Autumn Statement 2023 & the taxation impact on businesses

Jeremy Hunt recently presented his Autumn Statement, setting the scene for the tax year to come and with some changes applying much earlier.

National Insurance (NI) cuts were at the forefront of the announcements.  For the self-employed, Class 4 NI, payable on profits between £12,570 and £50,270 a year, will be cut from 9% to 8% from April 2024.

In addition, Class 2 NI, currently payable by the self-employed, will be abolished from April 2024.  Payment of Class 2 NI was previously a qualifying factor for benefits such as State Pension. Moving forward, those earning over £12,570 (and therefore subject to Class 4 NI) will continue to earn a qualifying year. Those earning between £6,725 and £12,570 will also earn a qualifying year, despite no longer having to pay NI. For those with profits less than £6,725, the option to voluntarily pay Class 2 NI to earn a qualifying year will remain, the rate remaining frozen at its current level of £3.45 per week for 2024/25.

The main rate of employees’ Class 1 NI will be cut from 12% to 10% from 6 January 2024.  Alongside this, the National Living Wage will increase from £10.42 to £11.44 an hour from April 2024. For the first time this will apply to 21-year-olds, having previously applied to those 23 and over.  Businesses will need to be prepared to implement these changes, both in terms of budgets and payroll software.

The income tax rates and thresholds for 2024/25 will remain frozen at the current rates, as previously announced in the March budget. The personal allowance will stay at £12,570 and the higher rate threshold at £50,270 until April 2028.  Whilst the rates remain frozen, assuming earnings increase with inflation, this represents an underlying tax increase, the so-called ‘fiscal drag’ effect.

For sole-traders and partnerships considering use of the cash-basis method of accounting, the turnover threshold of £150,000 has been removed entirely.  Cash-basis can be a simpler method than the traditional accruals method and relates largely to actual funds received and paid in the year, but for that reason it won’t be right for all businesses, for example those with fluctuating cashflows and profitability levels.  There are also some restrictions to the tax reliefs available, therefore anyone seeking to make a change should consider the implications carefully.

For companies, full expensing of qualifying plant & machinery (offsetting the full cost of the capital equipment against trading profits) was made permanent.

Overall, an interesting bag, with perhaps more to come in the spring.