Tax cuts for business growth

Autumn Statement 2023 Update

‘Tax cuts for business growth’

Chancellor Jeremy Hunt has outlined his plans to continue to rebuild our economy and tackle the cost-of-living crisis. This time last year the goal was to ‘steady the ship’ and promote growth in the UK economy. That goal has been achieved to an extent, however inflation and cost-of-living increases continued to be of great concern to people up and down the country.

The chancellor has provided welcome news in this Autumn Statement with significant cuts to national insurance for working people, both employed and self-employed, and inflation (or greater) level increases to benefits and state pension.

These cuts will give most of the population more money in their pocket, and the Chancellor believes they will boost business growth. Cynics naturally point to the looming election, whilst experts note that the overall tax burden remains at a record high (due to the continued freeze on tax thresholds). It is worth noting however that these freezes were brought in to recoup the costs incurred during the COVID pandemic and have now given the Chancellor the opportunity to provide these tax cuts without increasing national debt.

Mr Hunt said “I think it’s right to make a start in bringing down taxes, but the taxes that I brought down are not the crowd pleasers that were on the tip of everyone’s tongues, inheritance tax or income tax. They’re the taxes that are going to help businesses grow, and that is the way that we will increase our long-term prosperity, raise wages, raise living standards.”

We have analysed the announcements and have highlighted below what we believe to be the most key and relevant points for our clients.

Personal Taxes

  • The headline news here are the cuts to National Insurance. For employees the basic rate has been reduced from 12% to 10%. A reduction which will save someone with a salary of £35,000 just under £450 a year. These reductions will be brought into effect from 6th January 2024, rather than 6th April when they would usually come into effect.
  • There are also cuts for the self-employed, with class 2 NI being abolished (a saving of £179 per year) and the basic rate being reduced from 9% to 8%, from 6th April 2024.
  • There were no increases in income tax rates, which will remain at 20% for lower rate, 40% for higher rate, and 45% for the additional rate. Dividend tax rates are also unchanged at 8.75%, 33.75% and 39.35% respectively.
  • Personal tax thresholds continue to be frozen until April 2028. This includes the personal allowance (the amount of income a person earns before paying tax) which will remain at £12,570. As mentioned above, the under-the-radar tax savings that result from not increasing these thresholds more than offsets the headline tax cuts from this statement.
  • The Chancellor announced plans to simplify the design of Making-Tax-Digital (MTD) for income tax self-assessment. The threshold will remain at £30,000, however there will be various changes and improvements to the system. These changes will take effect from April 2026. The government will also ensure that all taxpayers that join MTD from 6th April 2024 onwards are subject to HMRC’s new, fairer penalty regime for late filing and payment.
  • Starting in the 2024/25 tax year, the government will no longer require individuals with income taxed only through PAYE to file a Self-Assessment return.

Corporation Tax

  • The headline news in respect of business taxes is the ‘Full Expensing’ deduction being made permanent, having previously been set to end in March 2026. This relief allows companies to claim 100% first-year deductions from profits on all qualifying new main-rate plant and machinery investments. This, along with the Annual Investment Allowance (AIA) serve as a major incentive for businesses to invest in new assets.
  • There were no further changes to Corporation Tax. The main rate remains at 25%, for all companies with taxable profits of over £250k. Companies with taxable profits below £50k will be subject to a reduced rate of 19%, and those with turnover between £50-£250k will be subject to a marginal rate between 19% and 25%.
  • Further adjustments have been made to Research and Development, with the intensity threshold for loss-making SMEs being reduced from 40% to 30%. A one-year grace period will be introduced to allow companies that dip below the threshold to receive relief for one more year. The two existing R&D schemes (RDEC and SME) will be merged from 1 April 2024. The notional tax rate applied to loss-making businesses in this new scheme will be reduced from 25% to 19%.

National Minimum Wage

The chancellor has increased the national minimum wage to £11.44 an hour from April 2024, for those aged 21 and over. This is an increase of 9.8% for those over 23, and 11% for those aged 21-22. The planned increases are even larger for younger individuals, with 18-20 rising to £8.60 (14.8%) and 16-17 rising to £6.40 (21.2%).

Business Rates

The Chancellor confirmed the business rates multiplier will continue to be frozen until 2024/25, and the 75% relief discount for businesses in the retail, hospitality and leisure sectors has also been extended for a further year. Mr Hunt says this will help ease the burden of the increased minimum wage on these businesses.

Cash Basis

The government is expanding and simplifying the income tax cash basis for the self-employed and partnerships. These changes will take effect from 6 April 2024, for 2024-25.

Electric Vehicles

The 100% first year allowance on electric vehicle charging points has been extended to 2025. All other rates and policies relating to EVs are unchanged.

Additional resources from HMRC

The government is investing a further £163m to improve HMRC’s ability to manage tax debts. They say this will allow HMRC to better distinguish between who can afford to settle their debts, but choose not to, and those who genuinely need support.

Frustratingly, there were no announcements of further funding for HMRC to improve their service levels, which we feel have dropped considerably in recent times.

Please reach out to one of the team to discuss how the budget will affect you and your business
specifically.

Billy Kent FCCA
Billykent@baverstocks.com
01376 519 044

*This should not be used as a definitive guide since individual circumstances may vary. Specific advice should be obtained from the team, where necessary.

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