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The chancellor’s breezy Autumn statement 2023 speech was all about attempting to deliver a boost to the economy through a combination of national insurance cuts and business investment incentives. This autumn statement continues the spring budget theme of encouraging growth and investment.
In order to encourage business investment in assets and equipment, the full expensing of capital assets introduced in the 2023 Spring budget will continue on a permanent basis, rather than ceasing in March 26.
This measure began from 1 April 2023. It allows the full value of qualifying main pool plant and machinery to be claimed in the year that it’s purchased through capital allowances. Or 50% can be claimed for special rate expenditure.
This will primarily benefit companies who want to make significant investment in plant and machinery that would exceed the current £1 million annual investment allowance and doesn’t qualify for first year allowances. However, it only applies to capital allowances from limited companies, not to sole traders.
R&D tax relief will look quite different from April 2024 with the current R&D Expenditure Credit (RDEC) scheme merging with the SME scheme in an attempt to simplify R&D credits.
Contracted out R&D can be claimed by the decision making company in the merged scheme. There are also changes to the impact of grants on the ability to make a claim.
Loss making companies within the merged scheme will be taxed at the small profits rate of 19% rather than the main rate of 25%.
R&D intensive loss making SMEs are required to have more than 40% of the total expenditure in the period on R&D in order to access the enhanced 14.5% rate of payable credit on their losses. This is compared to the usual 10% payable credit for non-qualifying companies. For accounting period from 1 April 24 this criteria will be reduced to 30% R&D expenditure. However, this looks to remain as a separate scheme.
The current scheme for audio-visual creative tax relief will switch to an expenditure credits based scheme (similar to R&D RDEC scheme) with credit rates from 34-39% depending on the type of production.
From 1 April 2024 the national living wage will increase to £11.44 per hour from the current rate of £10.42. The age threshold for this rate will decrease from 23 to 21 years old. So not only are the wages increasing but the higher rate will potentially apply to more employees.
The other age threshold rates below 21 years will also increase but there is no change to the thresholds themselves.
There is no change to the current employer Class 1 national insurance rate or threshold.
The main rate of Class 1 national insurance, will be reduced to 10% from the current rate of 12%. This rate applies to employees with salary between £12,570 and £50,270.
However, the 2% reduction will apply from 6 January 24 rather than waiting until the new 2024-25 tax year in April.
The personal allowance and higher rate thresholds for income tax will remain frozen for another two years until April 2028.
The national insurance thresholds and inheritance tax thresholds will also be frozen until April 2028.
The tax free allowance for dividends will still reduce in 2024-25 from the current £1,000 to only £500, as previously announced.
The capital gains annual exempt amount will also still reduce in 2024-25 from £6,000 to £3,000.
State pension will likely be increased by 8.5% in line with the triple lock. This increases the pension by the highest of inflation, average wage increase in the UK or 2.5%. This could bring the annual pension amount for 2024-25 up to a maximum of £11,502.
Currently sole traders and partners should prepare their accounts using the accruals basis in a similar way to company accounts. Income and expenses are accounted for when they are earned or incurred. They can opt to use a cash basis instead, accounting for income and expenses as they are received or paid. The cash basis has been restricted for use by businesses with turnover less than £150k.
From April 2024 things will switch around and the cash basis will become the default. Businesses that want to continue with the accruals basis will have to actively “opt out” of the cash basis in their tax return. Businesses switching from accruals to cash will have to make some accounting adjustments for the first year to make sure nothing gets missed or double counted.
This also hits at the same time as basis period reform. From 2024-25 all sole traders and partnerships must have their accounting period in line with the tax year.
Class 2 national insurance is being abolished (for most) from 6 April 2024.
For 2024-25 onwards anyone with self employed profits over £6,725 will automatically get credit towards State Pension entitlement and other contributory benefits without having Class 2 national insurance to pay.
Those below the small profits threshold of £6,725 will continue to be able make voluntary Class 2 NIC contributions to retain their credit. The voluntary contributions for 2024-25 will be frozen at the 2023-24 rate of £3.45 per week.
Self employed business owners also pay Class 4 NIC. The rate for Class 4 NIC will be reduced to 8% from 6 April 24, from the current rate of 9%. This rate applies to any self employed profits between £12,750 and £50,270.
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