Autumn Statement 2023: ‘Giveaways’ on National Insurance and capital allowances partially offset fiscal drag

Chancellor of the Exchequer Jeremy Hunt vowed that he was “back[ing] British business with 110 growth measures” and tax cuts in an Autumn Statement that was seen by many as a pre-general election giveaway.

In his speech on 22 November, Hunt said that, with inflation halved (from over 10% in January to 4.6% by October), he would “reduce debt, cut taxes and reward work”.

Hunt announced eye-catching cuts to National Insurance Contributions (NICs) rates, business rates freezes and extensions, and unveiled the permanent full expensing capital allowances. He originally introduced three-year full expensing until 2026 in his Spring Budget in March, but had faced many calls from business to make it permanent.

While many hailed the giveaways, especially to businesses, some sounded a note of warning. Laith Khalaf, AJ Bell head of investment analysis, said “the economic and fiscal forecasts still make for pretty grim reading”.

Although the Autumn Statement lessened the tax burden “a bit, it’s still expected to rise to a post-war high in five years’ time, at 37.7% of GDP”, Khalaf said. “Fiscal drag is a powerful force [and] economic growth is also forecast to be … just 0.7% next year, rising to 1.4% the year after.”

Here are Hunt’s tax announcements in more detail.

Personal taxes

From 6 January 2024, the main rate of Class 1 employees’ NICs will fall by 2%; the higher rate remains the same. For the self-employed, the compulsory Class 2 [NIC flat-rate] charge will be abolished and Class 4 NICs lowered to an 8% rate from 9%, from 6 April 2024.

“The decision to slash the [NIC] main rate from 12% down to 10% is estimated to cut taxes for 27 million working people, and will save someone on a £30,000 salary around £350 a year – while anyone earning more than the £50,270 threshold will save the maximum of £754 a year,” noted Laura Suter, AJ Bell head of personal finance.

These NIC cuts will cost the government £9.44bn from April, she added, which “feels pretty meaty, but not when you put it next to £50bn a year the government is expected to make from freezing income tax and [NIC] thresholds – it’s the classic case of giving with one and taking far, far more with the other”.

Christine Cairns, PwC tax partner, praised another simplification that was “hidden away”: the £150,000 threshold for individuals with income taxed only through PAYE to file a Self Assessment tax return will be abolished altogether from the 2024/25 tax year, removing the requirement for up to 338,000 taxpayers to submit a tax return.

Another simplification: all self-employed traders will now be able to pay tax on the ‘cash basis’ – the net cash they receive – rather than the more complicated accounting ‘accruals basis’, which taxes businesses on accounting rather than cash profits.

“Up to now this simpler basis had been restricted to only the smallest businesses; by making this change more businesses will benefit from the administrative relaxation,” Cairns said.

Meanwhile, Rachael Griffin, Quilter’s tax and financial planning expert, noted: “After much speculation over the past few weeks zero changes to inheritance tax have been announced which, given only 4% of the nation pay the tax, will probably not make too many people unhappy … The optics of getting rid of IHT at the moment might have been too hard for the government to bear.”

Business taxes

Capital allowance full expensing

“Full expensing is a straightforward and easy tax relief that will make the decision to invest in new equipment much easier,” HW Fisher corporate tax partner Toby Ryland said. “It covers a wide variety of business necessities [and] means tax deductions will follow the financial cost of investing in real time rather than spreading the cost over a longer period.”

Administration of the now-permanent capital allowance policy is simple as well, Ryland notes, with companies able to claim the relief through their corporation tax return.

“Arguably a tactical and political decision ahead of 2024 elections, but a positive announcement nonetheless,” Ryland said.

There’s some disagreement over the measure’s utility. While Elosie Walker, partner at law firm Pinsent Masons, said that the permanence of this relief “creates stability and certainty”, Menzies LLP tax partner Richard Godmon said many small and medium sized enterprises would not benefit from the headline announcement.

