Autumn Statement - 22nd November 2023

23 November 2023 •

The Autumn budget was announced yesterday afternoon and Jeremy Hunt started his speech by claiming he was bringing forward 110 growth measures to back British business. Reductions in National Insurance amount to £9.3 billion in 2023/24, and similar amounts each year after that. Changes to tax relief for capital expenditure come to similar amounts in the longer term. HMRC hope to collect £1 billion a year extra from ‘investment in debt management capability’.

Below is a summary of the main tax changes announced, with a brief explanation of what they are likely to mean for your business or your family. If you would like to discuss what these measures mean for your individual circumstances, we would be pleased to help.

Significant points

• Cuts to employee NICs take effect from 6 January 2024 and self-employed NICs from 6 April 2024
• 100% first year allowances (‘full expensing’) for companies made ‘permanent’ (originally due to expire 31 March 2026)
• Extension of the ‘cash basis’ of computing taxable profits for unincorporated businesses
• Reforms to tax reliefs for research and development and creative industries
• Affirmation of support for the state pension ‘triple lock’ with an 8.5% increase from April 2024, based on average earnings
• No changes announced to Income Tax, Inheritance Tax or Stamp Duty Land Tax – all remain fixed at levels previously announced
• Simplifications announced to the Making Tax Digital regime to be introduced for income tax self-assessment in April 2026

Personal Income Tax

Rates and allowances

Last year Jeremy Hunt announced that the tax-free personal allowance and the 40% tax rate threshold would be fixed until 5 April 2028. He also lowered the threshold for the 45% rate to £125,140 from 6 April 2023. There has been no mention of changes to these figures in the speech or in the supporting documents. While ‘Freezing thresholds’ avoids the appearance of a direct tax increase, pay rises will bring more people into higher rate bands, increasing the average rate of tax they pay, while more very low earners will also now pay tax when incomes exceed the personal allowance.

Two other thresholds remain fixed, income levels at which the High Income Child Benefit Charge begins to claw back Child Benefit receipts (£50,000 since 2012/13), and at which the tax-free personal allowance is withdrawn (£100,000 since 2010/11). These create a higher marginal tax rate in the income bands £50,000 – £60,000 for people in receipt of Child Benefit, and £100,000 – £125,140 as the personal allowance is reduced to nil. The effective marginal rate of income tax for someone earning between £100,000 and £125,140 is 60% as £1 of allowance is lost for every £2 of income. Income above £125,140 is all taxed at 45%.

These rates and thresholds will not automatically apply in Scotland, the Scottish Parliament will announce its Budget on 19 December. Although the Welsh Assembly can set its own tax rates for non-savings, non-dividend income it has so far kept to the main UK rates. Savings and dividend income are subject to the same rates throughout the UK, regardless of residence.

Dividend income

No changes were announced to the taxation of dividend income. This means that the dividend allowance below which no tax is paid on dividends will fall from £1,000 in 2023/24 to £500 in 2024/25. The reduction in this allowance (which was £2,000 for several years up to 2022/23) will require many more people to file self-assessment tax returns to settle what will often be a relatively small tax liability.

Employees

Company cars and fuel

Car benefits remain fixed at rates previously announced until the end of 2024/25. The figure used to calculate the benefit of free use of business fuel for private journeys is also fixed at the current figure of £27,800.

The taxable amounts for the availability of a van for more than incidental private use, and for an employee’s private use of fuel in a company van, normally increase in line with inflation. However, the 2023/24 flat rate figures of £3,960 and £757 for these benefits will remain the same for 2024/25.

National Living Wage (NLW)

From 1 April 2024, NLW will apply to those aged 21 or over (currently 23), and will rise from £10.42 per hour to £11.44, with comparable increases to the other rates that apply to younger workers and apprentices.

National Insurance Contributions (NIC)

Thresholds and rates

The largest tax cut announced in the Autumn Statement, amounting to £8.7 billion in 2023/24, is a cut in the rate of employee NICs on earnings between the lower and upper earnings limits from 12% to 10%. This will take effect on 6 January 2024, and will save up to £754 in a full tax year (for an employee earning £50,270 or above).

Self-employed people have for many years had to pay flat rate Class 2 NICs, which have conferred entitlement to State pension, and profit-related Class 4 NICs. These are both cut with effect from 6 April 2024:

• Class 2 NICs will not be required to secure benefits for anyone earning above £6,725, saving £179.40 a year – they can still be paid voluntarily for anyone earning less than that to maintain a full contribution record;
• The rate of Class 4 NICs on profits between £12,570 and £50,270 will be reduced from 9% to 8%, saving up to £377.

The combined saving is up to a maximum of £556.

Savings and Pensions

Pension contributions

After the removal of the Lifetime Allowance (LTA) charge on large pension funds in the Spring Budget, there were no further changes to the way in which private and employee pensions will be taxed in the short term. The LTA itself will now be removed from the legislation, but the figure (£1,073,100, or more for those with ‘protection’) will remain relevant for determining how much can be drawn as a tax-free lump sum.

