In the recently announced Autumn Statement 2023, several major changes were introduced with the aim of helping the UK economy grow. Chief among these is the change to National Insurance (NI) rules and several new updates around corporation tax and R&D investments. Let us take a closer look at the implications of the new measures for businesses and individuals:
1. Full expensing to be made permanent
This means that expenditures by businesses on eligible plant and machinery will remain eligible for a full 100% first-year allowance for main-rate assets and a 50% first-year allowance for special-rate assets, which includes those with a long life beyond 1 April 2026.
2. A £4.5 billion investment in British manufacturing to come into play from 2025
The manufacturing sectors that can apply for this funding include automotive, aerospace, life sciences, and clean energy. The goal is to improve long-term certainty for companies in these critical sectors. This investment will be available for five years.
3. More funds announced for driving innovation and unlocking investment
New measures are being proposed to make more funds available from pension funds for high-growth companies and set up new investment vehicles catering to pension schemes.
Consultations are happening on how the Pension Protection Fund can consolidate schemes that do not typically appeal to commercial providers. In addition, the Local Government Pension Scheme (LGPS) will be revised to include a 10% allocation ambition for private equity investments.
4. Extended relief for retail, hospitality, and leisure (RHL) properties
The existing 75% tax relief for eligible RHL properties has been extended into the 2024/25 financial year. This extension is set to benefit around 230,000 RHL properties, with potential cash support of up to £110,000 per business, amounting to a collective tax reduction valued at £2.4 billion.
5. Significant R&D tax relief developments in the picture
Several changes have been announced that will simplify the UK’s R&D tax incentive schemes, such as:
- The notional tax rate applied to RDEC for loss-making companies will be 19% (the small profits rate) rather than the main rate of 25%.
- The R&D decision-maker will soon be able to claim for contracted-out R&D spend. The rules also explain how HMRC will safeguard against double claims being made for the same R&D expenditure.
- The current provisions related to subsidised expenditure will be removed. Going forward, relief will sometimes be available to companies whose R&D ventures are grant-funded or subsidised.
- Loss-making SMEs whose R&D expenditure is at least 40% of their overall expenditure (incurred on or after 1 April 2023) will get an SME tax credit of 14.5%. In addition, the R&D “intensity” threshold will come down from 40% to 30% for accounting periods starting on or after 1 April 2024.
- Going forward, only claimant companies can receive tax refunds or R&D expenditure credits. This is to avoid fraudulent claims through nominee bank accounts.
Business tax roundups
- The extension of the Enterprise Investment Scheme and the Venture Capital Trust Scheme to April 5 2035
- Multiple amendments to the REIT rules, including changes to the criteria around whether a company qualifies as a REIT
- Plans to increase the Audio-Visual Expenditure Credit by April 2025 to support creative businesses
Manufacturing – The direct investment of £4.5 billion in sectors like aerospace and automotive is positive, as these sectors are foundational to building a more modern and environment-friendly technological ecosystem. The decision to make “full expensing” a permanent measure has long been called for by industries and is another welcome move. However, there remains scope for streamlining processes to be more business-friendly.
Renewable energy – The government confirmed that the Electricity Generator Levy and the Energy Profits Levy will end by 31 March 2028. Tax reliefs will also be introduced for oil and gas companies investing in assets for carbon capture usage and storage. Additionally, new renewable electricity generating stations and expansions of existing renewable electricity generating stations will be exempt from the Electricity Generator Levy.
Real estate and construction – The “full expensing” provision is a welcome one, particularly the amendment allowing a 50% first-year allowance to the leasing industry. The proposed amendments to the REIT rules have also been confirmed now.
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1. Cuts made to National Insurance (NI) contributions
With effect from 6 January 2024, the rate of employee NI contributions will be reduced from 12% to 10%. Moreover, the main rate of self-employed Class 4 NI contributions will be reduced from 9% to 8% from April next year.
In addition, employees can now legally request their employers to direct NI contributions to an existing pension plan, enabling them to consolidate their savings into a single fund. This move allows for a more streamlined approach to managing retirement savings.
