The Chancellor of the Exchequer, Jeremy Hunt, has delivered his Autumn Statement to the House of Commons. The government continues to be faced with challenging economic conditions as the cost of living crisis continues to affect many families across the UK.

The Chancellor, however, had some good news with inflation falling to 4.6% in October, down from a peak of over 11% last year. This together with the prospect of an upcoming general election suggested that there may have been more giveaways than in a usual Autumn Statement and this seems to have been borne out.

The OBR also provided good news and forecast inflation to continue to fall gradually. CPI inflation is expected to be 4.8% in Q4 2023 and fall further to 2.8% in Q4 2024. The OBR expects CPI inflation to average 1.8% over 2025 before returning to the 2% target in the medium term.

The following summary of the measures announced by the Chancellor as part of the Autumn Statement measures is split into two sections:

1. Taxation changes
2. Other announcements

Please call if you need to discuss how these changes may affect your business or tax affairs in the coming months.

National Insurance

The Chancellor announced a number of changes to the National Insurance contributions (NICs) rates.

His first announcement concerned the removal of Class 2 NICs for the self-employed. This means that self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs from 6 April 2024. Class 2 NICs are currently paid by the self-employed who make profits above £12,570, in order to qualify for benefits such as the state pension. This change effectively abolishes Class 2 NICs for some two million self-employed people. The self-employed benefitting from this change will continue to receive access to contributory benefits including the State Pension. Those currently paying Class 2 NICs voluntarily will still be able to do so at the same rate.

In addition, the Chancellor announced that the main rate of self-employed National Insurance, Class 4 NICs, on all earnings between £12,570 and £50,270 will be cut by 1%, from 9% to 8% from April 2024.

The Chancellor saved his largest giveaway of the Autumn Statement for the end of his speech with the announcement of a reduction in the main rate of Employee National Insurance. This will see Class 1 NICs reduced by 2% from 12% to 10%. Unusually, this measure will come into effect before the start of the next tax year, effectively, from 6 January 2024. Perhaps this can be seen as a not-so-subtle hint of an earlier than expected general election? The Chancellor said this change will save the average worker some £450 a year.

Business Tax – Full expensing

The major announcement in the Autumn Statement affecting business investment related to ‘full expensing’. Full expensing was introduced at Spring Budget 2023 and offers companies the ability to write off the purchase of qualifying plant and machinery. The relief was initially introduced for a 3-year period from 1 April 2023 until 31 March 2026. In the Autumn Statement, the Chancellor announced that the government will now make full expensing permanent. According to the Chancellor, this means that the UK will now have one of the most generous capital allowances regimes in the world.

Full expensing is available on expenditure that includes, but is not limited to, warehousing equipment such as forklift trucks, tools such as ladders and drills, construction equipment such as bulldozers and excavators, machines such as computers and printers, vehicles such as tractors, lorries and vans, office equipment such as chairs and desks, and some fixtures such as kitchen and bathroom fittings and fire alarm systems. This effectively allows qualifying purchases to be written off completely against company taxable profits in the year when purchased.

Business Tax – R&D

The existing R&D Expenditure Credit and Small and Medium Enterprise Scheme will be merged from April 2024, simplifying the system and boosting innovation in the UK.

The rate at which loss-making companies are taxed within the merged scheme will be reduced from 25% to 19%, and the threshold for additional support for R&D intensive loss-making SMEs will be lowered to 30%, benefiting a further 5,000 SMEs.

Other announcements

National Living Wage increases

Promoted as the “Biggest ever increase to the National Living Wage (NLW)” the Chancellor confirmed the following changes that will apply from 1 April 2024. For the first time, eligibility for the NLW will be extended to 21 year olds. The increase will see the NLW rate increased to £11.44 per hour.

The National Minimum Wage (NMW) rates are also to be increased from the same date, 1 April 2024.

The new rates will be:

• 18 to 20 year-old rate will be £8.60 per hour
• 16 to 17 year-old rate will be £6.40 per hour
• The apprentice rate will also be £6.40 per hour

It is interesting to reflect that the impact of these increases will fall on employers, not the government.