Proposals to reform the structure of pension provision in the UK, including relating to the problem of collecting separate pension pots from different employments, do not appear to have impacted the way pensions are taxed.

State pension

The State pension will continue to be uprated in line with the Conservative manifesto ‘triple lock’ commitment. This means the rate will increase by 8.5% in April 2024 based on the increase in average earnings, rather than the lower figure for price inflation. At the new weekly amount of £221, pensioners will receive nearly £900 a year more than in 2022/23.

Individual Savings Accounts (ISAs)

The annual investment limits for ISAs remain the same for 2024/25. A number of improvements to the administration of ISAs has been announced to make them more flexible and easier to use.

Venture capital schemes

The Enterprise Investment Scheme and Venture Capital Trusts offer a number of tax advantages to investors in qualifying small and start-up businesses. An extension has been announced to both sets of rules to April 2035.

Capital Gains Tax (CGT)

Annual exemption

No announcements were made concerning CGT. The annual exempt amount (AEA), which is currently £6,000 for 2023/24, will be reduced as previously announced to £3,000 for 2024/25. This increases the likelihood of tax to pay and means many more taxpayers will need to file the CGT pages of the self-assessment tax return unless both net gains do not exceed the AEA and the total proceeds from all disposals do not exceed £50,000.

Trusts

As the AEA available to most trusts is half of an individual’s AEA, this will be £1,500 for 2024/25 (£3,000 in 2023/24).

Inheritance Tax (IHT)

Thresholds and rates

There have been no changes to the IHT rates, so the main rate remains 40% for transfers on death in excess of the NRBs. The IHT nil rate band (NRB) has been frozen at £325,000 since 6 April 2009, the residence NRB has been £175,000 since 6 April 2020. It was announced a year ago that these figures would remain fixed until April 2028, bringing more people within the scope of IHT as assets (particularly houses) rise in value.

Business Tax

Cash basis

Businesses with a turnover of up to £150,000 have been able to calculate their profits on a ‘cash basis’ for tax purposes. If turnover exceeded £300,000 the business had to revert to ‘accruals accounting’. Cash basis has a number of restrictive rules, including a maximum deduction of £500 for interest paid.

The Autumn Statement announced that the turnover limits will be removed for 2024/25, so unincorporated businesses of any size will use the cash basis as the default method of computing profits. Interest of any amount will be eligible for deduction, as long as it is wholly and exclusively incurred for the purposes of the business.

A business can still opt to use traditional accruals accounting as is currently the case at present for rental income.

Corporation Tax (CT)

Rates

No changes were announced to CT rates, which remain 19% for companies with profits up to £50,000 and 25% for companies with profits over £250,000. Between £50,000 and £250,000 there is a tapering calculation that produces an effective marginal rate of 26.5% on profits within that band. The limits are divided between the number of associated companies (companies under the common control of one or more persons, including both individuals and companies).

Research and development (R&D)

Currently, there are two different regimes to encourage research and development (R&D) expenditure in the UK; the enhanced expenditure or ‘super-deduction’ scheme for SMEs, which allows qualifying R&D expenditure to be increased for tax purposes by 86% (with loss-making SMEs able to claim a payable tax credit by surrendering their losses from R&D to HMRC); and the Research and Development Expenditure Credit (RDEC) scheme available to large companies with qualifying R&D. This gives a 20% taxable expenditure credit for qualifying expenditure. Some SMEs may need to use this scheme rather than claim a super-deduction, for example if their work is grant-aided.

These two schemes will be merged for accounting periods beginning on or after 1 April 2024. It was previously announced that the changes would apply for expenditure incurred from 1 April 2024; the revised implementation date will avoid the issue of having to make claims under two different regimes for expenditure in the same accounting period.

The rate of credit under the merged scheme will be the current RDEC rate of 20%. The notional tax rate applied to loss-making companies will be the small profit rate of 19%, rather than the 25% main rate currently used in the RDEC.

Contracted-out R&D

R&D reliefs is to increase the overall levels of R&D carried out in the UK economy by ensuring that companies making the decision to carry out the R&D and bearing the risk, enjoy the relief. Under the new regime, the decision maker is allowed to claim for contracted-out R&D rather than the subcontractor.

Where a company with a valid R&D project contracts a third party to undertake some of the qualifying work connected with their R&D project, the company may claim the relevant qualifying costs of that contract. The company contracted to do that work will not claim for R&D activities which deliver the outcome for its customer’s project.

Contracted R&D carried out by subcontractors who are working for customers who do not pay UK corporation tax, such as overseas companies, will continue to qualify for relief.

If a company, which is contracted to provide a product or service which is not R&D (such as constructing a building or a software product), undertakes R&D in delivering that product or service, they will be able to claim relief even though they are undertaking R&D on an activity contracted to them.

The exact details of who should claim the relief will depend on the specific contract.