2. PAYE taxpayers exempt from SATR filing in 2024/25
From 6 April 2024, individuals who pay their taxes solely through the Pay As You Earn (PAYE) system will be relieved from the obligation to file a Self Assessment Tax Return (SATR). However, individuals receiving child benefits with an annual income exceeding £50,000 will need to continue submitting SATRs due to the High Income Child Benefit Charge (HICBC). This threshold has been static since 2013.
3. Amendments made to the off-payment working rules
Under these rules, the end client would earlier have to determine on their own whether they were engaging an individual service provider directly or the individual’s personal service company – in the case of the former, the end client would have to account for NI contributions and income tax just like when paying a salary.
Under the amendment, if the end client incorrectly does not account for that, any tax the individual or their PSC (person with significant control) has paid can now be set off against the end client’s liability.
4. Several updates regarding pensions announced
- The Pension Lifetime Allowance will be abolished. Instead, a new tax-free lump sum will be paid from the registered pension scheme in addition to the “pension commencement lump sum”.
- With effect from 6 April 2024, the authorised surplus payments charge on the return of a surplus to a scheme employer will be reduced from 35% to 25%.
- Starting 6 April 2024, the state pension will be increased by 8.5%, resulting in a new weekly rate of £221.20.
5. Two things confirmed on stamp duty on shares
- No updates have been made on the stamp duty modernisation measures proposed earlier this year. However, two changes have been confirmed:
- The existing stamp duty and SDRT exemptions on shares and securities traded on recognised growth markets will be expanded to include “smaller, innovative growth markets”.
- The 1.5% charge on share issues and certain specific types of share transfers will be removed.
6. The National Living Wage set to rise by 9.8%
From April 2024, the National Living Wage (NLW) for workers aged 21 and over will rise by 9.8%, potentially adding up to £1,800 to the yearly earnings of a full-time worker. This adjustment will increase the hourly rate to £11.44, up from the current £10.42.
The change is part of a broader initiative that will also see revisions to the national minimum wage for workers under 21.
7. A crackdown on late payments initiated
Starting April 2024, companies vying for substantial government contracts must show they settle their invoices within an average of 55 days. This requirement aims to improve payment practices across the board, impacting the primary contractors and the myriad of smaller businesses and subcontractors they work with.
The statement emphasised measures to address tax evasion and tax avoidance and thus close the estimated £35.8 billion “tax gap” in the UK:
- Failing to comply with a Stop Notice under the Promoters of Tax Avoidance rules (POTAS) will be deemed a criminal offence, regardless of the promoter’s intent. Those guilty could be given a prison sentence of up to two years, an unlimited fine, or both.
- HMRC also has the new power to seek the disqualification of directors or other people in positions of authority at companies that promote tax avoidance and thus work against the public interest.
- From the date of Royal Assent, the maximum sentence for the most serious tax fraud cases will be doubled from 7 to 14 years.
- With effect from 6 April 2024, there will be stricter obligations on subcontractors who hold gross payment status under the Construction Industry Scheme (CIS). From 2025/26, there will be several changes to the data taxpayers and agents must provide to HMRC about their clients.
While this is an evolving list, some changes include the need for self-employed individuals to mention their self-employment start and end dates on their tax returns and for employers to give details about employee hours via real-time payment reporting.
We think the Autumn Statement for 2023 was a mixed bag. On the surface, the tax cuts for companies and individuals seem to be a big win.
We are also set to see more jobs, which is good news, and the cut in NI contributions from next year should mean a bit more cash in our pockets.
However, the fiscal drag created by the lack of change of the taxation thresholds has not gone down well, and for many means that they will be paying more in tax than they benefit from; pensioners being brought into the basic rate, for example, and thus losing the benefit of the pension increase.
Should you wish to discuss how the Autumn Statement’s changes could affect your business or you individually, please feel free to get in touch. You can reach out by completing our contact form or by calling us at 020-8303-1287.