Spring Statement 2024: What it means for venture capital & early stage business

As the UK continues to evolve amidst challenges like a spluttering economy and a lingering cost of living crisis, Chancellor Jeremy Hunt's Spring Budget 🌸serves as a beacon of policy direction and fiscal manoeuvring. Arguably one of the most anticipated events before the next general election, the Statement sheds light on the government's plans to navigate through turbulence 🌪️ and plot a course towards recovery and growth 🍃.

Echoing many sentiments from the Autumn Statement🍁, the strategy focuses on long term growth via tax reliefs and actions to stimulate business innovation, clearly indicating the government's favouring of an entrepreneurial business framework over extensive government intervention.

“We know that lower taxed economies have more energy, more dynamism, and more innovation...”

The Chancellor acknowledged that whilst inflation rates remain high at 4%, it reduced significantly over the past few months, and predicted to fall further.

Key Points to Note: 📝

Personal Taxes & National Insurance

• Employee National Insurance to be cut by a further 2p from 6th April, from 10% to 8%.
• Self Employed National Insurance to be cut from 8% to 6%.
• From April 2025, non domiciled system will be abolished, with new UK arrivals no longer having to pay any tax on foreign income for four years, after which they will pay the same tax rates as other UK residents.

Implications for Businesses

• The furnished holiday lettings tax regime has been abolished to improve availability on long-term rentals.
• Multiple dwellings Stamp Duty relief has been abolished.
• The higher rate of property Capital Gains Tax has been decreased from 28% to 24%.
• Windfall tax on oil and gas company profits extended for an additional year to 2029.
• Alcohol Duty freeze extended until February 2025 to support British pubs.
• Fuel Duty to remain frozen for another 12 months.
• Extension to the recovery loan scheme.
• Increase to the VAT registration threshold for businesses from £85 thousand to £90 thousand from April 1st – the first increase in 7 years.

Personal finances and Investing

• Introduction of a new British savings bond, with a guaranteed fixed rate for 3 years
• Announcement of a new British ISA featuring an additional £5,000 annual allowance for investments in UK equity, with all tax advantages of other ISAs
• Child benefit is to be moved to household based system in 2026. From this April, the high income charge threshold will be increased from £50 thousand to £60 thousand
• Reversal of the changes to the Financial Promotion Order exemptions for high-net-worth investors (see further analysis below).

Economy and Public Services

• Economy is expected to grow 0.8% this year and 1.9% next year, this is 0.5% higher than the OBR’s Autumn forecast
• Borrowing as a percentage of GDP has fallen to 4.2% of GDP in 2023-2024, with the prediction of 1.2% in 2028-2029
• An £800 million funding package is earmarked for leveraging technology in the public sector, highlighting drones and AI to enhance efficiency and productivity.
• Increased support for the UK's film and TV sector via increasing tax credits.
• £26 million of funding to theatres, and extended tax relief for orchestras, museums and galleries.

Implications for Early Stage Companies and Venture Capital

 Pension Reforms 👵

The Chancellor emphasised his support for small businesses and the innovative industries, highlighting the prominent status of the country's universities, financial services sector and tech sector.  Pension reforms are being implemented to facilitate further investment and to maintain both talent and capital within the country.  New pension fund disclosures are being introduced to increase transparency of the sources of funds entering the economy.

Reversal of the Changes to the Financial Promotion Order exemptions for high-net-worth investors 🤑

Earlier this year, the Treasury effected modifications to the exemptions under the Financial Promotion Order.  Have a look at our earlier blog explaining the reasoning behind this.  These modifications included an increase in the income threshold necessary for qualification as a high-net-worth investor from £100,000 to £170,000, alongside the elimination of certain criteria for Sophisticated Investors.

These changes prompted concerns that they may lead to diminished funding opportunities for start-ups as well as disproportionately affecting women and minority investors. There was also apprehension that these modifications could harm the UK's burgeoning start-up ecosystem, and its positioning as a pivotal driver of economic growth.

Today's Budget reversed these adjustments to the criteria for High Net Worth and Sophisticated Investors.  The overturn is heralded as excellent news for both entrepreneurs and investors throughout the UK.

In Conclusion

The Spring Budget serves as a roadmap for the UK to steer through its economic hurdles towards a path of growth and prosperity. Chancellor Jeremy Hunt's focus on tax relief, fostering business innovation, and strategic investments aims to not only stabilise the economy and inflation but also pave the way for sustainable long-term growth.🚀

Sapphire Capital Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN: 565716). This article is a financial promotion and is intended for UK investors only. The content is for information purposes only and does not constitute investment advice or a recommendation to invest. SEIS and EIS tax reliefs depend on individual circumstances and may change. The value of investments may go down as well as up, and investors may not get back the full amount invested. Past performance is not a reliable indicator of future performance.  Investment outcomes can differ substantially, potentially resulting in the loss of all your capital invested. Shares in early-stage companies are illiquid: you may be unable to sell your holding for several years, if at all. Investors should not rely on this article as a basis for investment decisions and must consider the illiquid and high-risk nature of early-stage investing. No warranty as to future outcome is implied nor should one be inferred. Tax treatment depends on individual circumstances and may be subject to change. Investments of this type are generally not covered by the Financial Services Compensation Scheme or the Financial Ombudsman Service if the underlying companies fail.