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Autumn Statement Review

Chancellor Jeremy Hunt delivered his ‘Autumn Statement for Growth’ earlier today. The rumours of significant tax cuts to IHT proved to be completely off the mark, however there was a tinkering around the edges for National Insurance (which has been widely reported over the last couple of days). By and large I don’t think it was the optimistic or vote winning budget which most of the back benchers had hoped for, but my feel is that any big tax announcements will be kept in the bag for the Spring Budget (I predict a corporation tax rate cut, you heard it here first!).

‘Business Tax’ had also been rumoured to change – which manifested itself in a commitment to retain the current breaks for Business Rates for retail and hospitality and a surprise permanent extension for ‘full expensing’ of capital purchases for up to £1m, which was due to end on 31 March 2026 (although on reading the briefing notes there are some caveats to the availability of the relief). The briefing notes also contained changes to the CIS regime and IR35 that were not referred to in the speech which we have included in our summary.

Finally, there was some good regional news with a new Greater Manchester Investment Zone which hopefully will deliver some significant private investment and an extension to existing enterprise zones within the city centre from 5 to 10 years.

Below, we give you a brief summary of the announcements and their implications.

 

Full expensing for capital allowances

HMRC has made permanent ‘full expensing’ for capital allowances. The Spring 2023 Budget introduced ‘full expensing’ from 1 April 2023, following the abolition of the temporary ‘super deduction’ for capital allowances, which provides first year allowances for companies within the charge to corporation tax and was previously intended to be available from 1 April 2023 to 31 March 2026.

Full expensing allows for 100% ‘expensing’ of capital expenditure on asset classes as follows:

  • Plant & Machinery used in the business, IT equipment, commercial vehicles etc.

50% ‘expensing’ will be available on the following:

  • Integral features such as electric, lighting and air circulation / conditioning systems in buildings, lifts and retro fitting of insulation in buildings

The balancing 50% of expenditure will receive writing down allowances at 6% per annum. Where there is Annual Investment Allowance available which has not been utilised elsewhere, it will be more beneficial for companies to claim this on expenditure on integral features, rather than ‘expensing’ at 50%.

There is no limit on what qualifying expenditure can be claimed under ‘full expensing’.

 

Any restrictions?

As with other first year allowances, these reliefs will only be available for unused assets (rather than second hand), will not include purchases of non-fully electric cars and will not apply where plant and machinery is purchased for onward leasing. (There is an exemption for landlords installing new fixtures in buildings.)

The limit of the Annual Investment Allowance, which allows up-front 100% relief against profits for businesses through capital allowances on qualifying expenditure (which can include purchases of unused assets and integral features), was permanently increased to £1 million from 1st April 2023 and there has been no indication within the budget or its supporting documents that the Annual Investment Allowance will be affected by the announcement on ‘full expensing’.

 

National insurance contribution changes

Changes to NI for the employed

The main rate of Class 1 Primary National Insurance Contributions (NICs) will be cut from 12% to 10% from 6 January 2024.

The chancellor says this will save £450 for someone on the average salary of £35,000. This only partially offsets the fact that NI and income tax bands are currently frozen until 2028. So, any kind of pay rise could drag individuals into a higher tax bracket or see a greater proportion of their income taxed.

Whilst any rate decrease is welcome, a change on the 6th January will cause an administrative headache for businesses and their payroll providers.

 

Changes to NI for the self-employed

Taxes will also be cut for the self-employed from 6 April 2024, with the main rate of Class 4 NICs being reduced from 9% to 8% on all earnings between £12,570 and £50,270. The flat rate of £3.45 per week for Class 2 NIC is being abolished.

 

Two R&D tax relief schemes

The Autumn Statement announces that there will be two R&D tax relief schemes in existence:

The merged scheme
SME intensive scheme

 

The merged scheme
From 1 April 2024, the existing RDEC and SME schemes will be merged with expenditure incurred in accounting periods beginning on or after 1 April 2024 to be claimed in the merged scheme.

