Autumn Budget Statement 2023

Tax Briefing September 2021

Autumn Statement – What does it mean for you?

The chancellor opened his statement advising there will be 110 measures to "help grow the economy", and possibly with an eye on the pending general election next year.

A rumour before the speech was potential cuts to Inheritance tax, however, there was no mention of this and instead the major headline winner was the reduction to National insurance for both employees and the self employed.

Income Tax

The were no changes to income tax. The basic income tax rate will remain at 20% (on income up to £50,270), with higher rate tax remaining at 40%.

The additional rate tax of 45% also remains on income in excess of £125,140.

As a reminder, the tax-free personal allowance is reduced by £1 for every £2 of income over £100,000. This results in an effective tax rate of 60% on earnings between £100,000 and £125,140.

The personal allowance of £12,570 will be frozen until April 2028.

With the freeze on personal allowances and tax thresholds, this will result in more people being brought into taxation and higher tax rates as their income increases, hence the stealth tax on income moving forward.

Dividend Allowance

There were no further announcements with regards to the taxation of dividends and allowance of currently £1,000 will be reduced to £500 from April 2024.

Capital Gains Tax

As a reminder, the annual allowance of currently £6,000 will reduce to £3,000 from April 2024.

Trusts generally have the benefit of a CGT annual allowance of 50% of that available to individuals.

National Insurance

In a surprise move, Mr Hunt announced that Class 2 National Insurance (payable by the self-employed) will be abolished, saving individuals approximately £180 per annum.

Those with profits under £6,725 and who pay voluntary Class 2 NIC to get access to contributory benefits, will continue to be able to do so, though further information will follow on this.

Furthermore, Class 4 national insurance will be reduced from 9% to 8% from April 2024, thus reverting back to its previous level.

Taken together, these reforms will save around 2 million self-employed workers an average of £350 per year, though it could be up to over £550.

Class 1 NIC is paid by employees on earnings over £12,570, the same limit as the tax-free personal allowance.

As from 6 January 2024 (note the date!), the main rate of employee national insurance will be reduced from 12% to 10%, which will result in a saving of over £450 per year for a worker earning the average salary of £35,000, or indeed up to over £750 for someone earning approximately £50,000.

The employment allowance will remain at £5,000, meaning the first £5,000 of employers NIC will be covered by the allowance.

Frustratingly for employers there was no mention of an equivalent reduction to employer National Insurance.

Corporation Tax

Unfortunately for businesses, no major announcements were made in connection with corporation tax, although for some companies the full expensing announcement may benefit them.

Since April 2023, corporation tax rate is now 25% for companies with profits in excess of £250,000.

Companies with profits of below £50,000 will continue to pay tax at 19%.

Although these are the headline rates, the effective tax rate on profits between £50,000 and £250,000 is actually 26.5%.

Minimum Wages

In welcome news for workers, the minimum wage will increase substantially from 1 April 2024.

As from 1 April 2024, the national living wage will also apply to over-21's.

Rate from April 2023

Current Rate

Increase

National Living Wage

£11.44

£10.42

9.8%

21-22 year old

£11.44

£10.18

12.4%

18-20 year old

£8.60

£7.49

14.8%

16-17 year old

£6.40

£5.28

21.2%

Apprentice rate

£6.40

£5.28

21.2%

Given the large increase and therefore additional costs to employers, we recommend businesses consider the increases coming into effect from April 2024.

R&D Tax Relief

R&D tax relief will change for companies with accounting periods commencing on or after 1 April 2024. This is different to what was originally suggested, which was that it would change for expenditure incurred from 1 April 2024 meaning a company with an accounting period which straddled 1 April would have had to deal with both the old and new rules. However, this is no longer the case.

All companies under this new R&D scheme will receive tax relief at a rate of 20% of qualifying R&D expenditure. The new rules will contain a measure in that relief will be reduced by a "notional" tax charge based on the company's applicable tax rate (if profit making) or at a flat 19% if loss making. Any "notional tax" retained can be carried forward as a credit against the company's next available corporation tax liability (subject to having a large enough PAYE/NIC liability for employees to cover it).

VAT

The installation of certain energy saving materials (e.g. solar panels, air and ground source heat pumps and insulation) in residential accommodation currently qualify for zero-rated VAT. As from February 2024, this will be extended to installations of these materials in buildings used solely for relevant charitable purposes.

The VAT registration threshold will remain at £85,000, with the de-registration threshold remaining at £83,000, until at least April 2026.

Business Rates

To continue to support businesses and the high street, the government announced the freeze to business rate multipliers for another year, and keep in place the relief for retail, hospitality and leisure to 75%.

Capital Allowances

As widely anticipated, the decision to make permanent "full expensing" for business was announced.

The annual investment allowance was previously increased to £1m permanently, which covered an estimated 99% of UK businesses, so although the change is welcome, for most businesses it will not bring any additional benefit.

Construction Industry Scheme (CIS)

Following consultation, the government announced some changes to the CIS scheme, in particular in connection with Gross Payment Status. The changes announced were:

  1. Add compliance with VAT obligations to the gross payment status compliance test.
  1. Increase the grounds for instant cancellation of gross payment status. VAT, Income Tax, Corporation Tax and PAYE will be added to the taxes where HMRC is able to immediately cancel a businesses gross payment status if they have reasonable grounds to suspect that the business has fraudulently provided an incorrect return or information.
  1. Introduce regulations to remove most payments from landlords to tenants from the scope of the CIS.

In many cases, having gross payment status is vital for those operating in the Construction sector, as it can help maintain cash flow. These new changes give extra reason to ensure your tax obligations are kept up to date, as failure to do so can result in the loss of gross payment status.

Gross payment status applications and CIS registrations will no longer be available via telephone, except for those who cannot apply digitally or via post.

Inheritance Tax

The Inheritance Tax Nil Rate bands will be frozen until March 2028.

SDLT

No new announcements were made in connection with SDLT.

Child Benefit

The threshold at which the High-Income Child Benefit Charge applies remains at £50,000, meaning as earnings increase, more people will be subject to the HICBC.

If you or your partner earns more than £50,000, your child benefit starts being gradually withdrawn, so by the point you earn £60,000, you don't receive any child benefit at all.

If you want to know how the Autumn Statement affects you, get in touch with one of our tax advisers, who will be happy to assist.

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Winter Newsletter 2023
Tax Briefing Autumn 2023
 

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Wednesday, 28 February 2024

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