Yesterday the Chancellor of Exchequer, Jeremy Hunt, announced his Autumn Statement and delivered an updated forecast from the Office for Budget Responsibility.
With inflation falling, the level of growth increased compared to previous predictions and debt forecast to reduce, it was announced that the Government was in a position to start reducing taxes. However, whilst it was a positive Autumn Statement for both workers and businesses, the Chancellor fell short of cutting income tax rates and there was no mention of changes to inheritance tax, as had been anticipated.
The Chancellor’s main focus was improving productivity and supporting businesses by taking measures to improve investment and reduce business taxes, the Chancellor describing it as “the largest business tax cut in modern British history.” The other key announcement was the reduction in National Insurance rates for both employees and the self-employed.
It was also noted that there will be increased investment in HMRC’s ability to collect debt and tackle tax avoidance.
In her response to the Autumn Statement, Rachel Reeves once again stated the Labour Party’s commitment to abolishing the tax regime for non-UK domiciled individuals should they come into power at the next General Election, something we are continuing to monitor.
The key tax headlines were as follows:
- Self-employed National Insurance Contributions (‘NIC’) – The top rate of NIC (for earnings between £12,570 and £50,270) will reduce from 9% to 8% from April 2024 for self-employed individuals. Compulsory Class 2 NICs, which currently apply to self-employed individuals earning more than £12,570, will be abolished from April 2024.
- Employee NIC – The main rate of Class 1 employee NICs will be cut from 12% to 10% from 6 January 2024, with employees benefitting from January onwards.
- Pensions – The Government has announced the introduction of a ‘comprehensive package of pension reform’ which includes allowing for consolidation of pensions and an increase in the diversity of investments pension funds are able to invest in. The Chancellor also stated the Government’s commitment to the triple lock in full, with the state pension to increase by 8.5% in April 2024.
- ISAs – There were no changes to overall allowances, however various adjustments to the rules will be introduced from 6 April 2024, for example to allow multiple subscriptions in each year to ISAs of the same type and partial transfers between providers, and to remove the requirement to make a fresh ISA application where an existing ISA account has received no subscription in the previous tax year.
- Welfare – In its commitment to ‘making work pay’, the Government will increase the National Living Wage to £11.44 per hour, from 1 April 2024, for individuals aged 21 or over and introduced a Back to Work Plan, with the aim of increasing those in work and ensuring there are consequences for those who choose not to work. Universal Credit and other working age benefits will also be boosted by 6.7% in April, in line with September’s inflation figure.
- Business taxes – The key business tax announcement was that ‘full expensing’ for capital allowances has been made permanent after its introduction in the Spring Budget earlier this year. This allows the a 100% first year allowance on the cost of qualifying plant and machinery. Various changes to research and development relief were also announced for SMEs including increased allowances and simplification of the regime.
- Alcohol duty – This is to be frozen for a period of six months to August 2024.
Sean Bannister, Head of Tax, had the following thoughts:
“A budget focused on reducing the tax burden on business and workers is a positive from a government that has failed in its growth agenda in recent years. The freeze on thresholds, combined with what is likely to remain a high cost of living environment, means that the actual benefits may be limited. Businesses though will surely be pleased to see that the UK continues to be committed to supporting growth in the form of a low headline rate of corporation tax and significant tax breaks for capital expenditure. Overall an interesting statement of intent from a government who will soon be in the throes of an election, and perhaps a reflection of a party seeking to come more toward the economic centre ground and refocus on its core values.”
Fiona Walton, Tax Manager, commented as follows:
“It is positive news that additional investment is being made in HMRC to tackle tax losses. This is particularly pertinent given the criticism HMRC has received regarding their failure to deliver on customer service. It was a surprise that inheritance tax was not mentioned, given the large amount of speculation in this area and well-known issues with the current regime.”
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