On 22 November 2023, Jeremy Hunt delivered his Autumn Statement. Against an improving inflationary environment, the Chancellor stated he was keen to stimulate economic growth.
There were significant announcements relating to National Insurance changes and the reform of work-related state benefits. However, despite the statement including 110 measures for businesses, many owners of small businesses are likely to be left feeling left out.
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Income tax rates and allowances
The government has stated that the basic rate will remain at 20%, the higher rate at 40% and the top rate at 45% for 2024/25.
The income tax personal allowance and basic rate limit are fixed at their current levels until April 2028. They are £12,570 and £37,700 respectively. For those entitled to a full personal allowance, the point at which they will pay income tax at the higher rate will continue at £50,270. Top rate tax will continue to apply to incomes in excess of £125,140.
Dividend tax rates
Although dividend tax rates have in the past risen in line with National Insurance, there was no corresponding reduction in dividend tax rates. From 6 April 2024, the rates of taxation on dividend income will remain as follows:
- Dividends subject to basic rate tax – 8.75%
- Dividends subject to higher rate tax – 33.75%
- Dividends subject to top rate tax – 39.35%.
Corporation tax due on directors’ overdrawn loan accounts will also remain at 33.75%.
The government will reduce the Dividend Allowance from £1,000 to £500 from 6 April 2024.
The Scottish and Welsh governments will make their announcements on the devolved elements of taxation policy in due course.
National Insurance contributions
The Chancellor announced major changes to the National Insurance contributions (NICs) system affecting employees and the self-employed. The rate of employer NIC contributions will remain unchanged at 13.8%.
Employees and NICs
The government will cut the main rate of Class 1 employee NICs from 12% to 10% from 6 January 2024 so that employees can benefit as soon as possible.
According to the government, this will provide a tax cut for 27 million working people with the average worker on £35,400 receiving a cut in 2024/25 of over £450.
The self-employed and NICs
The self-employed (sole traders, members of partnerships and LLPs) generally have to pay two forms of NICs: Class 2 and Class 4.
Firstly, the government will abolish Class 2 self-employed NICs from 6 April 2024. This means that, from 6 April 2024:
- Self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs but will continue to receive access to contributory benefits, including the State Pension.
- Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the State Pension, through a National Insurance credit without paying NICs.
- Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so.
The government expects to propose further reforms to entitlements under what was Class 2 next year.
Secondly, the government will cut the main rate of Class 4 self-employed NICs from 9% to 8% from 6 April 2024.
Individual Savings Accounts
The government is freezing the limits on Individual Savings Accounts (ISAs) (£20,000), Junior Individual Savings Accounts (£9,000), Lifetime Individual Savings Accounts (£4,000 excluding government bonus) and Child Trust Funds (£9,000) for 2024/25.
However, a number of changes will be made to allow multiple subscriptions to ISAs of the same type every year and to allow partial transfers of ISA funds in-year between providers from April 2024.
Pension tax limits
No further changes to limits were announced so for 2024/25:
- The Annual Allowance (AA) is £60,000.
- Individuals who have ‘threshold income’ for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum AA of £10,000.
In addition, as previously announced the Lifetime Allowance of £1,073,100 will be abolished from 2024/25. Changes will be made to clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements.
Corporation tax rates
The government has confirmed that the rates of corporation tax will remain unchanged, which means that, from April 2024, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
The new Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is unused and not second-hand. The rules were originally designed to be effective for expenditure incurred on or after 1 April 2023 but before 1 April 2026. Similar rules apply to integral features and long life assets at a rate of 50%. The government has announced that both allowances will now be made permanent.
The Annual Investment Allowance, which gives a 100% write-off on certain types of plant and machinery, remains at £1 million per 12-month period.
The change will be of benefit primarily to large businesses, the vast majority of SMEs already receive tax relief akin to Full Expensing through the Annual Investment Allowance regime.
Research and Development (R&D)
The existing Research and Development Expenditure Credit (RDEC) and SME schemes will be merged, with expenditure incurred in accounting periods beginning on or after 1 April 2024 being claimed in the merged scheme. The rate under the merged scheme will be set at the current RDEC rate of 20%. The notional tax rate applied to loss-makers in the merged scheme will be lowered from 25% to 19%.
A number of other changes will apply to the new regime from April 2024, including that R&D claimants will no longer be able to nominate a third-party payee for R&D tax credit payments, subject to limited exceptions. In addition, no new assignments of R&D tax credits will be possible from 22 November 2023, meaning that, in most circumstances, payments of R&D tax reliefs will be paid directly to the company that claims for the R&D.
The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2024, staying at £85,000 and £83,000 respectively.
National Living Wage and National Minimum Wage
The government has accepted in full the recommendations of the Low Pay Commission and announced significantly increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from April 2024. The rates which will apply from 1 April 2024 are as follows:
|From 1 April 2024
The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.
The small business multiplier will be frozen for another year, while the 75% Retail, Hospitality and Leisure relief will be extended for 2024/25. The standard multiplier will be uprated in line with September’s Consumer Prices Index. These changes will take effect from 1 April 2024 in England.
Other business measures
A number of other measures have been announced:
- Making the cash basis of accounting the default position for the self-employed from 2024/25, with an alternative to opt for the accruals basis, together with technical changes to the regime.
- A number of changes to strengthen the Construction Industry Scheme from April 2024.
Other taxation matters
The capital gains tax annual exempt amount will be reduced from £6,000 to £3,000 from April 2024.
The inheritance tax nil-rate bands will stay fixed at their current levels until April 2028. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million.
Making Tax Digital
The government has announced the outcome of the review into the impact of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) on small businesses which includes maintaining the current MTD threshold at £30,000 and design changes to simplify and improve the system. These changes will take effect from April 2026. The government will also ensure taxpayers who join MTD from 6 April 2024 are subject to the government’s new penalty regime for the late filing of tax returns and late payment of tax.
Get in touch
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