Rewarding Effort and Work.
Earlier today, the Chancellor, Jeremy Hunt, delivered his much-anticipated Autumn Statement. With the Conservative party on the ropes politically, there was some speculation as to what the Chancellor would try to do to alleviate the financial pressures on taxpayers and at the same time alleviate some of the political pressure on his party.
Despite both the Prime Minister and the Chancellor having been adamant in the past few months that there was no room for tax cuts, it became apparent in recent days that there has been a change in mood over this in Downing Street. The government has realised that through a combination of increased salaries nationally (due to high inflation) and so called “fiscal drag” (where tax thresholds are not increased in line with inflation), the treasury’s coffers have been swelled beyond expectation and there does now seem to be an opportunity to introduce some tax savings.
Below we set out some of the relevant changes as well as points to consider.
As part of the government’s long plan to grow the economy and, in what the Chancellor referred to as recognition for the vital role that sole traders played during the Covid pandemic, the Chancellor announced major reforms to National Insurance on the self-employed (i.e. sole traders and partnerships).
Class 2 National Insurance Contributions (NIC)
The Chancellor announced that from 6 April 2024, he is abolishing Class 2 NIC, which is currently levied at £3.45 per week for those with profits above £12,570 per year.
Contributions to Class 2 NIC have historically counted towards contributing years for the State pension. The government has confirmed that from April 2024, those who are self-employed, with profits above £6,725, will continue to get access to contributory benefits including the State Pension through a National Insurance credit without paying NICs.
Those with profits below £6,725 per annum will be able to pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, as has been the case until now.
Class 4 National Insurance Contributions (NIC)
The Chancellor also announced a cut to the main rate of NIC for the self-employed – Class 4 NIC which is currently levied at 9% on profits between £12,570 and £50,270. From 6 April 2024, the main rate will be reduced to 8%.
National Insurance (NIC) for employees
As had been rumoured before the Autumn statement, the Chancellor announced a reduction to the main rate of National Insurance for employees.
Currently, National Insurance paid by employees earning between £12,570 and £50,268 is 12%, and 2% on earnings above that. The Chancellor announced that from 6 January 2024, the main rate of employee NIC would be cut to 10%.
There is no change to the rate of NIC paid by employers.
Haffner Hoff comment
Whilst we are in no doubt that the Government’s various antics with the rate of NIC during the course of the current parliament, will have left payroll bureaus across the country feeling like the victims of a never ending vendetta, employees will no doubt be delighted with this announcement and the fact that it is being introduced as a matter of urgency in January
As had been announced before the autumn statement, the government will increase the National Living Wage for individuals aged 23 and over by 9.8% to £11.44 an hour from 1 April 2024. Furthermore, this rate will now apply to 21 and 22 year olds.
In addition, the National Minimum Wage will increase from April 2024, as follows:
- An increase to the rate for 18-20 year olds by 14.8% to £8.60 an hour;
- An increase to the rate for 16-17 year olds by 20% to £6.40 an hour;
- An increase to the apprentice rate by 20% to £6.40 an hour
Haffner Hoff comment
The further increase to the living wage and minimum wage, following on from similar increases in April this year, will no doubt be welcomed by employees who have been struggling with increased costs of living and inflation. Employers, on the other hand, are facing a potential 20% increase in their wage bill compared to the wages they were paying as recently as March 2022. Given that businesses have been as exposed to inflation as individuals, this latest move from the Chancellor may not be well-received by some business owners.
Pensions and Benefits
Rates of Tax Credits, Universal Credit (UC) and other Social Security benefits
The government has announced that most benefits will be increasing in line with the CPI inflation rate for September 2023, which was 6.7%. However, support for childcare costs in both tax credits and Universal Credit is not expected to change.
|Current rate||Approx. rate from April 2024|
|UC Standard Allowance – couple (monthly)||£578.82||£617.60|
|Tax Credits – Child element (annual)||£3,235||£3,455|
|Carer’s Allowance (weekly)||£76.75||£81.90|
|DLA – MR care component (weekly)||£68.10||£72.70|
The State Pension will increase in line with average earnings growth, which was 8.5%. This means the full New State Pension will increase from £203.85 to £221.20 per week.
