From an economic viewpoint, the headline was the reduction in inflation over the last year – from 11% to 4.6% (as measured by the CPI), thus allowing the Prime Minister to say that he has fulfilled the pledge to halve inflation this year. This, along with slightly improved debt forecasts since the Spring Budget, gave the Chancellor some headroom to cut taxes.
There had been much speculation in recent weeks about the nature of these cuts. In the end, neither income tax nor inheritance tax have been touched – although the reduction to national insurance contributions will have benefits for workers and the self-employed.
From a tax perspective, there were three main measures which are of interest to businesses and workers.
National insurance contributions (NICs)
The Chancellor announced a 2% cut to the employees class 1 National insurance contribution rate. Acknowledging that a combined rate of tax and national insurance for a basic rate taxpayer was “too high” at 32%, he has reduced the employee’s national insurance rate for that part of income falling between £12,570 and £50,270 from 12% to 10%. This will be effective from 6 January 2024, rather than the usual 6 April.
For those who are self-employed, the Government will abolish the compulsory flat rate weekly Class 2 national insurance contributions (currently £3.45 per week) and reduce the Class 4 contribution rate from 9% to 8% – both effective from 6 April 2024.
Full expensing
The Autumn Statement details the Government’s intention to give companies certainty to plan long-term investments, and to assist companies that want to decarbonise by investing in newer, greener plant and machinery. Full expensing, the previously temporary successor to the Super Deduction has now been made permanent, with the government estimating that this will unlock an additional £14 billion of investment over the next 5 years.
Full expensing provides a 100% deduction for expenditure on new and unused assets that would otherwise qualify for the main pool capital allowances relief over a number of years, reducing a Company’s corporation tax bill in the year of the expenditure by up to 25% of the expenditure incurred. Special Rate Pool assets can qualify for a 50% First Year Allowance. However, land and buildings, cars, and assets used for leasing are ineligible for the allowance.
Research & Development
Following consultation, the Chancellor has indicated that the new ‘merged’ R&D relief scheme will go ahead with effect for accounting periods beginning on or after 1 April 2024. Under the merged scheme, a tax credit (expected to be 20% of qualifying expenditure) will be paid to companies. This tax credit will itself be taxable, but the Chancellor indicated that, for loss making companies, the applicable rate of tax will be 19% rather than 25%.
The current SME scheme will continue to apply for loss-making R&D intensive SMEs from 1 April 2023, whereby a tax credit is available at 14.5% for losses surrendered, rather than 10%. In order to qualify for this scheme, the SMEs were required to incur at least 40% of total expenditure on R&D – for accounting periods beginning on or after 1 April 2024, this reduces to 30%.
Other matters
It’s worth noting that the Autumn Statement is not a Budget – that will happen next Spring. However, the Government will shortly be publishing the Finance Bill which will contain the above measures, and many others which have previously been announced. It’s in this document that we will see the substance of how these measures will operate in practice and, as usual, it’s always necessary to read the ‘fine print’.
If you would like to discuss any of the matters arising from today’s Statement, please contact any member of the tax team.