Amid a backdrop of falling inflation, Mr Hunt announced a package of 110 tax cuts and spending plans, supporting working people, the self-employed and the small business community at a time of relatively subdued economic growth.
National Insurance was at the front and centre of the Chancellor’s Autumn Statement measures, with a focus on the main rate for employees, as well as Class 2 and Class 4 NICs for the self-employed. Meanwhile there was plenty more for small business owners to digest, including updates to the National Living Wage, business rates and a simplified research and development scheme.
Self-employed National Insurance cuts
The Chancellor delivered a boost for the self-employed, by announcing several tax saving measures in relation to the amount of National Insurance Contributions (NIC) sole traders are required to pay.
The main rate of Class 4 NIC that sole traders are liable to pay will be reduced by 1% from 9% to 8%, from 6th April 2024. From the same date, sole traders with profits above £12,570 will no longer be required to pay Class 2 NIC. They will, however, continue to receive access to contributory benefits, such as the state pension. Where sole trade profits are between £6,725 and £12,570, entitlement to contributary benefits will be maintained. Those sole traders with profits under £6,725 will be able to pay voluntarily Class 2 to get access to contributory benefits, as is currently the case.
Employee National Insurance cut
Employees can also look forward to a tax cut with the announcement that the main rate of Class 1 National Insurance Contributions, paid by employees, will fall by 2% from 12% to 10% from 6th January 2024.
The employer rate of Class 1 NIC will remain the same and employers will need to ensure their payroll software is updated for this change. Technical specifications for payroll software companies are expected in due course.
Pension investment reform
The Chancellor has written to the Chief Executives of the Pensions Regulator and the Financial Conduct Authority setting out the vision for Pension reform between now and 2030. The reform is designed to improve pension saver returns, increase opportunities for investment and boost growth in the UK’s capital markets and high-growth companies
The main impact for small business will be that employees will be able to nominate their own scheme into which employee and employer contributions will be made, so that they can avoid having multiple schemes which are difficult to manage, and so they can effectively have one scheme for life.
State pension increase
The Government plans to maintain the triple lock to support pension incomes and will increase the state pension by 8.5% in April 2024, taking the full state pension up from £203.85 per week in 2023/24 to £221.20 per week in 2024/25.
Pension for Life and ISA simplification
Read more about the key changes from a financial planning perspective including the pension pot for life and changes to ISA contribution from our friends at TaxAssist Financial Services.
National Minimum & Living Wage Increases
From 1st April 2024, the Government will increase the National Living Wage (NLW) by 9.8% from £10.42 to £11.44 an hour. This represents an increase of over £1,800 to the annual earnings and is expected to benefit over 2.7 million workers. The National Living Wage had previously been payable to those aged 23 and over and will now apply for eligible UK workers across the UK aged 21 and over.
Rates for 18–20-year-olds and 16-17-year-olds and apprentices will also see a boost to their wages through increases to the National Minimum Wage (NMW) to £8.60 and £6.40 respectively.
Business rates relief
The Government is supporting businesses by freezing the small business rates multiplier in England at 49.9p for 2024/25, for a fourth consecutive year, protecting small businesses at risk of inflation.
The business rates standard multiplier for other businesses will increase in line with inflation.
The Retail, Hospitality and Leisure (RHL) relief will also be extended for 2024/25. The relief was introduced in 2023/24 and was due to cease in April 2024. This relief reduces qualifying business’ annual business rates liability by 75%, with a cap of £110,000 per business.
Making Tax Digital for Income Tax & tax simplification
The Government announced intended design changes to the Making Tax Digital (MTD) system, which they advise are to simplify and improve MTD for taxpayers and accountants.
The Government also announced an expansion and simplification of the income tax cash basis for the self-employed and partnerships. These changes will take effect from 6th April 2024, for 2024-25.
While the Government’s proposals on the cash basis go wider than businesses affected by Making Tax Digital, there are important interactions between changes to the cash basis and MTD. We will provide additional commentary on these announcements in due course.
Research and development
The recent consultation on research and development (R&D) will be closed following announcements in the Autumn Statement 2023. HMRC will continue to monitor compliance and will provide enhanced support to claimants.
Merger of the two existing schemes – In a simplification which will align the two R&D systems, existing Research and Development Expenditure Credit (RDEC) and Small and Medium Enterprise (SME) schemes will be merged so any expenditure incurred in accounting periods beginning on or after 1st April 2024 will be claimed in the new merged scheme. The notional tax rate applied to loss-makers in the merged scheme will reduce from 25%, as per the current RDEC scheme, to 19%.
Additional tax-relief for R&D intensive loss-making SMEs – Under the SME scheme, rules previously announced saw a restriction of the repayable cash payment rate from the previous 14.5% to 10%. However, loss making R&D intensive SMEs were still able to claim the higher rate where at least 40% of their total expenditure was on R&D. This percentage is now relaxed from 40% to 30%, which means around 5,000 more R&D intensive SMEs will be able to claim. This will include a one-year grace period, so companies that fall beneath the 30% threshold will continue to receive relief for one year. Companies will be able to claim for expenditure arising from 1st April 2023 once the Autumn Finance Bill 2023 has received Royal Assent, with the reduction in intensity threshold and grace period coming into effect for accounting periods beginning on or after 1st April 2024.
Capital expenditure for companies
The previously announced reform by which companies can obtain tax relief on capital expenditure incurred from 1st April 2023 until 31st March 2026, has now been made permanent.
A company can continue to make use of the £1m Annual Investment Allowance (AIA), alongside two previously announced first year allowances for qualifying plant and machinery expenditure.
Companies can currently obtain 100% “full expensing” relief on capital expenditure which falls within the main rate of capital allowances. Companies can also claim 50% tax relief on expenditure which would fall within the special rate pool for capital allowance purposes. As before, relief will only be obtained if the equipment is new rather than second hand. Some exclusions apply to what expenditure will qualify for full expensing, most notably on cars and plant and machinery for leasing.
Making full expensing permanent will impact those companies incurring expenditure exceeding the standard £1m AIA during an accounting period. Larger companies are likely to benefit the most from this extension of relief.
Mr Hunt reinforced his desire to clamp down on late payments, which are the scourge of the UK’s small business community, choking cashflow and stunting further investment and innovation. The Government is to introduce tougher payment windows for businesses bidding for large government contracts.
From April 2024, firms bidding for Government contracts over £5 million will have to demonstrate they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years.
Also announced in the Autumn Statement
- The Government is extending the National Insurance Contribution relief for employers of eligible veterans for a further year from April 2024 until April 2025. Employers will continue to pay no employer NICs on annual earnings up to £50,270 for the first year of a qualifying veteran’s employment in a civilian role.
- The Government is freezing the rates of alcohol duty until 1st August 2024.
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Date published 8 Sep 2023 | Last updated 27 Nov 2023This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
Andy Gibbs, ATT, CTA
Andy is Head of Group Technical and is a qualified Chartered Tax Adviser (CTA) and holds the STEP Advanced Certificate in Trust and Estate Accounting. Andy has dealt with both tax compliance and tax advisory projects across a range of industry sectors.
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