Government to reject corporate investment tax extension: SMEs react

The government is set to reject calls from businesses to extend a £10bn corporate investment tax cut.

Full expensing (FE) was introduced as part of this Spring’s budget to lessen the blow of a rise in corporation tax from 19% to 25%. FE lets taxpayers deduct 100% of the cost of certain machinery – like IT and factory machinery, for example – from their profits before tax. The scheme is effective from April 2023 to 31 March 2026.

According to reports by The Guardian, industry leaders are set to lobby Chancellor Jeremy Hunt this week with the goal of an extension to FE being announced in the Autumn budget – but Hunt is expected to reject the bid due to constraints on public finances.

Startups spoke to UK SMEs and startups to find out their thoughts on the expected rejection.

Ifty Nasir, founder and CEO of equity management platform Vestd

“Startups and SMEs are facing a very challenging macroeconomic environment, which will naturally increase the focus on the chancellor’s upcoming autumn statement. Reports that corporate investment tax cut changes won’t be extended will be a blow to businesses that are desperate for some certainty to make long-term planning and investment decisions.

“Incentivising investment into startups and SMEs, which represent 99% of businesses in the UK, is a key driver of economic growth. Temporary commitments make it difficult for those businesses to make well-informed long-term infrastructure decisions, and this will have a significant impact on other considerations such as investment in their workforce.”

Rick Smith, managing director of business consultancy Forbes Burton

“With month-to-month insolvency figures already the highest they’ve been in recent years, any rejection to extend ‘full expensing’ could prove costly for the scores of businesses that rely on up-to-date machinery and IT solutions.

“The change could also see manufacturers and IT service providers struggle with an inevitable loss of business should the corporate investment tax cuts be replaced with something less incentivising for their customers.

“This, combined with higher corporation tax, rising operating costs and soaring utility bills, could put a good amount of businesses under significant financial pressure in the near future.”

Jules Herd, CEO of Cookham Cocktail Club

“Over the last 12 months, the government has found more and more ways to penalise small businesses. As a company that operates in the drinks sector, we have already had the cost of duty increased. This, combined with a 6% rise in taxes, means that our opportunities for revenue and growth are being severely limited.

“Creating further barriers to growth, such as not extending the investment tax cut option, will ultimately end up killing businesses such as ours as we already work to extremely tight margins. The government should stop extolling the economic benefits of small businesses if it is going to consistently let them down by not accommodating their needs.

“Given that SMEs account for 99.9% of the business population (5.5 million businesses) for three-fifths of employment and around half of turnover in the UK private sector, the government is playing a dangerous game in compromising the sustainability of those companies during what is one of the worst financial crises that the country has experienced.”

Iain Herd, co-founder of electric vehicle charging cable supplier EV Cables

“We echo the sentiment that further government backing in the form of tax incentives or grants could significantly ease the financial burden on SMEs, enabling us to contribute more robustly to the UK’s economic fabric. Particularly, aids directed towards mitigating manufacturing and tooling costs could be a game changer.

“We remain optimistic and are keen to leverage the new tax incentives to accelerate our growth, bolster local manufacturing, and continue delivering safe, reliable EV charging solutions.”

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Kirstie Pickering - business journalist

Kirstie is a freelance journalist writing in the tech, startup and business spaces for publications including Sifted, TNW, UKTN, The Business Magazine and Maddyness UK. She also works closely with agencies such as CEW Communications to develop content for their startup and scaleup clients.