Contracted out R&D

  • If a company with a valid R&D project contracts a third party to undertake some of the qualifying work connected to the R&D project, the company may claim the relevant qualifying costs of that contract. The third party that has been contracted to undertake the work may not claim for the R&D activities which delivers the project outcome for another company’s project
  • If a company is contracted to undertake work for another company, but the work does not form part of R&D for the customer and was instead initiated by the contractor, the contractor may be able to claim R&D relief for its work, providing the requirements have been met
  • Contracted R&D carried out by subcontractors who are overseas, will qualify for relief

Subsidised expenditure
The rules relating to subsidised expenditure in the existing SME scheme are no longer relevant from 1 April 2024.

For example, if a company receives a grant that covers part of the cost of its R&D, or if the cost of the R&D is otherwise met by another person, then this will not reduce the amount of support available under the merged scheme.

Reduction in notional tax
Payments of the merged scheme will be reduced via a notional tax. This is same as the existing RDEC scheme. The new amount of relief will be calculated using the rate applicable to the taxpayer which is either the small profits rate of 19% or the main rate of 25%.

For loss making companies, the small profits rate will be applied, regardless of the rate that is applicable to the specific company.

SME intensive scheme
At the Spring Statement 2023, it was announced that a company was considered to be R&D intensive if it had qualifying R&D expenditure of 40% or more of its total expenditure.

The Autumn Statement 2023 has announced that the threshold to be considered R&D intensive has been reduced from 40% to 30%.

 

A change to business rates

Starting 6 April 2024, the small business multiplier will be frozen for the fourth consecutive year at 49.9p. The standard multiplier will also be uprated by September CPI to 54.6p.

The current 75% relief that is available for Retail, Hospitality and Leisure (RHL) properties is being extended from 6 April 2024 – 5 April 2025. Around 230,000 RHL properties in England will be able to receive support up to a maximum of £110,000 per business.

 

EMI scheme deadline extension 

With effect from 6 April 2024, the deadline for companies to notify HMRC that they have granted Enterprise Management Incentives (EMI) scheme share options to employees will be extended from 92 days following the grant, to 6 July following the end of the tax year in which the grant is made. So, a company has until 6 July 2025 to make a notification for EMI options granted on 31 May 2024.

A failure to notify HMRC of a grant within the statutory deadline results in the share options losing their approved status and associated tax benefits.

 

IR35 offset to apply from April 6th 2024

The chancellor revealed that the controversial ‘double-taxation’ of IR35 will be resolved. A legislative fix means that, where IR35 status determinations have been incorrectly made by businesses, the PAYE liability issued to the fee-payer will account for the taxes already paid by the contractor. As it stands currently, HMRC doesn’t offset these taxes, which sees businesses overtaxed.

 

Greater Manchester Investment Zones

A new Greater Manchester Investment Zone will focus on advanced manufacturing and materials. The brief details in the Treasury statement advise that it is hoped to leverage £1.1 billion in private investment but no specific details of the tax or other incentives available have been announced yet.

The existing enterprise zones centred on Airport City and the Oxford Rd Corridor are also extended for a further 5 years to a total of 10 year’s duration to 2026.

100% Business Rates relief has been the main focus of the existing tax incentives in the Greater Manchester zones so it will be interesting to see if there any changes to this approach in the new zone announcement when the full details come through.

 

Investing in housing supply

The government has committed to investing an additional £32 million across housing and planning to unlock thousands of homes across the country.

This includes additional funding to tackle planning backlogs in Local Planning Authorities, alongside further reforms to streamline the system through a new Permitted Development Right to enable one house to be converted into two homes.

The government also says it remains committed to building affordable homes, building on the success of the existing Affordable Homes Guarantee Scheme through a £3 billion extension. The government is also extending until June 2025 the Public Works Loan Board policy margin announced at the Spring Budget 2023 to support local authority investment in social housing, as well as delivering an additional 2,400 homes by allocating £450 million to a third round of the Local Authority Housing Fund, which will provide additional funding for new Temporary Accommodation as well as homes for Afghan refugees.

 

Get in touch

As the finer details emerge over the coming days and weeks, we will of course keep you updated on our website and our social media channels.

If you do have any questions from today’s announcement, please do not hesitate to get in touch with your usual relationship manager, or email enquiries@cowgills.co.uk

 

Disclaimer

The information was correct at time of publishing but may now be out of date.

Tax
Posted by Lisa Wilson
22nd November, 2023
Get in touch with Lisa Wilson