Jeremy Hunt delivered the Autumn Statement on 22 November 2023. His speech focused on growing the economy, reducing debt and measures to reduce inflation further, in line with its 2% target.
The budget announcements focused on growth through investment in business, there are reductions in National Insurance Contributions and incentives to encourage capital expenditure. There was a real push to get more people in employment with increased apprenticeships and a reform to the welfare system for the unemployed.
Employees are supported by increases to the National Living Wage and cuts to National Insurance contributions have been announced for both employees and the self-employed. These measures will be welcomed in light of the previously announced freezing of the Tax thresholds and personal allowances.
Please see below for more detail on the measures announced:
National Insurance Contributions (NIC) for the self-employed
In a bid to ‘simplify taxes’ for the self-employed, Class 2 NIC will be ‘effectively’ abolished with effect from April 2024. NIC Class 2 was planned to be abolished back in 2015, the idea was however then deferred and later scrapped.
o Currently if your profits exceed £12,570 per annum you would pay £3.45 per week NIC Class 2. From April 2024 you will not be required to pay this but you will retain your access to contributory benefits e.g., state pension.
o As currently, anyone who is self employed and has profits of £6,725 or above will be entitled to contributory benefits. The small profits threshold of £6,725 has been frozen at this level.
o Anyone self-employed with profits below £6,725 can chose to pay voluntary NIC Class 2 in order to get access to contributory benefits. Voluntary Class 2 NIC will be frozen at £3.45 for 2024/25.
Also from April 2024, the main rate of NIC Class 4 contributions will be cut from 9% to 8%.
Full Expensing (FE)
This applies to companies allowing them to deduct 100% of their capital expenditure on new ‘general pool’ items such as equipment, IT and plant and machinery, with no limit on the amount of expenditure.
FE was intended to end on 31 March 2026; however the chancellor has today made the relief permanent.
FE only applies to new and unused plant and machinery and does not apply to cars, assets acquired by gift or assets bought to lease to someone else. However, a consultation has today been announced to consider whether there is a case for extending FE to cover leasing.
Currently there are two R&D Tax Relief schemes, one applicable for small and medium enterprises and one for larger businesses called Research and Development Expenditure Credit (RDEC). Both schemes will be merged into one scheme effective for all expenditure on R&D incurred in accounting periods beginning on or after 1 April 2024. The merged scheme will have an aligned set of qualifying rules. Announcements today are intended to give businesses some additional information before the Autumn Finance Bill is published later this year.
The merged scheme is more aligned with the current RDEC scheme so small and medium sized businesses will see a significant change:
o A taxable credit will be claimable for qualifying R&D expenditure which will be reflected in a company’s top line.
o The rate at which loss-making companies are taxed on the credit will be reduced from 25% (as per the current RDEC scheme) to 19%.
o The extra support for R&D Intensive loss-making businesses will be available to more companies as the threshold to qualify as ‘intensive’ will be lowered to 30% of total expenditure (currently 40%).
o Where R&D expenditure is subcontracted to a third party to undertake some of the work, it is the entity which decides to invest in the R&D project that can make the R&D claim, this is intended to reward the decision maker who is taking the risk.
The government has announced that further action may be needed to reduce the unacceptably high levels of non-compliance in R&D reliefs and HMRC will publish a compliance action plan in due course.
The 75% relief for the hospitality and leisure industries will continue for a further year. The rate of the small business multiplier will remain frozen for a further year.
Three advanced manufacturing Investment Zones will be established in Greater Manchester, East Midlands, and West Midlands.
The Investment Zones and freeport tax relief programs will be extended from 5 years to 10 years.
Income Tax rates and thresholds
There were no changes to previously announced Income Tax thresholds or rates.
State pension will rise in line with the triple lock promise so will rise in line with the highest of average earnings, inflation, or 2.5%. As a result, it will increase by 8.5%.
This means that from April 2024 the full, new flat-rate state pension will be £221.20 per week and the full, old basic state pension will be £169.50 per week.
The National Living Wage:
This will increase from 1 April 2024 to £11.44 an hour and will apply to 21-year-olds and over, currently you need to be 23-year-old for the higher rate to apply. The National Living Wage for younger employees will also increase as follows:
o for people aged 18-20 it will be £8.60 per hour, and
o for 16–17-year-olds it will be £6.40 per hour.
• National Insurance Contributions
Effective from 6 January 2024 the employee’s main rate of Class 1 contributions will fall from 12% to 10%. The introduction of the cut three quarters of the way through the Tax year is an administrative headache for payroll operators, however those who benefit will be glad of the early introduction.
An increase in benefits of 6.7% has been confirmed which is line with the rate of inflation for September 2023.
The welfare system is being reformed to ensure people who can work are supported to do so. The chancellor said that the introduction of 30 hours free childcare for working parents announced last Budget was the first step in this process. New measures include:
o Reforms to the Work Capability Assessment
o Supporting those previously deemed not fit for work to be better supported to allow them to work flexibly
o Providing support for mental health and reforming the fit note process to ensure easy access to specialised work and health support.
• Mandatory work placements will be introduced for anyone fit to work who remains unemployed after 18 months of intensive support. Benefits will cease after 6 months of non-engagement.
• Local Housing Allowance has been frozen since 2020 and will now be worth 30% of local market rents. The allowance determines the amount that those who rent privately, will get towards the cost or their rent.
• Duty on hand-rolling tobacco will rise by an additional 10%.
• Alcohol duty rates are frozen until August 2024.
The Mortgage Guarantee Scheme which supports the availability of 95% mortgages was due to close on 31 December 2023 but has been extended.
Should you have any queries or wish to discuss any of the above provisions in more detail please do not hesitate to contact us.