Housing Benefit/Housing Element of UC
The Local Housing Allowance (LHA) rates will be increased to the 30th percentile of local market rents. These rates are used to set the maximum rates of Housing Benefit and the Housing Element of UC.
In the Greater Manchester area, the current LHA rates, and the current (2023) 30th percentile levels are set out in the table below (monthly rates). The actual rates from April will use the new (2024) 30thpercentile level, due to be published in January 2024, and will likely be even higher.
|Current LHA rate||30th percentile level (2023)|
Increased conditionality for Universal Credit
The government have announced that they will intensify the conditions imposed on unemployed claimants who are expected to look for work. This will include requiring those long-term unemployed (after 18 months) to accept a mandatory work placement if no suitable local job is available immediately. If a claimant refuses to accept these new conditions without good reason, their Universal Credit claim will be closed.
The government will also legislate to increase DWP’s access to data held by third parties (e.g. banks) to better identify fraud. This is mainly intended to combat fraudulent claims where there is undeclared capital/savings.
Although no new measures were announced regarding the Administrative Earnings Threshold (which is the level at which UC claimants are put in the ‘light-touch regime’ and are not required to look for work), the new minimum wage levels, combined with prior announcements, will mean that each individual claimant will have to earn £892/month before being placed in the light-touch regime.
At the Spring budget in March, the Chancellor announced the introduction of Full Expensing (FE) initially from 1 April 2023 until 31 March 2026. FE has now been made permanent.
As a recap of the measures:
FE applies to all qualifying, “main rate” purchases of plant and machinery and will enable companies to fully expense all such purchases.
In addition, for qualifying plant and machinery that doesn’t fall within the main rate pool but falls within the “special rate” pool, a 50% First Year Allowance (FYA) was introduced alongside FE until 31 March 2026. This is also being made permanent.
There are exclusions which apply to both of the above allowances. In particular, expenditure on cars and second-hand plant and machinery will not qualify.
Haffner Hoff comment
As we noted in March, it is important to bear in mind that FE and the 50% FYA is only available to companies not unincorporated businesses.
In addition, both FE and FYA are likely to be irrelevant for many companies, whose annual capital allowance expenditure is generally covered by the Annual Investment Allowance (AIA) of £1m, and which is available on all classes of plant and machinery (other than cars). Choosing AIA over FE or FYA will generally be more beneficial for companies.
Research and development (R&D)
Merging R&D relief schemes
The Chancellor announced that from April 2024, the two existing R&D schemes, one for large companies and one for SMEs, would merge to form one new scheme. This will be introduced for accounting periods beginning on or after 1 April 2024.
The calculation of the relief will follow the mechanism of the RDEC which is used for large companies. This is a very technical area, but broadly it means that relief is given by way of an “above the line credit” to reduce the R&D costs when calculating the taxable profit, and a mirror credit “below the line” to reduce the Corporation Tax due.
Rules regarding subcontracted costs will also be merged, restricting relief on certain costs that large companies could previously claim.
R&D intensive loss-making SMEs
The Chancellor had previously announced special support to R&D intensive SMEs. Since April 2023, loss making SMEs incurring at least 40% of total expenditure on R&D, have been able to claim an enhanced tax credit of 27% of the actual cost incurred (an effective rate of 14.5% compared to the 10% rate for standard SMEs). Today, the Chancellor announced that the intensity threshold of 40% of expenditure would be reduced to 30% from 1 April 2024. We understand that companies qualifying for this relief will claim this rather than the relief under the new, merged scheme.
Haffner Hoff comment
R&D is an area that the Government have been tinkering with repeatedly for some years as they seek to balance rewarding innovation and development, with disincentivising fraudulent and abusive claims, while at the same time providing tax simplification.
There will be winners and losers as a result of the latest changes, but seemingly, genuine R&D intensive businesses will be happy with the new rules.
As always should you have any queries regarding any of the above, please do be in touch.
This update is not intended to constitute tax advice. The information provided in this update is based on our understanding of current (and draft) tax law; but we do not represent or warrant the accuracy of the information contained herein, and any information provided may be incomplete or condensed. The suggestions contained within this document are for discussion purposes only and should not be relied on. You should seek formal tax advice before proceeding with any of the suggestions contained in this update.
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