Autumn Statement 2023 or Birthday Shout Out?

First published on 23 November 2023 by Alastair
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The Chancellor began the Autumn Statement by wishing a happy birthday to his wife, however, other than the changes to National Insurance Contributions (NIC), not a lot of presents were handed out to many of our clients!

Tax rates and bands will remain frozen at their current levels. On the face of it, this may not seem too dramatic but these actions will contribute significantly to many ordinary workers and pensioners slipping into either paying tax at higher rates or becoming taxpayers again.

Listed below are the main tax announcements from the Autumn Statement

Income tax

Income tax rates and bands

The income tax rates and bands for UK taxpayers are to remain frozen at the below levels.

For Scottish taxpayers, it is important to remember that these rates only apply to savings income and the Scottish tax rates apply to non-savings income.  This is still to be announced but the current Scottish rates are included below for reference.

 

Rest of UK

Scotland

Personal allowance

 

£12,570

 

£12,570

Starter Rate

-

-

19%

Up to £14,732

Basic Rate

20%

Up to £37,700

20%

Up to £25,688

Intermediate Rate

-

-

21%

Up to £43,662

Higher Rate

40%

Up to £125,140

42%

Up to £125,140

Additional Rate

45%

Over £125,140

47%

Over £125,140

Dividends

The rates of taxation on dividend income will also remain frozen at the following rates:

  • the dividend ordinary rate - 8.75%
  • the dividend upper rate - 33.75%
  • the dividend additional rate - 39.35%.

The reduction in the Dividend Allowance from £1,000 to £500 from 6 April 2024 will proceed affecting an estimated 4.4 million individuals in 2024/25 with the average additional tax cost being around £155.

As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will remain at 33.75%.

National Insurance contributions

Employees and NICs

The government will cut the main rate of Class 1 employee NICs from 12% to 10% from 6 January 2024.  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

Under the current rules, the self-employed generally pay two forms of NICs (Class 2 and Class 4). However, the government will abolish Self-Employed Class 2 NIC from 6 April 2024, resulting in a saving of at least £192 per year for those that currently payin it.

This change will impact access to contributory benefits (like state pension) as follows:

  • Those with profits above £6,725 will not be required to pay Class 2 NICs but will continue to receive access to contributory benefits.
  • Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits, will continue to be able to do so.

Additionally, the main rate of Class 4 self-employed NICs will be cut from 9% to 8% from 6 April 2024. 

National Living Wage and National Minimum Wage

It is estimated that 2.7 will benefit from the recommendation of the Low Pay Commission, increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) will come into force from April 2024, and the NLW will be extended to 21 and 22 year olds.

 

NLW

18-20

16-17

Apprentices

From 1 April 2024

£11.44

£8.60

£6.40

£6.40

Individual Savings Accounts (ISA’s)

Unchanged limits for 2024/25 on Individual Savings Accounts (ISAs) (£20,000), Junior ISA’s (£9,000), Lifetime Isa’s (£4,000) and Child Trust Funds (£9,000).

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

Changes to pension taxes introduced from 2023/24 will continue in 2024/25 meaning:

  • The Annual Allowance (AA) is £60,000.
  • Individuals who have ‘threshold income’ for a tax year above £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.
  • No Lifetime Allowance (LA) charge – and the limit to be abolished.

Changes will be made to clarify the taxation of lump sums and lump sum death benefits, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements.

Capital gains

The capital gains tax annual exempt amount will be reduced from £6,000 to £3,000 from April 2024.It is estimated that around 570,000 individuals and trusts could be affected by this.

Inheritance tax

Despite rising media speculation about the abolishment of Inheritance Tax, no changes were announced in this Autumn Statement.  This is not surprising given that is expected to contribute tax revenues of almost £8 billion per annum(!), but perhaps these may be being saved for Budget 2024. 

It means that the ‘nil-rate band’ will continue at £325,000, the residence nil-rate band at £175,000 and the residence nil-rate band taper at £2 million. Tax on death transfers remains at 40% and 20% for lifetime transfers.

Corporation tax rates

These will remain unchanged at 25% for companies with profits over £250,000. The 19% small profits rate will continue to be payable by companies with profits of £50,000 or less. Those with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief.

Capital allowances

The Full Expensing rules introduced from 1 April 2023 will be made permanent.  These rules 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, and a 50% write off on most integral features and long-life assets. This measure is primarily aimed at larger companies and will not benefit the vast majority of SME’s who spend less than £1 million per annum on qualifying expenditure and therefore already benefit from AIA. 

The Annual Investment Allowance (AIA), which gives a 100% write-off on certain types of plant and machinery, remains at £1 million per 12-month period.

Research and Development (R&D)

The existing Research and Development Expenditure Credit (RDEC) and SME schemes will be merged, for accounting periods beginning on or after 1 April 2024. The rate under the merged scheme will be set at the current RDEC rate of 20% and the notional tax rate applied to loss-makers will be lowered from 25% to 19%. For those SME’s making claims under the existing R&D Tax Credit scheme this will lead to a significant reduction in the tax savings from those obtained previously.

Several other changes will apply to the new regime as HMRC seek to clamp down on the scourge of fraudulent claims, meaning that, in most circumstances, payments of R&D tax reliefs will be made directly to the claimant company (rather than a 3rd party assignee).Further action is being considered to reduce levels of non-compliance with the R&D rules and HMRC will be publishing a compliance action plan separately. We support HMRC’s continued clampdown in this area.

VAT

The VAT registration and deregistration thresholds will not change for a further period of two years, staying at £85,000 and £83,000 respectively.

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.

Making Tax Digital

After several delays in recent years, Making Tax Digital for Income Tax is still being scheduled for introduction from April 2026.  Originally the income threshold for businesses to be included was just £10,000 but it has been confirmed that the threshold will now be £30,000. Given the huge technology challenges encountered by HMRC to date, many in the profession doubt HMRC will be ready in a little over 2 years. At present, that is how long they take to answer some letters!

Self Assessment

HMRC’s criteria for filing a tax return is to change.  Previously, HMRC expected anyone with income of £100,000 to file, but this will increase to £150,000. Unfortunately for many tax advisers this ‘change doesn’t reflect the law on completion of tax returns as HMRC apply its own arbitrary rules.

 

Autumn Statement 2023 or Birthday Shout Out?

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