“[It] will not help the many thousands of unincorporated businesses that are crucial to the economy,” Godman said.

Many businesses already benefit from the Annual Investment Allowance (AIA), which allows the first £1 million of expenditure on plant and machinery to be deducted in the year of purchase.

One of the key criticisms of full expensing was that it was costly, estimated at £11 billion a year for the first three years, noted Martin Dye, Evelyn Partners director. Although, he said, making it permanent will promote more new long-term investment and will reduce this upfront cost significantly to an estimated cost of £1 billion to £3 billion per annum. It achieves this by increasing the level of business investment by up to 21% per year by 2030/31 (an extra £50 billion) that is expected to boost GDP by 2%.

Business rates

“Jeremy Hunt has today taken very welcome action on late payments, small businesses’ rates, and self-employed taxation,” said Tina McKenzie, policy chair of the Federation of Small Businesses (FSB). “Small businesses – and the 16 million people who work for them – are the route to future growth … The UK’s 5.6 million small business owners are a large and motivated part of the electorate.”

McKenzie praised the chancellor’s business rates announcements around the small business multiplier being frozen, and the extension of the 75% discount for the retail, hospitality and leisure sectors.

“Thousands of pubs, cafes and small shops in high streets across England will be pleased today with this bold, measured and targeted support,” she said. “By … freezing the small business multiplier, the government has prevented an inflation-linked hike for many of those in the supply chain and other sectors too.”

However, Phil Vernon, PwC’s head of specialist business rates projects, was more cautious.

“Freezing the small business rates multiplier for properties with a rateable value under £51,000 for a further year will be welcome news for many,” Vernon said. “However, this won’t be across the board – small businesses hit hardest by the April 2023 revaluation could still see their rates bills rise by as much as 26.6% in April 2024 as transitional relief, which was introduced to help businesses suffering large revaluation increases, is phased out.”

The extension to retail, leisure and hospitality relief will be welcomed by smaller businesses in these sectors – but continuing to cap the relief at £110,000 per business means it will not extend to many parts of the sector, including those with large property portfolios, Vernon added.

Research and development (R&D)

Businesses can also look forward to an extension of Investment Zone/Freeport zone benefits, and a simplified R&D scheme, though Crowe UK corporate tax partner Laurence Field that this extension “may prove to be less lucrative when the details are clear”.

Nigel Holmes, R&D director at Ryan (formerly Catax), noted the past 12 months’ significant upheaval in the R&D scheme would be extended by the merger of the two schemes, with the R&D regime reforms to be implemented from April 2024.

“Ideally this merger would have been delayed by at least a year to allow the other changes to settle down,” Holmes said.

Tom Minnikin, partner at Forbes Dawson, said the R&D reform is a step in the right direction, “but the government should focus attention on improving the operation of the scheme itself”.

The announcement of increased relief for loss-making companies’ tax rate falling to 19% from 25% is good news, Minnikin explained, but many SMEs report “nightmares” in getting HMRC to process their claims.

“Our own experience is that claims that were once being processed within four to six weeks are taking four to six months. For many small start-ups, particularly in the tech sector, the availability of R&D tax credits is a lifeline to getting their business off the ground – it is no good increasing the incentives if businesses can’t access the cash quickly,” Minnikin said.

The threshold in the incoming R&D-intensive SME scheme will also be reduced to 30% from 40% for accounting periods that start on or after 1 April 2024, allowing around 5,000 extra SMEs to qualify for an enhanced rate of relief.

Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) reliefs

The government extending the VCT and EIS sunset clauses from 2025 to 2035 “is good news for two schemes that have supported billions of pounds worth of investment into UK start-ups,” commented Nicholas Hyett, investment manager at Wealth Club. “It removes uncertainty that has been lingering over the sector for some time, potentially putting off new entrants and new investors, and secures a crucial source of funding for the UK’s blossoming start-up scene.”