Subsidised expenditure

The above changes mean that rules relating to subsidised expenditure in the existing SME scheme are no longer relevant. For example, if a company receives a grant that covers part of the cost of its R&D, or if the cost of the R&D is otherwise met by another person, then (subject to the contracting-out rules above) this will not reduce the amount of support available under the merged scheme.

Additional tax relief for R&D intensive SMEs

The ‘SME intensive scheme’, for the most R&D intensive loss-making SMEs, took effect for R&D expenditure from 1 April 2023. Qualifying companies are able to claim a payable credit rate of 14.5% for qualifying R&D expenditure instead of the normal 10% credit rate for losses under the SME scheme.

A company is currently considered ‘R&D intensive’ where its qualifying R&D expenditure is 40% or more of its total expenditure. This threshold will be reduced from 40% to 30%.

Another change is that an intensive SME, which has made a valid claim in the intensive regime in one year, can claim the intensive relief in the following year, even if it would not pass the threshold test in that year.

Value Added Tax

Registration threshold

The level at which a business is required to register for VAT (taxable turnover of £85,000 in the last 12 months, or expected in the next 30 days) has been fixed since 1 April 2017, and no change was announced to the present intention to keep it at the same level until 31 March 2026. The effect of inflation will require many businesses that are trading below the threshold to register and account for VAT. The deregistration threshold is also fixed at its current level of £83,000 for the same period.

Energy saving materials

The installation of energy saving materials currently qualifies for zero-rating for VAT. This means that the installer can claim back the VAT on the cost of the goods installed, and charge no VAT to the customer. This relief is to be extended with effect from February 2024 to new technologies such as water-source heat pumps, and also to installations in buildings used solely for a relevant charitable purpose.

Stamp Duty Land Tax (SDLT)

Thresholds

On 23 September 2022, the government increased the nil rate threshold (NRT) for SDLT from £125,000 to £250,000 for all purchasers of residential property and from £300,000 to £425,000 for first-time buyers. The maximum purchase price for which the first-time buyer’s threshold applies was increased from £500,000 to £625,000.

These increases in thresholds were later classified as ‘temporary’ and will remain in place until 31 March 2025 ‘to support the housing market and the hundreds of thousands of jobs and businesses which rely on it.’ If history is a guide, such a pre-announced increase in SDLT may well lead to a boom in house prices just below the thresholds as the date approaches.

SDLT only applies in England and Northern Ireland. Decisions about the devolved taxes in Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax) will be taken by their respective governments.

Annual Tax on Enveloped Dwellings (ATED)

ATED applies to residential property worth above £500,000 that is owned through companies and other corporate structures, unless the situation qualifies for a relief. The rates increase automatically each year with inflation and will rise by 6.7% from 1 April 2024, in line with the September 2023 Consumer Prices Index.

Business Rates

From 1 April 2023, charges for business rates in England were updated to reflect changes in property values since the last revaluation in 2017. A package of targeted support was announced a year ago to help businesses adapt to the new charges. Further measures announced this year are:

• Multiplier Freeze – the small business multiplier will be frozen in 2024/25 for a fourth consecutive year at 49.9p, while the standard multiplier will be uprated by inflation to 54.6p.
• Retail, Hospitality and Leisure Relief – eligible retail, hospitality, and leisure businesses qualify for 75% business rates relief, capped at £110,000 per business and extended for a year from 2023/24 to 2024/25.

Other measures

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA)

In December 2022, it was announced that the introduction of MTD ITSA for landlords and the self-employed would be staged. Those with incomes over £50,000 will come in from April 2026, and those with between £30,000 and £50,000 a year later in April 2027. No mention of MTD ITSA was made in the Chancellor’s speech, but a number of points have been confirmed in the documentation, as follows:

• People with gross income (self-employed and property income) under £30,000 will not be brought into MTD ITSA, although this will be kept ‘under review’.
• There are new exemptions for foster carers and those unable to get a National Insurance Number.
• The requirement for taxpayers to file an End of Period Statement (EOPS) is removed - a major simplification as it will remove the need to produce two separate end of year reports. Instead, the EOPS will be merged into the ‘Final Declaration’ process.
• The reporting of quarterly information will become cumulative, rather than just reporting that quarter’s figures. This change should make amendments easier to deal with, as taxpayers will be able to correct any errors in their next quarterly update, rather than resubmitting past quarters.
• Joint landlords will be able to opt out of quarterly updates and keep simpler records in respect of jointly owned property.

Requirement to file tax returns

At present, taxpayers with incomes over £150,000 are automatically required to file a self-assessment tax return each year. Those whose tax is all paid under PAYE will be removed from this requirement from 2024/25. However increases in interest rates on savings raising interest incomes above the tax-free savings allowance as well as the reductions in the CGT annual exempt amount and the dividend allowance are likely to have the opposite effect – more people will have tax liabilities that have to be reported to HMRC.

If you have any questions

To discuss how these changes may impact your own situation, please get in touch with your usual Warrener Stewart contact or email us on info@warrenerstewart.com