Back to Work

The government is expanding its programme of employment support for the long-term unemployed for two years from 2024 across England and Wales.

Mandatory work placements will boost skills and employability for those who have not found a job after 18 months of intensive support. Those who choose not to engage with the work search process for six months will have their claims closed and benefits stopped.

Making Tax Digital

It was announced during the Autumn Statement that the government will introduce a package of changes to simplify the design of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). This will benefit 1.7 million businesses and landlords set to be mandated to use MTD.

It was announced late last year that the introduction of MTD had been delayed until April 2026. From that date, those with annual income over £50,000 will be mandated to join the scheme, followed by those with income over £30,000 from April 2027. The government has said they will keep under review the decision on whether MTD for ITSA will be extended to businesses and landlords with income below £30,000.

Business Rates

The Chancellor announced a business rates support package worth £4.3 billion over the next 5 years. This included a rollover of 75% Retail, Hospitality and Leisure relief for 230,000 properties and a freeze to the small business multiplier, which will protect around 90% of ratepayers for a fourth consecutive year.

Investment Zones

The Investment Zones programme and freeport tax reliefs will be extended from 5 years to 10 years. This will double the envelope of funding and tax reliefs available in each Investment Zone from £80 million to £160 million, to provide greater certainty to investors.

The Chancellor also announced that three advanced manufacturing Investment Zones will be established in Greater Manchester, East Midlands, and West Midlands.

Alcohol duty

As part of the Autumn Statement measures the Chancellor announced, to a big cheer, that the duty rates on beer, cider, wine and spirits will be frozen at the current rates until 1 August 2024.

Tobacco duty

The duty rates on tobacco products were increased by 2% above the rate of inflation (based on RPI) effective from 6pm on 22 November 2023. The Chancellor also announced that the duty for hand-rolling tobacco increased by RPI plus 12% at the same time. The government remains committed to maintaining high tobacco duty rates as a tool to reduce smoking.

Benefits Uprating

Benefit payments will rise by September Consumer Price Index (CPI) inflation – 6.7% rather than what many had predicted which could have seen the Chancellor using the lower 4.6% October rate.

This means the government will raise benefits, including Universal Credit and other working age benefits by 6.7% from April 2024. 

The new full State Pension will increase by 8.5%, in line with average earnings growth, from £203.85 per week in 2023-24 to £221.20 per week in 2024-25.  The basic State Pension and Pension Credit standard minimum guarantee will also increase by the same percentage.

Local Housing Allowance

To support low income households, the government will increase the Local Housing Allowance rate to cover the lowest 30% of rents from April 2024. This will benefit 1.6 million households with an average gain of £800 next year.

The new Chancellor of the Exchequer, Jeremy Hunt, has delivered his Autumn Statement to the House of Commons against a backdrop of a worsening cost of living crisis and with confirmation from the Office for Budget Responsibility OBR that the UK has now entered into a recession.

The OBR has stated that the economy is still forecast to grow by 4.2% this year. GDP is then predicted to fall by 1.4% in 2023, before rising by 1.3% in 2024.

As expected, the Chancellor set out billions of pounds in tax increases and spending cuts to continue the restoration of market stability after the disastrous mini-budget.

The following summary of the measures announced by the Chancellor as part of the Autumn Statement measures is split into two sections:

1. Taxation changes
2. Other announcements

Please call if you need to discuss how these changes may affect your business or tax affairs in the coming months.

Income Tax

The Chancellor has announced that the Income Tax additional rate threshold will be reduced from £150,000 to £125,140 with effect from 6 April 2023. This move will see an estimated 250,000 further taxpayers pay the additional rate of Income Tax of 45% from next April.

It had been previously announced that there would be no increase in the Income Tax Personal Allowance and higher rate threshold until April 2026. The Chancellor has now confirmed that the thresholds will be maintained at their current levels for a further two years until April 2028. Higher rate threshold will remain frozen at £37,700 and the personal tax allowance will remain at £12,570 through to April 2028.

This is effectively a “stealth tax” increase. Wage earners benefitting from annual increases in their earnings up to April 2028 will find themselves paying tax on the full value of any increases. This is because, with personal allowances frozen until April 2028, any increases in earnings will be taxed and, in some cases, this may push earnings into the higher rate tax bands especially for those who will now be subject to the 45% rate (with its new reduced limit).

