Autumn Statement 2023

As expected, a reduction to the headline rate of corporation tax of 25 percent was not announced. Instead, the Government decided to focus on targeted incentives which it hopes will drive growth. The headline announcement was the decision that the ‘full expensing’ policy (which was due to end on 31 March 2026) has now been made permanent. This change, described by the Chancellor as “the largest business tax cut in modern British history”, essentially means that relief for qualifying capital expenditure will now be available when incurred rather than being given over a number of years. Although this means that the primary benefit is one of timing, the Government clearly hopes that given the importance of cash flows this will be enough to encourage the higher levels of investment by business seen in some other jurisdictions. In keeping with the approach of targeted incentives, the Chancellor also announced that its flagship Investment Zone and Freeports programmes will be extended from five years to 10 years, further promoting economic activity for the affected areas, and confirmed reforms to R&D and audio-visual reliefs. Although not highlighted in the Chancellor’s speech, in terms of revenue impact the confirmation that the Government will continue with its implementation of the Pillar Two proposals, introducing the Undertaxed Profits Rule (UTPR) in place of the existing Offshore Receipts in respect of Intangible Property (ORIP) rules for accounting periods beginning on or after 31 December 2024, was as important as it was unsurprising.

• Capital Allowances

The Government has confirmed that, in line with plans originally announced at the Spring Budget, full expensing will be made permanent – giving upfront relief for the full cost of qualifying main rate expenditure on new plant and machinery (other than cars or assets acquired for leasing), along with the 50 percent first-year allowance for special rate expenditure. The existing rules were due to end on 1 April 2026, but this end date will be removed by Autumn Finance Bill 2023. The Government has also announced a consultation on wider changes designed to simplify the UK’s capital allowances legislation, and are planning to consult on expanding the scope of full expensing to include assets for leasing. Read more in Tax Matters Digest.

• R&D merged scheme

The two Research & Development (R&D) tax relief schemes currently available in the UK, the SME & RDEC scheme, are to be merged into a single simplified scheme for accounting periods beginning on or after 1 April 2024. Key aspects of the merged scheme include:

1. It will provide a benefit in form of an above the line expenditure credit calculated at rate of 20 percent (in line with the existing RDEC regime). 
2. The notional taxation of the credit in loss-making companies will be at the small profits rate of 19 percent, rather than the main rate of 25 percent as under the existing RDEC regime.  The merged scheme will also apply the more generous PAYE and NIC caps from the existing SME scheme.
3. The SME rules restricting relief where part of the project expenditure has been subsidised will be removed and the rules around externally provided workers and UK expenditure will be clarified.

The Government intends to move forward with previously announced plans to increase support for R&D intensive SMEs for accounting periods beginning on or after 1 April 2024.  These include:

1. A reduction in the proportion of R&D expenditure required to qualify from 40 percent to 30 percent.
2. The ability to benefit from a one-year grace period that allows a company to temporarily miss the intensity threshold.
3. A higher payable credit rate of 14.5 percent for loss making companies.

Read more in Tax Matters Digest.

• UK adoption of OECD/G20 Global minimum tax regime (Pillar 2) and proposed repeal of the UK’s Offshore Receipts in respect of Intangible Property (ORIP) rules

The Chancellor reinforced his commitment to the UK’s domestic implementation of Pillar 2 with effect from accounting periods beginning on or after 31 December 2023. This is intended to ensure that in-scope multinational enterprises will be subject to a minimum 15 percent effective tax rate in every jurisdiction in which they operate. Technical amendments to the already enacted UK Pillar 2 legislation (the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) rules) that reflect recent administrative guidance published by the OECD and other stakeholder input will be included in the Autumn Finance Bill 2023, to take effect for accounting periods beginning on or after 31 December 2023. The Undertaxed Profits Rule (UTPR), the backstop to the MTT rule, will be introduced in the UK with effect for accounting periods commencing on or after 31 December 2024 (a year later than the MTT and DTT rules). Legislation for the UTPR will be included in a future Finance Bill. The UK’s ORIP rules will be repealed in respect of income arising from 31 December 2024 alongside the introduction of the UK’s UTPR in a future Finance Bill, given the expectation that the UTPR will more comprehensively discourage the arrangements that ORIP was aimed at.

• Investment zones

The Government intends to introduce legislation in 2024 to extend the incentives for investment zones and tax reliefs for freeports from 5 to 10 years.  For investment zones and freeports in Scotland and Wales these extensions are subject to discussions with the relevant devolved administrations.  The effect of the change on the existing 36-month National Insurance relief is to extend the window for qualifying employees to start, rather than to extend to the duration of the relief. Details of 6 of the 13 Investment Zones in the UK have now been confirmed. The Government aims to confirm details of all Investment Zones by summer 2024.

• Business rates

The small business multiplier will be frozen for a further year, and the 75 percent discount on rates for the retail, hospitality and leisure industry (up to a £110,000 discount) is extended to apply for another year.  The standard multiplier will be uprated. These changes will take effect from 1 April 2024 in England.

