Chancellor Jeremy Hunt delivered his Autumn Statement against a backdrop of better than expected inflation figures, increased ‘fiscal headroom’ – and increasing political pressure from Conservative MPs to counter Labour’s lead in the polls.
The UK government is implementing 110 growth measures to help reduce inflation and encourage economic growth.
In his speech, the Chancellor said the Autumn Statement sought to deliver a series of measures intended to stimulate growth in the economy, and reduce personal taxes. He said that the UK economy was “back on track” after a series of “difficult decisions” in the last twelve months, with reports suggesting that today’s statement is the first of a two-stage plan focusing on businesses and workers initially, followed by further personal tax cuts at the Spring Budget.
The statement included 110 new growth measures, the most relevant of which are summarised below:
Taxation
The main rate of employee National Insurance will be cut from 12% to 10% from January 2024
Self-employed people with profits above £12,570 will no longer be required to pay Class 2 National Insurance Contributions (NICs), but will continue to receive access to contributory benefits and entitlements. This will take effect from 6 April 2024
Those self-employed with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the State Pension through a National Insurance credit, and those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits will continue to be able to do so.
The main rate of Class 4 self-employed NICs will be cut from 9% to 8%. This will take effect from 6 April 2024.
The Government will freeze the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) for NICs at 2023-24 levels in 2024-25
The Lifetime Allowance will be abolished from 6 April 2024.
The Government will legislate to allow HMRC to reduce the PAYE liability of a deemed employer to account for taxes paid by a worker and their intermediary on payments received where an error has been made in applying the off-payroll working rules.
Reforms will be introduced to the Construction Industry Scheme, which includes adding VAT as part of the Gross Payment Status (GPS) compliance test, and giving HMRC more powers to remove GPS immediately in cases of fraud, alongside other simplifications.
New measures will be introduced to tackle the promoters of tax avoidance schemes, including a new criminal offence for those who continue to promote avoidance schemes after receiving a notice requiring them to stop; and a new power enabling HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance.
Employers, company directors, and the self-employed will be required to provide new or improved data to HMRC to enable better outcomes for citizens and businesses. These changes will take effect from the tax year 2025-26.
Individuals with income taxed only through Pay As You Earn will no longer be required to file a Self Assessment return from 2024-25.
The Government is extending the Growth Market Exemption, a relief from Stamp Duty (SD) and Stamp Duty Reserve Tax (SDRT), to include smaller, innovative growth markets. This will be implemented from 1 January 2024.
Small Business
Reforming R&D Tax Reliefs: The Government has said that it will merge the existing Research and Development Expenditure (RDEC) and SME schemes, with expenditure incurred in accounting periods beginning on or after 1 April 2024 to be claimed in the merged scheme. The notional tax rate applied to loss-makers in the merged scheme will be lowered from 25% as per the current RDEC scheme, to 19%.
In addition, the intensity threshold in the additional support for R&D intensive loss-making SMEs will be reduced from 40% to 30%. Ministers will also introduce a one year grace period, in order that companies that fall under the 30% qualifying R&D expenditure threshold can continue to receive relief for one year.
From 1 April 2024, R&D claimants will no longer be able to nominate a third-party payee for R&D tax credit payments, subject to limited exceptions, and no new assignments of R&D tax credits will be possible from 22 November 2023.
The Government will introduce a requirement that firms bidding for government contracts over £5 million from April 2024 will have to demonstrate they pay their own invoices within an average of 55 days, reducing to 45 days in April 2025, and to 30 days in subsequent years.
HMRC will rewrite guidance around the deductibility of training costs for sole traders and the self-employed, which will include clarifying the guidance to ensure that individuals can be confident that updating existing skills, maintaining pace with technological advances, or changes in industry practices are allowable costs when calculating the taxable profits of a business.
Following its review into the impact of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) on small businesses, the Government will maintain the current MTD threshold at £30,000 and introduce design changes to simplify and improve the system. These changes will take effect from April 2026.
