Autumn Statement – 22 November 2023

Changes to National Insurance Rates

One of the Chancellor’s tactics of “making work pay” and probably the main attention grabber, was the announcement of the changes to National Insurance Contributions (NIC) for both the employed and self employed.

National Insurance Contributions for employees

Rather than waiting for the start of the new tax year, the Chancellor announced a 2% cut in the main rate of Class 1 NIC to 10% for employees from 6 January 2024, for earnings between £12,570 and £50,270.

This means an annual saving of approximately £750 for an employee earning £50,000 per annum.

Contributions on earnings over this amount will continue at a rate of 2%.

It remains to be seen whether the HMRC reporting systems for PAYE and software providers will be able to update payroll systems in time for this change.  The expectation is that for those who are unable to make the changes in time, the situation should be remedied in the following months so that employees do not lose out.

The Lower Earnings Limit, which is the level at which employees start to receive National Insurance credits, will continue at £6,396.

As with previous changes to NIC rates part way through a tax year we expect directors to be subject to a blended rate of NIC applied when the annual recalculation takes place.

National Insurance for the self employed

In contrast to the above measure, the changes to National Insurance Contributions paid by the self employed will take effect from 6 April 2024.

Class 2 Contributions

The requirement to pay Class 2 contributions (currently £3.45 per week) will be removed.

However, for those with profits under £6,725, contributions can still be paid voluntarily at the weekly rate of £3.45 for the 2024/25 tax year to maintain eligibility to state pension.

Individuals approaching state pension age that have gaps in their National Insurance record can continue to make voluntary Class 3 contributions at the frozen rate of £17.45 per week.

Class 4 Contributions

The main rate of Class 4 NIC will be reduced by 1% from 9% to 8%.

For a self employed person with profits over £50,270 these two measures mean a combined annual saving of £556.

“Full Expensing” – Capital Allowances on Investment in Plant and Machinery

Businesses cannot generally claim the costs of capital expenditure against their profits unless that capital expenditure qualifies for capital allowances.  This has been identified by the government as a disincentive to investment, as in effect in many situations capital expenditure needs to come from post tax funds.  The government therefore wishes to remove this disincentive by introducing “full expensing” relief.

“Full expensing” relief was first announced in the Spring 2023 Budget as a temporary measure to further encourage companies to invest in plant, machinery, and equipment within their businesses. At that time, the government had stated that they would consider making the relief permanent and today the Chancellor confirmed that it will be so.

The relief will therefore continue operate so that 100% tax relief will only apply to ‘main rate’ expenditure. This does not include integral fixtures and fittings to buildings such as electrical, water and air-conditioning systems. Cars and second-hand equipment also continue to be excluded from the relief.

Integral fixtures and fitting are classified as ‘special rate’ expenditure which will only receive full relief on 50% of the cost in the year of purchase, with the remaining 50% receiving ‘special rate’ writing down allowances.

Note that “full expensing” is available only to companies – unincorporated businesses will not be able to use this relief.  However, Annual Investment Allowance (AIA) continues to be available on qualifying purchases of up to £1m. 

Research and Development (R&D) Tax Reliefs

Changes to the way R&D tax relief will operate had been announced in the last two budgets – to combat the effect of the increase to the main rate of Corporation Tax, to provide additional relief for companies that undertake intensive R&D activities, and to tackle abuse in this area of the tax system.

Today’s statement announced further changes that will take effect from 1 April 2024, which are expected to be the final conclusions to the R&D review that has been ongoing since Spring 2021, although the government has indicated that further actions might still be introduced to reduce non-compliance within the scheme. 

Merging of current R&D tax relief schemes

Currently, the UK operates two different R&D incentive schemes, one aimed at Small and Medium Sized Entities (SMEs) and another scheme aimed at larger companies.

The SME scheme is aimed at groups of companies with fewer than 500 employees, and either turnover under €100 million, or gross assets under €86million. Companies that do not qualify for the SME regime are given relief via the Research and Development Expenditure Credit (RDEC).

