Yesterday, Chancellor Jeremy Hunt presented his Autumn Statement with the underlying message that inflation is falling and public finances are stabilising, so focus is now being applied to reducing debt, cutting tax and rewarding hard work.
HEADLINES
National Insurance Cuts
For employees
The main rate of Class 1 NICs will be cut from 12% to 10% from 6 January 2024.
Over a full year, the average worker on £35,400 will receive a NIC reduction of over £450. Workers earning more than £50,270 a year will receive a NIC reduction of £754.
The Class 1 NIC rate will remain at 2% for earnings above £50,270 a year.
There are no changes to the rate of employer’s Class 1 NICs, which remains at 13.8%.
For the self-employed
Self-employed individuals with profits of more than £12,570 a year pay two types of NIC: Class 2 and Class 4.
Class 2 NICs is a flat rate sum of £3.45 a week in 2023/24 but no one will be required to pay the charge from 6 April 2024.
The main rate of Class 4 NICs will be cut from 9% to 8% from 6 April 2024. Class 4 NICs will continue to be calculated at 2% on profits over £50,270.
Taken together these changes will result in an average self-employed person with profits of £28,200 saving £336 in 2024/25.
Full Expensing - Tax Relief for expenditure on plant and machinery
The Annual Investment Allowance (AIA) is now permanently set at £1million. This means that businesses can claim tax relief at 100% on up to £1million of expenditure on qualifying plant and machinery (e.g. capital equipment).
‘Full expensing’ is an additional and alternative relief for companies only. It allows unlimited 100% upfront tax relief on qualifying plant and machinery that is purchased in a new condition on or after 1 April 2023. There is also an associated 50% allowance for expenditure on certain types of plant and machinery that does not qualify for the full 100% (including space and water heating systems, for example).
‘Full expensing’ was initially introduced in Spring 2023 and had an original end date of 31 March 2026. It has now been announced that it will be made permanently available. Described as the ‘biggest business tax cut in modern British history’ it must be noted that it will usually only benefit companies or groups of companies that have already utilised their £1million AIA. It is not available at all for unincorporated businesses, although the expansion of the cash-basis (see below) achieves a very similar effect for sole traders and partnerships.
Full expensing does come with some quite complicated rules on the amount of upfront relief and the calculation of tax charges that may apply when the purchased plant and machinery is sold. Please talk to us for more details.
Research & Development (R&D) Reliefs - Merging on the existing schemes
A new R&D scheme for limited companies will come into effect for accounting periods starting on or after 1 April 2024 merging the current R&D Expenditure Credit (RDEC) scheme (for larger companies) with the Small and Medium Enterprise (SME) scheme.
There will also be a second new R&D scheme for ‘R&D intensive SMEs’.
Within the new rules there are new provisions in relation to:
Who can claim relief when companies contract out R&D activities;
The definition of qualifying expenditure, taking into account whether the R&D has been undertaken in the UK,
The qualifying criteria for ‘R&D intensive’ companies, is planned to reduce from 40% to 30%
Restrictions on nominations and assignments of R&D relief payments.
Look out for our blog on the new merged scheme coming soon.
If you are claiming (or considering claiming) R&D reliefs and find you need support to both ensure compliance and to adopt the new rules and framework. Please do get in touch with us.
National minimum wage (NMW)
The National minimum wage rates have been increased, from 1 April 2024 the minimum pay rates will be as follows:
National Living Wage (age 21 and over) £11.44
18-20 year old rate £8.60
16-17 year old rate £6.40
Apprentice rate £6.40
Backing British Business
Business Rates
A new business rates support package worth £4.3 billion will be made available over the next five years to support small businesses and the high street. For 2024/25, the small business multiplier will continue to be frozen and the 75% Retail, Hospitality and Leisure business rates relief will continue to apply.
The standard rate multiplier will be uprated in line with the September 2023 CPI of 6.7%. While this will increase business rates bills for some, large retailers are expected to benefit from hundreds of millions of pounds of tax relief per year as a result of full expensing.
Getting Paid
One of the key challenges facing small businesses is the cash-flow implications of late payments, which hold them back from investing and innovating. The government plans to lead by example by introducing more stringent payment time requirements for firms bidding for large government contracts. From April 2024, firms bidding for government contracts over £5million will have to demonstrate that 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.
Upskilling
Various initiatives are on the cards for business leaders to acquire the vital skills and opportunities they need to stay relevant, increase productivity and grow their businesses.
This includes a pledge that HMRC will rewrite its guidance on the tax deductibility of training costs for sole traders and the self-employed, to provide more clarity to business on what costs are deductible. This will ensure that individuals can be confident that updating existing skills, or maintaining pace with technological advances or changes in industry practices, are allowable costs for tax purposes.
Investment Zones and Freeports
Earlier this year, the government announced that it would establish 12 ‘Investment Zones’ across the UK. These Zones target tax and other incentives on high potential industry sectors to boost productivity and growth. A number of the Zones have now been announced and the Chancellor has now pledged to extend the program of funding and tax reliefs for these Zones from 5 to 10 years.
The tax incentives include relief from Stamp Duty Land Tax (SDLT), enhanced capital allowances for plant and machinery, enhanced structures and buildings allowances, business rates relief and reduced employer NICs on the earnings of eligible employees.
There has also been an associated extension to the window to claim Freeport tax reliefs in England; from 5 to 10 years, until September 2031. The tax benefits on offer in these port-based locations are similar to Investment Zones but also give extra VAT and Customs benefits.
Other announcements
Pension Reform
The government has announced a package of pension reforms that aim to provide better outcomes for savers, drive a more consolidated pensions market and enable pension funds to invest in a diverse portfolio.
With individuals changing jobs more frequently than used to be the case, the government wants to tackle the long-standing problem of “small pot” pensions that accumulate with each short to medium term employment. There will be a call for evidence on a ‘lifetime provider model’ which would allow individuals to have contributions paid into their existing pension scheme when they change employer, providing greater agency and control over their pension.
State 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%.
Without any increase to the tax free allowances for individuals the increased state pension will take many pensioners closer to the threshold for paying tax - for the 2024/25 tax year a pensioner on the basic pension of £221 per week can only have another income source of £1,078 before paying tax.
Making Tax Digital (MTD) for Income Tax
Under MTD for income tax, businesses will keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements have been delayed several times and are planned to be phased in from April 2026, starting with sole traders and property landlords with gross income over £50,000. In readiness, some ‘design changes’ to the scheme have now been announced to simplify and improve the system.
Creative Industries
Film, TV and video games tax reliefs will be reformed into refundable expenditure credits. In particular, an Audio-Visual Expenditure Credit (AVEC) for film and TV programmes and a Video Games Expenditure Credit (VGEC) for video games. The credits will be available from 1 January 2024
PAYE and Tax Returns
For individuals with income taxed only through PAYE, they currently only need to file a self-assessment tax return if their income exceeds £150,000. From 2024/25 this threshold will be removed altogether, removing up to 338,000 individuals from the self-assessment system.