• EIS and VCT

The Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) schemes are to be extended to 2035.

• Energy Profits Levy

The Government has confirmed that the Energy Profits Levy will end no later than 31 March 2028and that it intends to proceed with implementing a mechanism intended to ensure that the Levy is terminated earlier if energy prices return to historic levels for a sustained period. Read more in Tax Matters Digest.

• Electricity Generator Levy

There will be a new investment exemption from the Electricity Generator Levy (EGL), providing relief on the receipts of new electricity generating stations for which the substantive decision to proceed is made on or after 22 November 2023 (i.e. the date of the announcement). The Government has published a technical note on the exemption and will legislate in an upcoming Finance Bill. The EGL will end as planned on 31 March 2028. Read more in Tax Matters Digest.

• Audio visual expenditure credit

The Government has confirmed its intention to legislate in Autumn Finance Bill 2023 to replace the existing film, TV and video games tax reliefs with refundable expenditure credits — an Audio-Visual Expenditure Credit (AVEC) for film and TV programmes, and a Video Games Expenditure Credit (VGEC) for video games.  The credits will be available from 1 January 2024 and existing reliefs will cease to be available from 1 April 2027. Under the AVEC a higher rate of relief is available for animated programmes and the Government has launched a call for evidence ahead of a planned consultation on providing additional relief for expenditure on visual effects.  This additional relief is intended to be available from April 2025. Read more in Tax Matters Digest.

From an employment perspective, the headline measure in the Chancellor’s Autumn Statement saw a cut in the main rate of Employee’s Class 1 NIC to 10 percent. Whilst the change will be welcomed by many employees, it will take effect from 6 January 2024, meaning that employers and their payroll providers have a matter of weeks in which to update payroll configurations to accurately process the new rate. This will present challenges for some employers, albeit it is to be hoped that experience gained following last year’s repeal of the Health & Social Levy, which also led to an in-year change of NIC rate, will at least provide businesses with a well-trodden path to follow in the coming weeks.

Other notable measures announced by the Chancellor included the introduction of a worker’s right to nominate the pension fund to which their employer contributes, and legislation enabling an offset of tax and NIC already paid by a Personal Service Company or contractor, against a deemed employer’s associated liabilities, in settlement scenarios under the Off-Payroll Working rules.  A more detailed summary of the Chancellor’s measures is set out below:

• National Insurance Contributions

From 6 January 2024, the Employee’s Class 1 NIC main rate will be cut from 12 percent to 10 percent. Additionally, for the self-employed, from 6 April 2024 Class 2 NIC will be abolished but they will continue to receive access to contributory benefits including the State Pension.  Similarly, the Government has confirmed that individuals (including, for example, some internationally mobile employees) who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so.  The Class 4 NIC rate will be cut from 9 percent to 8 percent.  For further details on the measures please read the announcement.  The Government is also extending the NICs relief for employers of eligible veterans for one year, covering the 2024/25 tax year. The relief means businesses pay no employer NICs on annual earnings up to £50,270 for the first year of a qualifying veteran’s employment in a civilian role. Read more in Tax Matters Digest.

• Pensions – a ‘pot for life’

Workers will receive the right to nominate the pension pot to which their employer contributes – a so-called ‘pot for life’.  A call for evidence will explore these proposals in more detail. 

• Pensions – abolition of the Lifetime Allowance

As announced at Spring Budget 2023, the Government will introduce legislation in Autumn Finance Bill 2023 to abolish the Lifetime Allowance with effect from 6 April 2024. The measure will clarify the taxation of lump sums and lump sum death benefits, and the application of protections. It will also clarify the tax treatment for overseas pensions, transitional arrangements, and reporting requirements. Read more in Tax Matters Digest.

• National Minimum Wage (NMW) / National Living Wage (NLW)

The NMW/NLW will increase from April 2024 to £11.44 for those aged 21 and over; similar increases will also be made for those aged 18-20 (£8.60) and 16-17 (£6.40).  Read more in Tax Matters Digest.

• Off-Payroll Working – PAYE offset

Following a consultation earlier this year, legislation will be introduced in Autumn Finance Bill 2023 to enable an offset of tax and NIC already paid by a Personal Service Company or contractor, against a deemed employer’s associated liabilities, in settlement scenarios under the Off-Payroll Working rules.  Secondary legislation will then follow, with the measure due to take effect from 6 April 2024.  The measure is intended to address a potential over-collection of tax and Employee Class 1 NIC by HMRC and resolve an unfairness in the tax system.

• Self-Assessment and PAYE

Individuals with income taxed only via the PAYE system will no longer be required to file a Self-Assessment return from 2024-25 (although employees and directors with a s.690 direction in place are understood to still need to submit a tax return to reconcile their final liability based on actual workdays).