Regional variations to Income Tax rates may apply in Wales and Scotland.

Income Tax and dividend income

The current £2,000 dividend tax-free allowance is to be reduced to £1,000 from April 2023 and to £500 from April 2024.

The 1.25% increase in the tax rates payable on dividend income, which took effect in April 2022 remains in place.

The rates that apply in all regions of the UK from 6 April 2023 are as follows:

• Dividends that form part of the basic rate band – 8.75%
• Dividends that form part of the higher rate band – 33.75%
• Dividends that form part of the additional rate band – 39.35%

Inheritance Tax

No changes to present rates and allowances were announced. These rates and allowances will remain frozen at current levels until April 2028.

The nil-rate band will continue to be £325,000 and the residence nil-rate band at £175,000, for this period.

Stamp Duty Land Tax

On 23 September 2022, the then Chancellor, Kwasi Kwarteng, announced a permanent increase in the SDLT nil rate band to £250,000 (from £125,000). There was also an increase in the nil-rate threshold for first-time buyers making a purchase of up to £425,000 (from £300,000). The first-time buyers relief also increased the nil-rate threshold to £425,000 (from £300,000) for first-time buyers of properties costing up to £625,000 (from £500,000). There is no relief available for first-time buyers spending more than £625,000 on a property. There are a number of requirements that must be met in order to qualify for the relief.

These changes were one of the only surviving measures from the mini-Budget. It was announced as part of the Autumn Statement that these measures will remain but as a temporary SDLT reduction until 31 March 2025 and not as a permanent change as originally announced.

It is important to note that these measures apply to England and Northern Ireland only. Any changes to the Land and Buildings Transaction Tax in Scotland or the Land Transaction Tax in Wales would be announced separately.

National Insurance

The Chancellor also confirmed that the National Insurance contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) that were already fixed at their current levels until April 2026 will now be maintained for an additional two years until April 2028.

The 1.25% rise in National Insurance contributions (NICs) that came into effect at the start of the 2022-23 tax year on 6 April 2022 was reversed on 6 November 2022. There have been no further changes announced and the cancellation of the ring-fenced Health and Social Care Levy of 1.25% due to be introduced from April 2023 remains in place and will not go ahead as originally planned.

The alignment of the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs with the personal allowance of £12,570 that came into effect on 6 July 2022 will stay at this level until April 2028.

The government will fix the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) at 2022- 23 levels in 2023-24. The LEL will remain at £6,396 per annum (£123 per week) and the SPT will remain at £6,725 per annum. The Upper Secondary Threshold will stay fixed at £50,270 per annum until April 2028, to remain aligned with the UEL and UPL.

The government will use the September CPI figure of 10.1% to uprate the Class 2 and Class 3 NICs rates for 2023-24. The Class 2 rate will be £3.45 per week, and the Class 3 rate will be £17.45 per week.

Capital Gains Tax

The Chancellor announced a significant reduction in the annual exempt amount applicable to Capital Gains Tax (CGT). This rate had previously been fixed at £12,300 from April 2021 to April 2026 for individuals, personal representatives, and some types of trusts for disabled people.

The exempt amount will now be reduced to £6,000 from April 2023 before being further reduced to £3,000 from April 2024.

Corporation Tax

The Chancellor had previously announced on 17 October 2022 that the planned increases in Corporation Tax (CT) rates from April 2023 would be going ahead.

From1 April 2023, there will be two rates of CT.

• Taxable profits up £50,000 will continue to be taxed at 19%.
• Taxable profits more than £250,000 will be taxed at the main rate of 25%.
• Profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods.

Corporation Tax and banking companies

From 1 April 2023, the rate of surcharge on banking companies will be 3% and the surcharge allowance will increase from £25m to £100m.

Diverted Profits Tax

The rate of Diverted Profits Tax will increase from 25% to 31% from 1 April 2023. This will maintain the 6% differential above the main rate of CT.

