Autumn Statement

A surprise but very welcome move by the Chancellor in the Autumn Budget to introduce some tax cuts. Here is a quick summary of the changes for individuals and businesses.

Tax for individuals

The National Insurance Contributions (Reduction in Rates) Bill reducing Class 1 and Class 4 NICs and abolishing Class 2 NICs has been introduced in Parliament.

The Bill provides for National Insurance contribution (NIC) measures announced by the Chancellor in the Autumn Statement 2023. In particular:

• the reduction in the main rate of Class 1 primary NICs from 12 per cent to 10 per cent from 6 January 2024;

• the reduction in the main rate of Class 4 NICs on self-employed profits from 9 per cent to 8 per cent from 6 April 2024, and

• the abolition of Class 2 NICs for the self-employed from 6 April 2024.

In addition, the Class 3 NIC rates will be frozen at £17.45 a week for 2024–25.

From 6 April 2024, the Government will make changes to individual savings accounts (ISAs) designed to simplify and widen the scope of investments which can be included. ISAs will also be moved onto a digital system.

Enterprise investment schemes and venture capital trusts are to be extended to 2035 to ensure that growth capital continues to be available to early-stage innovative companies.

Legislation, coming into effect from 6 April 2024, will make changes to address the potential over-collection of tax and NICs where there has been non-compliance with the IR35 rules.

In addition, in a move to encourage business growth, full expensing’ is to be made permanent rather than ceasing on 31 March 2026. Full expensing allows companies to claim tax relief for 100% (or 50%, for certain categories) of qualifying capital expenditure in the year in which it is incurred. This measure is helpful for large companies, but businesses with annual qualifying capital spend under £1m already benefit from a 100% ‘Annual Investment Allowance’ (AIA) which has a similar effect. Unlike full expensing, the AIA is also available to unincorporated businesses.

Business tax

Everyone was predicting measures to encourage business growth and they were not disappointed.

Firstly, ‘full expensing’ is to be made permanent, rather than ceasing on 31 March 2026. Full expensing allows companies to claim tax relief for 100% (or 50%, for certain categories) of qualifying capital expenditure in the year in which it is incurred. This measure is helpful for large companies, but businesses with annual qualifying capital spend under £1m already benefit from a 100% ‘Annual Investment Allowance’ (AIA) which has a similar effect. Unlike full expensing, the AIA is also available to unincorporated businesses.

As promised, there are to be further reforms to research and development (R&D) reliefs to come into effect in April 2024. The current two schemes will be merged into one. In a technical note, the Government explains the following key aspects of the merged scheme:

• contracted out R&D;

• subsidised expenditure;

• externally provided workers; and

• the Step 2 reduction.

The note also sets out the additional relief available to loss-making R&D intensive small and medium-sized enterprises (SMEs) – those where qualifying R&D expenditure is at least 40% of their total expenditure.

Business rates relief at 75% for retail, hospitality and leisure businesses in England will continue for another year, until 31 March 2025. The relief is worth up to £110,000 per business each year; as well as shops and restaurants, it is available to businesses such as hotels and gyms, cafes and pubs, and cinemas and music venues. In addition, the business rates multipliers (used to calculate business rates) will be frozen at their current levels until 31 March 2025. We’ll need to wait for separate announcements for businesses in Scotland, Wales and Northern Ireland, where the business rates rules are different.

From 6 April 2024, Class 4 NIC on business profits between £12,570 and £50,270 is to be reduced from 9% to 8% – a saving of up to £377 in 2024–25. Secondly, compulsory Class 2 NIC (currently a flat rate of £3.45 per week) will be abolished from 6 April 2024 (as originally proposed by the late, lamented Office for Tax Simplification). These cuts are welcome but note that for businesses with employees, the 2% cut in employee NIC (as to which, see below) has not been mirrored by any cut in employer NIC, which will remain at 13.8% in 2024–25.

Following consultation, the cash basis regime is to be extended as follows:

• removal of the turnover thresholds for businesses;

• setting the cash basis as the default method of calculating taxable profits, with an opt-out for accruals;

• removal of the £500 limit on interest deductions; and

• removal of the restrictions on using loss relief.

Simplification

Making Tax Digital (MTD) has been reviewed and some significant changes are to be made to:

• simplify the requirements for all taxpayers to providing quarterly updates, and for taxpayers with more complex affairs (for example landlords with jointly-owned property);

• remove the requirement to provide an end of period statement;

• exempt some taxpayers, including those without a National Insurance number; and

• enable taxpayers using MTD to be represented by more than one tax agent.

Further, the Government will keep under review the plan for further mandation of businesses and landlords with income below £30,000.

The Government has set out its four main objectives on tax simplification:

1. Tax rules should have a clear consistent rationale and be easy to understand.

2. The burden of compliance and administration should be proportionate for taxpayers and HMRC and it should be easy for taxpayers to get their tax right.

3. Taxpayers should be able to understand their obligations and options particularly at key lifecycle points, such as when they do something for the first time or infrequently.

4. Tax policy should not unnecessarily distort the decisions of taxpayers and result in poorly informed choices.’