New Financial Year Resolutions for SMEs – top tips for 2023/24

Here are four top tips for SMEs:

1. Make sure your business is ready for the Big BT Switch Off

From the 5 September this year, BT’s analogue and ISDN lines will no longer be transferred to another service provider. This means, if your business has analogue-based broadband, it will need to move to fibre broadband before this date. If you have an ISDN service, you will not be able to add or modify services to it after that date. Put simply, from the 5 September businesses will have fewer options and rely much more on their current service provider.

By planning ahead, businesses can design and deploy a digital transformation solution to modernise their workplace, improving internal and external communications and business processes, which ultimately leads to a better customer experience.

Hosting your telephony in the cloud with either IP or SIP telephony makes it much easier to manage and flex your communications platform, adding on applications and new technology when required. Cloud solutions can provide more security and continuity for your business, for example, if a line fails then it can be set to automatically switch over to another, meaning less down-time for your operations.

Mark Shraga, Chief Sales & Marketing Officer at Southern Communications said:

“On the 5 September 2023 many businesses could be trapped at the mercy of their telecoms provider. This date sounds the alarm that BT is switching its legacy networks off at the end of December 2025. If you have Analogue, Broadband or ISDN services then time and options are running out before this change impacts your business. Southern Communications Group is helping to inform businesses about the change and what they need to do to avoid being trapped.”

2. Make sustainability a priority

As well as cutting costs on utility bills in the short-term, make sustainable investing a key aspect of your business strategy. Sustainable investing is all about making a positive impact on the environment and society as well as the bottom line such as profit. So, when making an investment in your business be sure to use environmental, social and governance (ESG) criteria and not just profit in determining the return on investment. Consider investing in green technologies like wind and solar, also energy and carbon saving monitoring technologies and education of the workforce in sustainable investing. Remember there is tax relief on capital investments for businesses and funds like BGF which invest in clean tech businesses.’

3. Make the most of the Apprenticeship Levy

When the Apprenticeship Levy was first implemented in 2017, employers’ levy tax was set aside for companies to access, provided it was used for approved apprenticeship training. Finally, from April 2023 the cap for smaller organisations was lifted on the number of apprentices they could have within their businesses.

What can SMEs access?

• More than 50 employees but an annual pay bill under £3 million? Organisations can access 95% of funding from the Government towards training for up to ten employees. Still, it will need to contribute 5% of the apprenticeship costs. Additional costs may apply based on the vocational sector and type of qualification, and it’s worth noting that employers cannot salary sacrifice this from the apprentice.
• Less than 50 employees then the Government provides 100% of the cost of apprenticeship training for businesses with fewer than 50 employees or if the apprentice is aged 16-18.
• Access to large corporate pledges

SMEs should also look to partner with levy-paying organisations as these larger organisations can transfer up to 25% of their unused apprenticeship funds to other organisations, including SMEs. So, you may be able to access 100% funds.

4. Changes to R&D and capital allowances for small business

In the Spring Budget the Chancellor announced his commitment to “harnessing British ingenuity to make us a science and technology superpower”. However, as a result of the Government’s efforts to reduce fraudulent claims and claw back cash, many SMEs may now be worse off.

Research and Development - Chris Mackley, Associate Tax Director at BDO LLP

Rates of Relief

For eligible R&D costs incurred from 1 April 2023 the benefit for a profit-making company has reduced from an effective rate of 27.4% to 21.5%. The impact on loss-making companies is even more stark with a reduction from 33.4% to 18.6%.

However, there was some good news for loss-making businesses with qualifying R&D expenditure exceeding 40% of their total annual expenditure. Such companies will be entitled to a tax credit of 27% of their eligible R&D costs. This measure seeks to address the concern that start-ups would be discouraged from future R&D investment in the UK.

Disclosure & Notification Requirements

From 1 August 2023 all R&D claimants must submit an Additional Information Form in a prescribed electronic format. The timeframe has been accelerated from that announced in the Autumn Statement, which is a clear indication of the Government’s intention to reduce the recent increase in fraud and error.

The form must be signed by a named senior officer of the claimant company and include details of any R&D agents used. Companies will also be required to provide a breakdown of qualifying costs supported by technical narratives describing a proportion of the company’s qualifying activities.

For accounting periods beginning on or after 1 April 2023, many companies (with some exceptions) will also be required to submit an Advance Notification Form signalling their intention to file a claim. This will include a summary of the high-level planned activities to demonstrate that the company’s projects meet the standard definition of R&D. The notification must be submitted within six months of the claimant company’s accounting period end – the aim being to prevent last minute speculative claims.

Failure to comply with the new regulations is likely to result in claims being rejected by HMRC and companies are advised to seek support from a regulated advisor to navigate all of the various changes.

While some of the changes have had a negative impact on R&D claims, they are still a valuable incentive for SME businesses.

Capital Allowances - Neil Brackstone, Tax Partner at BDO LLP

With the temporary “130% super-deduction” expiring on 31 March 2023, measures were announced to continue to encourage business investment from 1 April 2023, which are valuable for SME businesses.

“Full expensing” will be introduced from 1 April 2023 until 31 March 2026, allowing companies liable to corporation tax to benefit from a 100% first-year allowance (FYA) for capital expenditure on qualifying plant and machinery.

The 100% FYA will be available for expenditure on new and unused plant and machinery that ordinarily qualifies for the 18% main rate of writing down allowances. A temporary FYA of 50% will also be available for expenditure on new and unused special rate plant and machinery, including integral features in a building, and long-life assets that normally qualify for 6% writing down allowances.

The measures announced will only apply to qualifying expenditure on “new” and not “second hand” or “used”, plant and machinery from 1 April 2023.

Expenditure on cars or plant and machinery acquired for leasing will be excluded. However, the temporary allowances will be available for plant and machinery leased under an excluded lease of background plant and machinery, meaning landlords and property investment companies will be eligible. Plant and machinery must also be owned in the period FYAs are claimed; certain deposit payments without legal title passing in the same period may not be eligible.

Any expenditure that has been subject to full expensing or the 50% FYAs will be subject to an immediate balancing charge on disposal of the plant and machinery. This will be equal to 100% of the disposal value for full expensing and 50% of the disposal value in respect of the 50% FYA special rate expenditure.

As previously announced, the Annual Investment Allowance (AIA) will increase from £200,000 to £1 million per annum for expenditure on qualifying plant and machinery. Therefore, companies will need to consider the allocation of the AIA in conjunction with any expenditure not eligible for 100% full expensing and/or the 50% FYA. The choice of allocation may be influenced by any plans to dispose of items.

Given increasing corporation tax rates, the acceleration of relief for capital expenditure will be welcome for SMEs and help support their future growth. For companies planning to make capital expenditure it will be important to make sure they capture sufficient details and seek advice, particularly for property fit out and renovation, to maximise the capital allowance relief they are entitled to.