• Data collection via Real Time Information (RTI)

Following a consultation, legislation will be included in the Autumn Finance Bill 2023 to require employers and company directors (as well as the self-employed) to provide new or improved data to HMRC.  From an employer’s perspective, the requirement will entail the provision of more detailed information on employee hours paid via RTI reporting.  These changes will take effect from April 2025. 

• Construction Industry Scheme (CIS) – reforms to the Gross Payment Status test

Following a consultation earlier this year, the Government will introduce reforms in the Autumn Finance Bill 2023 to the CIS, including adding VAT as part of the Gross Payment Status (GPS) compliance test, giving HMRC more power to remove GPS immediately in cases of fraud. Alongside this, regulations will be laid to set out exceptions to VAT compliance obligations and to remove the majority of payments made by landlords to tenants from the scope of the Scheme. Additional measures will also see the digitalisation of CIS registration applications and bringing forward the first review of a GPS holder’s compliance history from 12 months after application to 6 months, reverting to 12 months thereafter. All legislation will come into force from 6 April 2024.

This was an Autumn Statement with a tax cut for those in work with, as above, reductions in National Insurance (up to the upper earnings limit) for employees and the self-employed, including partnerships. Other than that, it was a quiet event for individuals. The personal allowance and rate thresholds for income tax remain frozen until April 2028, recent inflation figures increasing the ‘fiscal drag’ effect of this.  Similarly, there was no change to capital gains tax.  Despite recent speculation, no changes to inheritance tax were announced and it is currently unclear whether these have been delayed or abandoned. This may still be something to look out for in the Spring Budget 2024. There was also no announcement of any review of the taxation of non-doms.

• National Insurance

The main rate of National Insurance Contributions paid by employees is to decrease by 2 percent to 10 percent from 6 January 2024. National Insurance paid by self-employed individuals, including partners, will be reformed. Class 2 contributions will be abolished altogether, and Class 4 contributions will decrease by 1 percent to 8 percent from 6 April 2024.  

• Simplifying Making Tax Digital for Self-Assessment (MTD ITSA)

As part of the outcome of its Small Business Review, the Government has announced a package of design changes intended to simplify and improve MTD ITSA when it is introduced in April 2026, including:

1. Removing the requirement for End of Period Statements;
2. Changing the design of MTD for ITSA quarterly updates so they work on a cumulative basis, making it simpler for customers to submit corrections;
3. Enabling customers to be represented by more than one tax agent;
4. Introducing exemptions from MTD, including for taxpayers without a National Insurance number;
5. Simplifying processes for landlords with jointly owned property; and
6. Separately, participants in the MTD ITSA pilot will benefit from a modified, more lenient penalty regime, which is to be introduced from April 2024

Draft regulations will be published for technical consultation later in 2023.  In the meantime, the Government has confirmed that a decision on further mandation of businesses and landlords with income below £30,000 will be kept under review. Read more in Tax Matters Digest.

• Enterprise Investment Scheme and Venture Capital Trust scheme extension 

The EIS and VCT sunset clauses have been extended from 6 April 2025 to 6 April 2035, continuing the availability of income tax and capital gains tax relief for investors in qualifying companies and VCTs 

• Enterprise Management Incentives 

There will be an extension of the deadline for notifying HMRC of a grant of EMI options from 92 days following the grant to the 6 July following the end of the tax year in which the grant was made. This will apply to EMI options granted from 6 April 2024.

• Pensions – abolition of the Lifetime Allowance

As announced at Spring Budget 2023, legislation will be included in the Autumn Finance Bill 2023 to abolish the Lifetime Allowance with effect from 6 April 2024. The measure will clarify the taxation of lump sums and lump sum death benefits, and the application of protections. It will also clarify the tax treatment for overseas pensions, transitional arrangements, and reporting requirements. Read more in Tax Matters Digest.

• Data collection via Real Time Information

Following a consultation, legislation will be included in the Autumn Finance Bill 2023 to require company directors and the self-employed to provide new or improved data to HMRC. 

• State pension

The state pension is to increase by 8.5 percent to £221.20 a week from 6 April 2024. 

• Cash Basis 

The income tax cash basis will be set as the default method for businesses (self-employed and partnerships) to calculate taxable profits from 2024/25 onwards, with the possibility to opt-out to the accruals basis. The current turnover thresholds to use the cash basis will be removed, as will the current restrictions on interest deductions and loss relief. Read more in Tax Matters Digest.

• ISAs

Annual subscription limits for adult and junior ISAs (£20,000 and £9,000 respectively), along with Child Trust Funds and lifetime ISAs (£9,000 and £4,000 respectively), remain unchanged for 2024/25. The ISA reporting system will be digitalised and permitted investments in innovative finance ISAs widened. From April 2024, multiple subscriptions to ISAs of the same type in a year will be allowed along with other simplifications.

• Annual Tax on Enveloped Dwellings

ATED annual charges will rise from 1 April 2024 by 6.7 percent.