Autumn Statement 2023
Under the headline of "cutting tax and rewarding hard work", the Chancellor of the Exchequer Rt Hon Jeremy Hunt MP delivered his Autumn Statement on 22 November 2023. Building on the announcements of the Spring Budget 2023, now inflation has halved and as the economy appears to recover, the government is using the underlying fiscal improvement to tackle long-term economic challenges and stimulate growth in the supply side of the economy.
The government is prioritising action in five critical areas: reducing debt; cutting taxes and rewarding hard work; building domestic and sustainable energy; backing British businesses; and delivering world-class education. More details are expected when the Finance Bill is published.
The main announcements include making 'full expensing' for capital allowances purposes permanent, merging the existing R&D tax relief schemes and the reduction in the rates of National Insurance Contributions.
We set out below a summary of the main tax announcements but, in the meantime, please speak to your usual Statura contact should you wish to discuss the content of this document in more detail or indeed the way in which the Autumn Statement might affect your personal circumstances.
Capital allowances allow businesses to write-off their costs of qualifying capital investments against their taxable profits over time.
The so-called 'full expensing' of expenditure by companies on plant and machinery, which was introduced with effect from 1 April 2023 to replace the 'super deduction' for a limited period of three years, is to be made permanent. In particular, 'full expensing' refers to first-year capital allowances available to companies at 100% for main rate expenditure and 50% for special rate expenditure.
Expenditure on plant and machinery for leasing remains excluded from 'full expensing'. The government, however, will publish a technical consultation on draft legislation in due course to help it consider any potential extension.
Research and Development (R&D) tax reliefs
The UK currently has two schemes for providing tax relief for qualifying research and development (R&D) expenditure:
- Enhanced tax relief and payable credits for qualifying expenditure incurred by small and medium-sized enterprise (SME); and
- R&D Expenditure Credit ('RDEC') for all other claims (i.e., for large company and SMEs which cannot claim under the above scheme).
The Chancellor confirmed at the Autumn Statement 2023 that the proposed reform of the R&D tax reliefs will be going ahead, with a merged RDEC and SME scheme applying for accounting periods beginning on or after 1 April 2024.
The expensiture credit rate offered under the merged scheme will be implemented at the current RDEC rate of 20%, while the notional tax rate applied to loss-makers in the merged scheme will be the small profit rate of 19%, rather than the 25% main rate currently set in the RDEC (which therefore permits a greater utilisation of RDEC credits).
As announced at Spring Budget 2023 (and described in our previous newsletter), the government will also introduce legislation in the Autumn Finance Bill 2023 to implement the enhanced support for 'R&D intensive' SMEs.
The intensity threshold required to qualify for this enhanced support will be reduced from 40% to 30% from 1 April 2024. A one-year grace period will also be introduced, enabling a company which has claimed successfully but which fails to meet the intensity threshold, for example due to a one-off event, to continue to claim for the following period provided it meets the other conditions for the relief.
It is expected that this 'R&D intensive' scheme will not be merged with the RDEC and SME schemes, which is counterintuitive in the wider context of the R&D reform.
OECD Pillar 2 and multinational / domestic top-up tax
Multinational top-up tax and domestic top-up tax were introduced by Finance (No 2) Act 2023 and have effect for accounting periods beginning on or after 31 December 2023. These taxes are the UK's adoption of Pillar 2, an international agreement to help tackle profit shifting and aggressive tax planning by multinationals.
Draft legislation was published in July 2023 and September 2023 to introduce the undertaxed profits rule (UTPR) and to make amendments to the existing multinational top-up tax and domestic top-up tax regimes. The government has now announced that additional technical amendments will be included in the Autumn Finance Bill 2023 to ensure the legislation continues to adhere to the OECD's Global Anti-Base Erosion (GloBE) rules.
Class 2 & Class 4 National Insurance Contributions (NIC)
From 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NIC. They will however continue to receive access to contributory benefits including the state pension.
From 6 April 2024, the main rate of Class 4 NIC will reduce from 9% to 8%.
Expansion of the cash basis
Legislation will be introduced to expand the cash basis for self-employed taxpayers including those in partnerships from the tax year 2024/25. The changes will not apply for property businesses, companies or those entities already excluded from the current cash basis regime.
Currently, the default method for calculating profits of trading businesses is the accruals basis and in order to use the simpler cash basis, businesses have to opt in. The changes will make the cash basis the default method of calculating profits and businesses will have to opt to use the accrual basis instead.
Personal and Employment Taxes
Reduction of Class 1 National Insurance Contributions (NIC)
With effect from January 2024, the main rate of employee NIC payable will be reduced from 12% to 10%. The rate applies to employee earning between the Primary Threshold £242 per week and the Upper Earnings Limit £967 per week.
The government has announced a whole suite of policies around pensions reform, which will cover a wide range of issues on pensions around how to make it easier for individuals to manage and access their pensions, how pensions invest and options to put changes in place.
Off-payroll working offset rules
A limited set-off for the taxes paid by the contractor or their personal service company will be introduced, from April 2024, against a deemed employer's subsequent PAYE liability.
Making Tax Digital small business review outcome
No major changes were announced to Making Tax Digitalf for Income Tax (MTD ITSA) for trading and property income. The previously announced dates of April 2026, for gross income / turnover over £50,000 and April 2027, for gross income / turnover over £30,000 remain.
Reform to the VAT energy-saving materials relief
The Government will introduce legislation to expand the VAT relief available on the installation of energy-saving materials by extensing the relief to additional technologies, such as water-source heat pumps, and bringing buildings used solely for a relevant charitable purpose within scope of the relief.
A programme for investment zones was set out in the Spring Budget 2023. The government plans for 12 zones to be established in the UK, including four outside England, which will be provided with £160m of support between spending and tax incentives over ten-year period (this is an extension from the previously announced 5 years).