23rd November, 2023, Henry Pettitt
The headline from the Autumn Statement 2023, presented to parliament by the Chancellor on 22 November, was the cut to National Insurance rates. However, there were many other announcements made that may have an impact on you and your business.
Henry Pettitt FCA CTA, partner at Stephenson Smart, has delved into the detail…
Self-employed individuals
Several measures were announced which stand to benefit self-employed individuals.
The main rate of Class 4 NICs payable on self-employed profits between £12,570 and £50,270 will be reduced from 9% to 8% from 6 April 2024. In addition, Class 2 NICs payable by self-employed individuals with profits in excess of £12,570 will be payable at a rate of nil, with an option to pay contributions voluntarily. Further reforms to Class 2 NIC are expected for those lower paid self-employed individuals who currently pay voluntary contributions.
This change to self-employed NICs should result in an average self-employed person on £28,200 saving £350 in 2024/25.
The cash basis of accounting will become the default method for businesses from 2024/25. The turnover, interest and loss relief restrictions that currently apply to the cash basis will be removed.
Making Tax Digital (MTD) for Income Tax Self Assessment will be simplified and is scheduled to come into force for sole traders and landlords with income over £50,000 from April 2026, and with an income over £30,000 from April 2027.
HMRC will also rewrite guidance around the tax deductibility of training costs for sole traders and the self-employed to provide more clarity to businesses on what costs are deductible.
Capital allowances for companies
Full Expensing, whereby companies are eligible for a 100% First Year Allowance (FYA) on qualifying main pool assets and a 50% FYA on special rate pool assets, has been made permanent. This relief was previously expected to cease on 31 March 2026. This is expected to increase business investment by £3 billion per year according to the Office for Budget Responsibility (OBR).
A technical consultation will also be launched on wider changes to simplify the UK’s capital allowances legislation.
Research and Development (R&D) relief and SMEs
Following consultation, the R&D Expenditure Credit (RDEC) and SME schemes will be merged into a single scheme for expenditure incurred in accounting periods beginning on or after 1 April 2024. The rate under the merged scheme will be set at the current RDEC rate of 20%.
The notional tax rate applied to loss-making companies within the merged scheme will be reduced from 25% to 19%.
The threshold for a company to be considered R&D intensive (and therefore benefit from an enhanced rate of relief) will be reduced from 40% to 30% for accounting periods starting on or after 1 April 2024 which is expected to allow around 5,000 extra SMEs to benefit. A one-year grace period will also be introduced where companies dip under the 30% threshold.
Business rates
In relation to business rates, the small business multiplier will be frozen for another year and the 75% Retail, Hospitality and Leisure relief will be extended for 2024/25. The standard multiplier will be increased in line with September’s Consumer Prices Index. These measures will take effect from 1 April 2024 in England.
Personal taxation for individuals
The main rate of Class 1 employee NICs, which is payable on earnings between £12,570 and £50,270, will be cut from 12% to 10% from 6 January 2024. For the average worker earning £35,400 this should result in a tax cut for 2024/25 of over £450.
The Van Benefit Charge and the Car and Van Fuel Benefit Charges will be frozen at 2023/24 levels for 2024/25.
The government is making changes to simplify ISAs and provide more choice, including expanding the investment opportunities available in ISAs to include Long-Term Asset Funds and open-ended property funds with extended notice periods. The limits will be frozen at their current levels for 2024/25.
Individuals whose income is wholly taxed through Pay As You Earn will no longer need to file a Self Assessment tax return from 2024/25. This should remove the requirement for up to 338,000 taxpayers to submit a return.
National Living Wage and National Minimum Wage
From 1 April 2024, the National Living Wage (NLW) will increase from £10.42 per hour to £11.44 (an increase of 9.8%). In addition, the age at which the NLW applies has been reduced from 23 to 21.
The National Minimum Wage for 18-20 year-olds has increased from £7.49 to £8.60 and for 16-17 year-olds and apprentices from £5.28 to £6.40.
Pensions
Various changes were announced to pension schemes, including a call for evidence on a lifetime provider model to allow individuals to have contributions paid into their existing pension scheme when they change employer. In addition, the government announced there will be a reduction in the authorised surplus repayment charge from 35% to 25% from 6 April 2024.
The Chancellor described the budget as an ‘Autumn Statement for Growth’. There is a lot to unpack, some consultation needed, and legislation to be passed.
As always, if you would like further clarification on any of these announced changes, or any support with tax or business, please get in touch.
