected that the government would finally make a decision on business rates reform in the Autumn budget, after a protracted study of the current system.

Sunak announced that the government will not be abolishing business rates, but instead making the existing system fairer.

From 2023, the business rates system feature revaluations every three years (more frequent than the current system).

As expected, a green investment relief will be introduced to encourage businesses to adopt green technologies like solar panels.

In addition, a new business rates improvement relief is coming, that will allow businesses to make property improvements and, for 12 months, pay no extra business rates.

Both of these measures will take effect from 2023. Also, next year’s planned increase in the business rates multiplier (the calculation used to work out business rates) will be cancelled.

Retail, leisure and hospitality business rates cut

To help those businesses hardest hit by the pandemic, Sunak states that there will be a new 50% business rates discount for retail, leisure and hospitality businesses.

This will apply for 12 months and the maximum discount will be £110,000.

He does not say when this will take effect, but presumably it will be from April 2022.

A simpler approach to alcohol duty

Recognising that the current system is outdated and needlessly complex, Sunak announced a new system of alcohol duty taxation.

The number of main duty rates will be reduced from 15 to six, with the guiding principle being that the stronger the drink is, the higher the rate paid.

Some high-strength drinks (such as fortified wine and some ciders) will attract more tax than under the current system.

And, less tax will be paid on lower strength drinks such as rosé and fruit ciders.

A new small producers relief will be introduced, extending small brewers relief to small producers of other low-strength alcoholic drinks.

The duty paid on sparkling wines will be cut from 28% to an equivalent level with a still wine of similar strength.

Similarly, the duty paid on fruit ciders will be cut to match the duty paid on cider made from apples or pears.

To help pubs, a new draught relief will be introduced, which will cut the duty paid on beer and cider from draught containers over 40 litres by 5%.

These are all permanent changes that will come into effect from February 2023.

Finally, the planned increase in duty on spirits, wine, cider and beer has be cancelled.

Planned rise in fuel duty cancelled

Sunak confirms that the planed rise in fuel duty will be cancelled, meaning the tax paid on fuel will be frozen for the next five years. This will, naturally, be a welcome bit of news for any small business that racks up miles on the road, though rising fuel costs mean they are still feeling the sting.

National Living Wage increase confirmed

No surprises here, Sunak affirms what everyone knew already, that the National Living Wage will rise from next year to £9.50 an hour. This will be welcome for millions of lower income employees nationwide, though of course has important implications for small businesses in the retail and hospitality sectors who will need to budget for the increase.

Analysis

This feels like a budget that will leave many small business owners disappointed, with support offered only in particular sectors and nothing to really limit the impact of the increases in National Insurance and the National Living Wage that will affect all UK SMEs. We covered the increase in National Insurance rates when it was announced in early September, but it’s worth reiterating the details – from April 2022, both employers and employees will pay 1.25 percentage points more in National Insurance, increasing the employer basic rate from 13.8% to 15.05%.

Notably, Sunak didn’t mention the small business employment allowance at all, so it will stay at its current level of £4,000 instead of rising in line with the new higher cost of National Insurance.

There was however obvious good news for retail, hospitality and leisure businesses. The 12-month 50% cut in business rates should make a real difference for a sector that was among the hardest hit by the pandemic.

Many hospitality firms will also benefit from the changes to alcohol duty, and the introduction of draught relief should give pub owners plenty to cheer.

It’s still not clear what the government’s long-term plan for business rates is, measures like being able to invest in green improvements without increasing your business rates bill feel like tinkering at the edges of a system that many would argue is fundamentally broken and outdated.

Overall though, it’s hard to avoid the conclusion that this budget missed the opportunity to properly support a vital part of the economy, and that the measures announced won’t go far enough for many UK SMEs.