Autumn Statement 2023
24th November 2023Chancellor Jeremy Hunt has now presented his Autumn Statement to Parliament. In his words, he started making the long-term decisions necessary to strengthen the economy and build a brighter future. Fueled by falling inflation and stabilised public finances, focus is now being applied to reducing debt, cutting tax and rewarding hard work.
Headlines included;
- generous National Insurance Contribution (NIC) cuts for workers and the self-employed
- and the ‘biggest permanent tax cut in modern British history for businesses’.
Some other anticipated measures appear to be on hold ahead of a full Budget next Spring.
Below, we talk more about the Autumn Statement headlines and other measures announced.
Please note that ‘tax years’ run to 5 April each year and that, for example, 2024/25 signifies the year to 5 April 2025.
CUTTING TAX AND REWARDING HARD WORK
For employees
In addition to income tax, all employees earning more than £12,570 a year pay Class 1 NICs. The main rate of Class 1 NICs will be cut from 12% to 10% from 6 January 2024. This will come into effect from January 2024 and, 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.
Similarly, 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 have been at a flat rate sum of £179.40 a year (£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.
Class 2 NICs currently provide the self-employed with access to a range of state benefits, including the State Pension. From 6 April 2024, self-employed people with annual profits;
- Above £12,570 – will continue to receive access to the benefits.
- Between £6,725 and £12,570 – will continue to receive access to the benefits, via a National Insurance credit.
- Under £6,725 (or with losses) – will be able to continue to pay Class 2 NICs on a voluntary basis in order to maintain their access to state benefits. Class 2 NICs had been due to increase in 2024/25 but it seems that these will be maintained at the current £3.45 weekly level for those in this bracket.
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%.
NATIONAL MINIMUM WAGE (NMW)
The biggest ever increase to the National Living Wage has been announced. The government is fully accepting the recommendations made by the Low Pay Commission. Eligibility for the National Living Wage will also be extended by reducing the age threshold to 21-year-olds for the first time. It was previously for those aged 23 and over only. From 1 April 2024 the minimum pay rates will be as follows:
| NMW rate
£ |
Increase
£ |
Increase
% |
|
| National Living Wage (age 21 and over) | 11.44 | 1.02 | 9.8 |
| 18-20 year old rate | 8.60 | 1.11 | 14.8 |
| 16-17 year old rate | 6.40 | 1.12 | 21.2 |
| Apprentice rate | 6.40 | 1.12 | 21.2 |
PENSION REFORM
The government has announced a comprehensive 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 people (especially younger generations) 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.
CAPITAL GAINS TAX
The capital gains tax annual exemption is set to drop to £3,000 in 2024/25. This is down from £6,000 in 2023/24. This change will mean that those selling capital assets such as property or shares will pay more tax, where the new lower annual exemption is exceeded. Capital gains tax rates range from 10% to 28% in 2023/24, depending on the tax status of the seller and the type of asset sold.
If you are planning any capital disposals, please contact us to discuss the best strategy for the disposal.
INHERITANCE TAX
The inheritance tax nil rate band continues to be frozen at £325,000 until April 2028. The residence nil rate band will also remain at £175,000 and the residence nil rate band taper will continue to start at £2million. Despite prior rumours to the contrary, there has been no change to inheritance tax rates.
CORPORATE TAXES
Rates from 1 April 2024
From 1 April 2024, the rate of Corporation Tax will continue to be 25% if a company’s profits exceed £250,000 a year. The small profits rate of 19% will apply where profits are no more than £50,000 a year.
Where a company’s profits fall between £50,000 and £250,000 a year, the profits are taxed at the higher 25% rate, but a ‘marginal relief’ is given to reduce the liability, with the effective rate being closer to 19% the closer profits are to £50,000.
Companies in the same corporate group (or otherwise connected by association) must share the £50,000 and £250,000 thresholds between them, making the 25% rate more likely to apply. A similar rule applies to the £1.5million threshold which, if exceeded, means that companies are required to pay their corporation tax earlier and in instalments.
Research & Development (R&D) Reliefs
For company accounting periods commencing on or after 1 April 2024, a new R&D scheme for limited companies will come into effect, 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’.
These are significant changes and come on top of a raft of changes already seen in 2023. HMRC say that further action may still be needed to reduce the unacceptably high levels of non-compliance with tax rules in the R&D sector.
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, along with a new approach for companies who many fluctuate in and out of the status; and
- Restrictions on nominations and assignments of R&D relief payments.
Any company claiming (or considering claiming) R&D reliefs will need enhanced support to both ensure compliance and to adopt the new rules and framework. Please do get in touch if we can assist you with this.
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.
Annual Tax on Enveloped Dwellings (ATED)
The ATED annual charges will rise by 6.7% from 1 April 2024 in line with the September 2023 CPI.
EMPLOYMENT TAXES
National Insurance Contributions (NICs)
Like the main income tax bandings, employer and employee NIC thresholds are now also frozen until 5 April 2028. This broadly means that, in 2024/25, employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year (£175 per week) and employees will pay at the reduced 10% rate on earnings between £12,570 and £50,270 and 2% thereafter.
For eligible employers, the employment allowance remains at £5,000 per year, reducing their employer’s NIC liability by this sum. Eligible employers should remember to opt in on their payroll software to ensure that the allowance is received.
Company Cars and Other Benefits
Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. Employers also pay Class 1A NIC at 13.8% on the value of benefits.
The set percentages used to calculate company car benefits are fixed until 5 April 2026 before slight increases apply to most car types, including electronic and ultra-low emission, from 6 April 2026.
The figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) remain fixed at their 2023/24 levels in 2024/25. These are:
- Van benefit £3,960
- Van fuel benefit £757
- Car fuel benefit multiplier £27,800
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.
Off-payroll Working (IR35)
Off-payroll working rules ensure that a worker who provides services through an intermediary company to a ‘deemed employer’ pays broadly the same income tax and NIC as an employee would. The rules are complicated and apply differently depending on the size and type of the deemed employing entity.
The new rules deal with cases where HMRC is collecting underpaid PAYE from the deemed employer and will allow them to give credit for any tax and NIC already paid by the worker and their intermediary. This is to avoid the potential over-collection of tax.