Corporation Tax – R&D Relief

The Research and Development Expenditure Credit (RDEC) rate will increase to 20% (from 13%) with effect from 1 April 2023. From the same date, the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%.

R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs. This will effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK, and target abuse and improve compliance. These changes will be legislated for in the Spring Finance Bill 2023.

Windfall Taxes

The Energy Profits Levy (EPL) will increase to 35% (from 25%), effective 1 January 2023. The investment allowance will be reduced from 80% to 29% for qualifying investment expenditure thereby maintaining its existing cash value. The Levy is scheduled to end on 31 March 2028, raising £40 billion over the next 6 years. This will bring the headline tax rate for the sector to 75%.

The Chancellor also announced the introduction of a temporary Electricity Generator Levy. This will see a temporary 45% tax that will be levied on certain extraordinary returns from low-carbon UK electricity generation. The tax will apply to extraordinary returns arising from 1 January 2023.

Vehicle Excise Duty (VED)

VED will become applicable on electric cars, vans and motorcycles from April 2025 in the same way as it currently applies to petrol and diesel vehicles. This change will apply to new and existing zero emission cars.

Company Car Tax

The rates of company car tax that apply until April 2028 have been announced in order to provide long term certainty for taxpayers and industry.

The rates will continue to incentivise the take up of electric vehicles:

• The appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1% in 2025-26; a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.
• The rates for all other vehicles bands will be increased by 1% for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.

First Year allowances for electric charging points

Businesses can currently benefit from First Year allowances on qualifying electric charging points for cars and vans. To qualify for the relief the company must use the charging point in their own business. This relief was set to expire in 2023 but has now been extended for a further two years, to 31 March 2025 for Corporation Tax purposes and to 5 April 2025 for Income Tax purposes.

VAT

There will be no changes to the 20% rate. The £85,000 registration limit and the £83,000 deregistration limit will now remain at these levels until 31 March 2026.

Other announcements

National Living Wage increases

The NLW will increase to £10.42 per hour (previously £9.50) from 1 April 2023.

The full changes to the National Minimum Wage rates from 1 April 2023 are as follows:

• The 21 to 22 year-old rate will be £10.18 per hour
• The 18 to 20 year-old rate will be £7.49 per hour
• The 16 to 17 year-old rate will be £5.28 per hour
• The apprentice rate will be £5.28 per hour

Council Tax flexibility

The government is to raise the cap on the level of council tax rises by increasing the referendum limit for council tax rises to 3% per year from April 2023.

Business rates

Business rate bills in England will be updated from 1 April 2023 to reflect changes in property values since the last revaluation in 2017. A package of targeted support worth £13.6 billion has been announced to help support businesses with this change as well as increased costs.

These measures are as follows:

• Freezing the business rates multiplier for another year
• Extended and increased relief for retail, hospitality and leisure businesses
• Reforming Transitional Relief
• Protection for small businesses who lose eligibility for either Small Business or Rural Rate Relief.

Energy price guarantee scheme

The Chancellor announced that the energy price guarantee scheme which will see the average household have their energy bills capped at £2,500 a year will remain in place until the 31 March 2023.

From 1 April 2023, this guarantee will change so that the typical household will pay on average £3,000 a year (an increase of £500). This will save the Exchequer around £14 billion next year while still saving the typical household £500 a year off their energy bills, compared to the price of the energy price cap.

The government will also double to £200 the level of support for households that use alternative fuels, such as heating oil, LPG, coal or biomass, to heat their homes. 

Cost of Living Payments

The Cost of Living support package to help over 8 million households in receipt of mean tested benefits is to be extended. This will see an additional Cost of Living Payment of £900 in 2023-24. The payments will be made in more than one instalment. DWP and HMRC will provide further detail on timing of these payments and eligibility dates in due course.

There will also be a new Cost of Living payment for pensioners who will receive an additional £300 and an additional £150 payment for those on non-means-tested disability benefits in 2023-24.

Benefits Uprating

The government will also raise benefits, including working age benefits and the State Pension, in line with inflation from April 2023.  These payments will rise by September Consumer Price Index (CPI) inflation – 10.1%. As a result of uprating these working age and pension benefits around 19 million families will see their benefit payments increase from April 2023.