In the Spring Budget 2023, the government announced “full expensing” whereby a business gets full tax relief at 25% when making investments in the year of investment on qualifying assets. Businesses obtain 25p of tax relief for every £1 that they invest.
Originally set to expire in 2026, this measure has now been made permanent, providing certainty for medium and large businesses in their long-term investment plans and establishing the UK capital allowances regime as one of the most generous globally.
This will be welcomed by medium and large businesses who are planning to invest in the UK in the coming years.
Research and Development
Research and development relief has been a hot topic over the past year, with the government seeking to reduce the level of abuse of the generous R&D schemes available whilst still ensuring the UK is an attractive place for innovation.
There are currently two R&D schemes available, the R&D Expenditure Credit (RDEC) and the SME scheme. These schemes will be merged from 1 April 2024.
The chancellor announced that loss-making companies within the merged scheme will be taxed at 19% instead of 25%.
The rate of relief under R&D is higher for R&D intensive businesses. Previously, 40% of a companies expenditure had to be on R&D activities to qualify, however this will be reduced to 30% from 1 April 2024 with a one-year grace period for those businesses which temporarily drop below 30%.
Previously announced were additional reporting requirements to support an R&D claim, with HMRC needing to be notified before a claim is made and an additional information form needs to also be submitted to HMRC explaining the rationale for the claim.
Generally, although there are some benefits for R&D intensive companies, these changes are designed to reduce abuse of R&D claims and most businesses will see their R&D relief reduced slightly.
The chancellor stated his commitment to continuing to support businesses with their business rates bills.
A third of properties have already been taken out of rates through Small Business Rates Relief and the government had previously frozen the tax rate for the last three years and extended the relief for retail, hospitality and leisure businesses.
The chancellor announced that the small business multiplier will be frozen for another year and the additional relief given to retail, hospitality and leisure businesses will be extended for 2024-25. Small businesses are those with occupy a property which has a rateable value of less than £51,000.
The standard business multiplier will increase in line with inflation from 1 April 2024.
The announcement will be welcomed by small businesses, however this will see a lot of other business pay more in business rates.
Acknowledging the impact of late payments on SMEs’ cash flow, the government plans to lead by example. Firms bidding for large government contracts will need to demonstrate payment of invoices within 55 days, reducing to 30 days over the coming years. The aim is to expedite payments down the supply line, benefitting SMEs, though the full impact remains uncertain.
Contrary to rumours, there was no cut to corporation tax in this budget, leaving room for potential changes in the next Spring statement.
Personal Tax and Savings
The Chancellor announced in his “Autumn statement for growth” he would be “cutting taxes and rewarding work”
Jeremy Hunt had already announced his intention to increase national living wage on the eve of the autumn statement and he confirmed that from April 2024 the national living wage for over 21’s will increase to £11.44 per hour giving a 9.8% (£1,800 annual pay rise) for a full time worker. 18-20 year olds will receive £1.11 hourly rise to £8.60 per hour.
ISA: The government will allow multiple subscriptions to ISAs of the same type every year from April 2024. The annual limits will be frozen until April 2025 at £20,000 for an individual, £9,000 for a Junior ISA, £4,000 for a Lifetime ISA and £9,000 for a Child Trust Fund.
The Chancellor will also consult on a policy to introduce a “pot for life” for workers. He is considering giving savers a right to require a new employer to pay pension contributions into their existing pension pot. He said “this would give savers one pot for life” Currently under automatic enrolment employers are required to enrol eligible new staff into a pension scheme chosen by the company.
In a boost to employee’s pay packets, Jeremy Hunt told the Commons – the main 12% National Insurance rate would go down to 10% from 6 January – saving those on an average salary of £35,000 over £450 a year.
“If we want people to get up early in the morning, if we want people to work nights, if we want an economy where people go the extra mile and work hard then we need to recognise that their hard work benefits all of us,” said Mr Hunt.
With a larger cut than expected in national insurance the chancellor also announced changes to Class 2 and Class 4 national insurance. To reward the self employed, the government values the work they do and what they contribute to the economy has abolished Class 2 national insurance from 6 April 2024. This was due to increase to £3.70 per week (£192.40 per year) but from 6 April 2024 the self employed will no longer be required to pay this, but will continue to receive access to contributory benefits including state pension. This will benefit almost 2 million people.
Finally the Chancellor announced he was cutting Class 4 national insurance by 1% to 8% from 6 April 2024. This will benefit around 2 million individuals, recognising the contribution of the self employed and ensuring work pays for all.
The Government is extending the NICs relief for employers who employ veterans for one year. This means businesses pay no employer NICs on annual earnings up to £50,270 for the first year of a qualifying veterans employment in a civilian role.