On 22nd November 2023, Mr Hunt presented the Autumn Statement 2023 alongside the Office for Budget Responsibility's (OBR) economic and fiscal outlook. The DSA Prospect team delves into the details of Chancellor Jeremy Hunt's recent Autumn Statement.
Despite managing to avoid a recession at the end of last year after the economy performed better than anticipated, it's no secret that throughout 2023 businesses and individuals across the UK have faced significant challenges due to soaring interest rates, a stagnant economy, and the pressing issue of the cost of living crisis.
In his statement, the Chancellor outlined the government's economic priorities and policies for the upcoming year, placing emphasis on several key priorities that shape their economic agenda. These priorities included reducing debt, cutting taxes, rewarding work and backing UK businesses.
Here are some important highlights from the Chancellor's announcements that our team has summarised:
Tax Insight
The media buzz around what would be announced in the Autumn Statement 2023 was relatively quiet in comparison to Mr Hunt's previous budgets and the focus was clearly on one thing - what would happen with taxes.
While the Chancellor previously emphasised that tax cuts would not be possible until the economy improves, lower public borrowing figures and signs of controlled inflation left room for speculation (and hope!). With general elections on the Prime Minister's mind and headlines boasting that the government met their pledge to half inflation early as it fell to 4.6% a week before the statement it was no surprise that 'tax cuts' were the talk of the town leading up to the day.
Employee National Insurance
The Chancellor made a surprising and significant announcement at the end of his speech. Mr Hunt revealed that starting from 6 January 2024, there will be a 2% reduction in the main rate of Class 1 Employee National Insurance Contributions (NICs). This means that the amount employees need to pay will decrease from 12% to 10% on earnings between £12,570 and £50,270. The 2% rate on earnings above £50,270 will remain unchanged.
While this reduction may help alleviate some of the impact of frozen tax thresholds, which were extended in last year's statement, it also means that payroll teams will need to act quickly to implement these changes.
Self-Employed National Insurance
The Chancellor also made announcements regarding tax reforms and simplification for self-employed individuals, affecting nearly 2 million people. Starting from 6th April 2024, these changes aim to streamline the UK tax system and provide relief for self-employed individuals:
- Self-employed individuals will no longer be required to pay Class 2 NICs
- Class 4 Self-employed NICs will be cut from 9% to 8%
Business Rates
Continuing the support for retail, hospitality, and leisure businesses, the government has decided to extend the business rate relief of 75% until 2025. Additionally, they have frozen the small business multiplier for another year, providing further assistance to small businesses in these sectors.
Research and Development Tax Relief
R&D tax relief is a UK tax incentive that rewards companies for investing in innovation. It provides cash incentives through repayable credits or corporation tax reductions, allowing businesses to lower their tax bill or receive a cash payment for their R&D activities. It benefits both businesses and the economy as a whole.
In recent years, the government has explored various strategies to support their policies while also incentivising businesses to take advantage of available tax reliefs. One of the latest initiatives included plans to simplify and merge the SME and RDEC tax relief schemes into a single programme.
The Chancellor's announcement included the official introduction of this new single scheme. The government is optimistic that this consolidation will incentivise businesses to increase their investments in research and development, ultimately fostering innovation and driving economic growth.
Here are the key takeaways regarding this scheme:
- The existing Research and Development Expenditure (RDEC) and SME schemes will be combined into one
- Expenses incurred in accounting periods beginning on or after 1 April 2024 will be claimed in the merged scheme
- The notional tax rate applied to loss-making businesses in the merged scheme will be reduced to 19%
More information about how the new R&D scheme will work will be released by the government. It is essential for businesses to stay updated on the deadlines and work together with their accountants to develop a strategic plan.
Visual Effects Tax Relief
The government aims to collaborate with the thriving creative sector, which reportedly contributes £126 billion annually to the UK economy, in order to offer additional tax relief for visual effects expenditure. This initiative is designed to attract further investment in the UK, bolstering the growth and success of the creative industry.
Full Expensing Extension
Full expensing is a tax relief provision that offers companies the opportunity to claim a 100% first-year allowance on their investments in eligible plant and machinery. By taking advantage of full expensing, these companies can accelerate their growth and investment plans, creating a more stable and prosperous future. This capital allowance scheme was implemented on 1 April 2023 with an initial end date 31 March 2026.
With a clear focus on promoting economic growth, it was no surprise that the Chancellor announced in his Autumn Statement that full expensing will be made permanent. This decision aligns with the government's position on providing tax relief and incentives to UK businesses.
National Living Wage Increase
In a move that will be welcomed by workers who have been grappling with frozen income thresholds and rising inflation, the National Living Wage is set to increase to £11.44 per hour for workers aged 21 (lowered from 23) and over, starting from April.
This represents a significant 9.8% increase and is a positive step towards addressing income inequality, but it may pose additional pressure on employers who are already navigating a complex economic landscape - particularly for small businesses operating on a tight budget. Employers will need to carefully assess their financial situation and explore strategies to manage these increased wage costs and cash flow effectively.
Freeport Tax Relief Extended
The freeport tax reliefs will be extended until 2031 for freeports in England, subject to agreement on delivery plans. In Scotland and Wales, the reliefs will be extended from five to ten years, pending agreement with the devolved administrations.
Alcohol Duty Frozen
The Chancellor has decided to freeze alcohol duty until August 2024. This move is expected to provide pubs with additional funds, allowing them to reinvest in their businesses and further enhance their offerings.
Pensions and the Triple Lock
In keeping with their promise to uphold the triple lock, the Mr Hunt announced that the government will be increasing State Pension and Pension Credit by 8.5% in April 2024.
Furthermore, the Chancellor unveiled an initiative granting employees the opportunity to consolidate their pension funds into a single lifelong pot of their choice. This measure proposed by Mr Hunt will require employers to provide this option to their employees, promoting greater convenience and efficiency in managing retirement savings.
How can DSA Prospect help?
Be sure to download our full summary guide of yesterday's announcements here.
As always, more news on these announcements will continue to develop and this is a merely a guide to some of the main points initially discussed. We recommend seeking further consultation on any questions you may have regarding the Autumn Statement 2023 and encourage you to get in touch with our team.
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