The Government is also legislating to ensure taxpayers, who join MTD from 6 April 2024, are subject to the government’s new, fairer penalty regime for the late filing of tax returns and late payment of tax.
Full expensing will be made permanent, enabling investments made by companies in qualifying plant and machinery, after 1 April 2026, to continue to qualify for a 100% first-year allowance for main rate assets, and a 50% first-year allowance for special rate (including long life) assets.
For 2024-25, the business rates small business multiplier in England will be frozen for a fourth consecutive year at 49.9p, while the standard multiplier will be uprated by September CPI to 54.6p
The Government is expanding and simplifying the income tax cash basis for the self-employed and partnerships. These changes will take effect from 6 April 2024.
The Government has published its Payment and Cash Flow Review Report and responses to the consultation on the Payment Practices and Performance Regulations 2017 and the statutory review of the Small Business Commissioner, outlining measures to combat late payments.
There will be additional support to SMEs to access global markets through UK Export Finance including reviewing the products available for SMEs and enhancing the SME-focused support that is offered.
The Government will commit to funding for Growth Hubs in 2024-25.
A new industry task force will be created to rapidly explore how best to support SMEs to adopt digital technology to improve their productivity.
Minimum wage
The National Living Wage has been increased to £11.44 per hour from April next year. It will now extend to workers of 21 and 22 years of age. Previously, the National Living Wage only covered those over 23.
Benefits
The government will uprate all working age benefits for 2024/25 by the September 2023 Consumer Price Index (CPI) of 6.7% and will continue to protect pensioner incomes by maintaining the promised ‘triple lock’ and uprating the basic State Pension, new State Pension and Pension Credit standard minimum guarantee for 2024/25 in line with highest of the three possible measures, namely average earnings growth of 8.5%.
Skills
The Government is committing a further £50 million for a 2-year pilot to explore ways to stimulate training in growth sectors and address barriers to entry in high-value apprenticeships.
Ministers have committed to the future delivery of the Help to Grow: Management programme beyond 2024-25.
Analysis of the Chancellor of the Exchequer Jeremy Hunt’s 2023 Autumn Statement
National insurance cuts, permanent ‘full expensing’ tax breaks for business investments and National Living Wages increases which will also benefit 21-22 year olds are among the 110 measures announced on Wednesday in Chancellor Jeremy Hunt’s Autumn Statement, along with tougher crackdowns on late filing of tax returns and late tax payments.
Full-expensing tax breaks
One of the biggest headliners for businesses in the statement was the announcement to make full-expensing tax breaks permanent, which Mr Hunt described as ‘the biggest business tax cut in modern British history.’.
Originally intended to last until 2026, full-expensing tax breaks enable businesses who pay corporation tax to claim up to 100% of the cost of plant and machinery-related investments. They were first announced in the 2023 Budget and allow qualifying businesses to deduct the total investment cost from their profits, therefore reducing the amount of corporation tax they pay (a 25p reduction in corporation tax for every £1 investment spent on plant and machinery)
National Insurance (NI)
National Insurance cuts were also announced. Class 1 NI employee contributions will decrease from 12% to 10% from January on earnings between £12,571 and £50,271 while Class 4 NI will reduce to 8% from 9 per cent. Class 2 NI will be scrapped altogether, benefitting self-employed individuals with profits over £12,750.
The new 10% rate will come into from 6 January and the average worker earning £35,400 a year will benefit from a £450 annual tax cut, improving living standards for millions of people and rewarding hard work as the government builds an economy for the future.
The Chancellor Jeremy Hunt said it was time to cut ‘high employment taxes on 27m people working in the public and private sector who have to pay 20% income tax and 12% national insurance – I am going to cut the main 12% rate of National Insurance by 2% from 12% to 10%’
.
The Chancellor has abolished Class 2 National Insurance contributions for self employed workers and cut the rate of Class 4 NICs
At the moment self employed pay £3.45 a week in Class 2 NICs, which will be abolished from the new tax year on 6 April. They will continue to receive access to contributory benefits including the state pension.