For accounting periods beginning on or after 1 April 2024, a new ‘merged’ scheme will replace the separate schemes, although an SME intensive scheme, announced in the Spring 2023 Budget, will still be available (see details here).  The intensive scheme will see the required R&D expenditure threshold to be considered as ‘R&D intensive’ being reduced to 30% from 40% for accounting periods beginning on or after 1 April 2024, and a one year grace period will be introduced so companies that fall below the 30% threshold will still receive relief for one year.

Further details on how the newly merged scheme will operate are yet to be published.

Extension of the Cash Basis

The calculation of profits when income is received and payments are made (known as the cash basis) was originally introduced in 2013 to simplify accounting and tax for small businesses (those with turnover under £150,000).

After consulting with stakeholders earlier this year, it has been announced that the cash basis will be extended to all self-employed individuals and partnerships regardless of turnover.  From April 2024, the cash basis will become the default method for calculating profits for self-employed individuals and partnerships.

Even more welcome will be the removal of the rule which restricts losses realised under the cash basis from being offset against the taxpayer’s other income in the year, and the removal of the cap on interest costs of £500. 

Pension Reforms

The Chancellor made much of his Mansion House Reforms in the Autumn Statement, highlighting in particular his work to secure the best possible outcomes for pension savers.  However, they are currently rather light on detail, with the Chancellor more setting out his plan for pension reform between now and 2030. The plan includes:

• Allowing taxpayers with small pension pots to have these automatically consolidated
• Allowing employees to insist that a new employer pays into an existing pension rather than opening a new one
• Ensuring that individuals have access to relevant information about their pensions

There were two concrete announcements relating to the digitisation of relief at source, and a reduction in the tax charge on surplus payments from defined benefit schemes, but these will be of limited interest to most taxpayers. We therefore await the substance of any changes when they are announced – indeed if there is another fiscal statement before the general election.

Tax Administration

As is becoming the norm, this Autumn Statement continued to tinker around the edges of tax administration.  Key areas of change are as follows:

Additional data collection from HMRC

HMRC will require employers, company directors and the self employed to provide new or improved data, taking effect from April 2025 as follows:

• Employers to provide data on employee hours paid
• Shareholders in owner-managed businesses to provide dividend income and the percentage share from such shareholdings separately to other dividend income
• Trading businesses to provide start and end dates of self employment

Simplifying the requirement to file a tax return

Having previously increased the threshold for individuals with income taxed only through Pay As You Earn to file a Self-Assessment return to £150,000 from April 2023, the government has now gone one step further and abolished it altogether from April 2024.  We have some concerns as to whether this approach will be problematic for clients that lose their personal allowances but time will tell!

Deductibility of training costs

HMRC will be rewriting their guidance on the tax deductibility of training costs for sole traders and the self employed, which we believe will lead to a relaxation in what is considered deductible.

Making Tax Digital for Self Assessment (MTD for ITSA)

Less welcome will be the government’s commitment to the introduction of MTD for ITSA for the self employed and landlords with income over £50,000 from April 2026, extending to those with income over £30,000 from April 2027.  Further extension to those with income under £30,000 is to be kept under review.  With large-scale public beta testing not expected until 2025, we too will be keeping the situation under review, juggling preparation for April 2026 with not creating additional administration burden for our clients should the launch date be delayed (again).

Construction Industry Scheme (CIS) reform

Legislation will be introduced to strengthen the tests for those who apply for (or already hold) gross payment status for CIS purposes.  It will therefore be important that any subcontractors wishing to receive payments gross stay up to date with their VAT, Corporation Tax, Income Tax and PAYE obligations.

Tackling promoters of tax avoidance and tax fraud

Following on for recent expansion to HMRC’s powers to help tackle promoters of tax avoidance and tax fraud:

• The maximum prison sentence for the most egregious forms of tax fraud will be increased from 7 to 14 years
• HMRC will have powers to bring disqualification action against directors of companies involved in promoting tax avoidance
• It will become a criminal offence for promoters of tax avoidance to continue to promote avoidance schemes after receiving a Stop Notice

Please get in touch if you have any queries.