‘We will abolish the outdated and needlessly complex Class 2 self-employed NICs, reforming and simplifying the tax system,’ Chancellor Jeremy Hunt said.
In addition, from April 2024, Class 4 NICs for the self employed will be reduced from 9% to 8% and no self-employed person will have to pay Class 2 NICs, saving the average self-employed person earning £28,200 a year £350 in 2024-25.
Class 4 NICs will be reduced to 8% on profits between £12,570 and £50,270. The rate remains at 2% on profits over £50,270.
“You do not pay NIC on any private pension income or at all after state pension age, so that most retirees will not benefit from this cut”.
Late tax payments
Legislation in the Autumn Finance Bill 2023 will ensure that anyone joining Making Tax Digital (MTD) from April 2024 will be liable to the new tax regime for late filing of tax returns and late tax payments.
Other measures included:
Support for late payments: businesses bidding for government contacts worth more than £5m will now have to prove they pay purchase invoices within 55 days on average.
Business rates discount for hospitality, leisure and retail.
An extra investment of £4.5bn between 2025 and 2030 in manufacturing.
£1m for businesses investing in green technologies.
Small business rates frozen
The next tax year will see the fourth consecutive freeze at 49.9p and the standard multiplier will be uprated by September to 54.6p. The small rate multiplier will be increased to match CPI inflation.
For the next five years the government has announced a package worth £4.3bn to aid small businesses by extending the freeze on the multiplier and extending the 75% Retail Hospitality and Leisure relief.
The government has abandoned plans to require the fifth stage of reporting known as the end of period statement under Making Tax Digital for income tax
In a surprise turnaround, the requirement for an end of period statement (EOPS) has been dropped, removing the fifth report of full year earnings. This means there will now only be four quarterly reports, reducing the administrative burden.
The decision follows a review of the impact of MTD for income tax self assessment (ITSA), the new digital reporting system for earnings for landlords, sole traders and the self employed.
During the review, stakeholders highlighted a need to amend the design of quarterly updates to make it easier to amend or correct errors throughout the tax year. The government agreed that this would simplify and improve the design of quarterly updates, and agreed to make this change.
Rather than a total for the three-month period covered within the update, each update will be a cumulative total of income and expenses accumulated during the tax year to-date. This will remove the need for taxpayers to resubmit a previous update where corrections to previously submitted figures are required.
There will be an MTD exemption for some taxpayers, including those without a National Insurance number.
There will also be a change to the penalty system for volunteers signing up to the system during the trial period. Legislation in Autumn Finance Bill 2023 will ensure taxpayers who join MTD from 6 April 2024, will be subject to HMRC’s new penalty regime for the late filing of tax returns and late payment of tax, which is based on a traffic light system.
ISAs
The annual limits for Individual Savings Accounts (ISAs), Child Trust Funds and the Junior ISA remain at £20,000, £9,000 and £9,000 respectively in 2024/25. The lifetime ISA annual subscription limit also remains unchanged at £4,000 (excluding the government top-up bonus).
The government is making changes to simplify ISAs and provide more choice, meaning it will be easier to choose the best ISA accounts and move money between them. Savers will have the options of multiple subscriptions of the same type and of the partial transfer IN YEAR to different providers. This involves digitalising the ISA reporting system to make it more effective, as well as expanding the investment opportunities available in ISAs.
FISCAL DRAG
The personal allowance and basic rate band threshold are still frozen at their 2021/22 levels and, subject to the outcome of the next general election, are expected to remain at such until 5 April 2028. As earnings increase, individuals will move into higher tax bands. This is often referred to as ‘fiscal drag’ because it will raise more tax without the government increasing income tax rates.
The tax-free personal allowance of £12,570 continues to be partially and then fully withdrawn for higher earners, with £1 of personal allowance lost for every £2 of adjusted net income over £100,000.
With a general election on the horizon, with the so many changes already scheduled for 2024, we can expect more with a Spring Budget.
Disclaimer: Whilst we take care to ensure the accuracy of this document, no responsibility for loss incurred by any person acting or refraining from action as a result of this information can be accepted by the authors or firm.