In this edition of our Insights in respect of the recent Autumn Statement, we take a look at how the provisions may affect entrepreneurs and businesses.
Business Tax
Corporation tax rates
The government has confirmed that the rates of corporation tax will remain unchanged, which means that, from April 2024, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Capital allowances
The new Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as they are unused and not second-hand. Similar rules apply to integral features and long life assets at a rate of 50%. The government has announced that both allowances will now be made permanent.
The Annual Investment Allowance, which gives a 100% write-off on certain types of plant and machinery, has been made permanent at £1 million per 12-month period.
Further reform Research and Development (“R&D”) tax credits
The existing Research and Development Expenditure Credit (RDEC) and SME schemes will be merged, with expenditure incurred in accounting periods beginning on or after 1 April 2024 being claimed in the merged scheme. The rate under the merged scheme will be set at the current RDEC rate of 20%. The notional tax rate applied to loss-makers in the merged scheme will be lowered from 25% to 19%.
A number of other changes will apply to the new regime from April 2024, including that R&D claimants will no longer be able to nominate a third-party payee for R&D tax credit payments, subject to limited exceptions. In addition, no new assignments of R&D tax credits will be possible from 22 November 2023, meaning that, in most circumstances, payments of R&D tax reliefs will be paid direct to the company that has claimed the R&D expenditure.
National Living Wage and National Minimum Wage
The government has accepted in full the recommendations of the Low Pay Commission and announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from April 2024. In addition, from April 2024 the NLW will be extended to 21 and 22 year olds. The rates which will apply from 1 April 2024 are as follows:
| NMW rate £ | Increase £ | Increase % | |
| National Living Wage (age 21 and over) | 11.44 | 1.02 | 9.8 |
| 18-20 year old rate | 8.60 | 1.11 | 14.8 |
| 16-17 year old rate | 6.40 | 1.12 | 21.2 |
| Apprentice rate | 6.40 | 1.12 | 21.2 |
The apprenticeship rate applies to apprentices under 19 or, if 19 and over, in the first year of apprenticeship only. The NLW applies to those aged 21 and over.
The Department for Business and Trade estimates 2.7 million workers will directly benefit from the 2024 National Living Wage increase.
Other Business Measures
Business Rates
The small business multiplier will be frozen for another year, while the 75% Retail, Hospitality and Leisure relief will be extended for 2024/25. The standard multiplier will be uprated in line with September’s Consumer Prices Index. These changes will take effect from 1 April 2024 in England.
VAT
The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2024, staying at £85,000 and £83,000 respectively.
In addition, the government will extend the scope of the current VAT zero rate relief on women’s sanitary products to include reusable period underwear from 1 January 2024.
Cash basis of accounting for the self-employed
At present, when calculating your taxable profits, you can either use the cash basis or the accruals basis.
The “cash basis” can be a simplified way of calculating taxable profits for income tax purposes. It is based on simply declaring income received and expenses paid, without adjustments seen in more sophisticated accounts prepared in accordance with traditional “accruals based” principles (e.g. to include adjustments for stock valuations and amounts owed by customers). The cash basis is currently an option for sole traders and partnerships if their annual business turnover is £150,000 or less.
From April 2024, all the restrictions have been removed and the cash basis will become the default calculation method, and an election will be needed if the accruals basis is to be used. Those moving to the cash basis will benefit from accelerated relief for costs – it will be given in the period costs are incurred rather than spreading out the cost to the periods they relate to.
Businesses can “opt out” of the cash basis and continue to prepare a balance sheet and use the “accruals basis” if they wish. This will be an important choice, particularly in relation to business intelligence and management reporting, so please do talk to us about the options if this affects you.
Making Tax Digital
The government has announced the outcome of the review into the impact of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) on small businesses.
Under MTD for income tax, businesses will keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements will be phased in from April 2026, starting with sole traders and property landlords with gross income over £50,000.
In readiness, some design changes to the scheme have now been announced to simplify and improve the system. These include:
- Simplifying the requirements for providing quarterly updates by making them cumulative and adding functionality to amend or correct errors throughout the year;
- Simplifying the rules for taxpayers with more complex affairs, such as landlords with jointly-owned property;
- Removing the requirement to provide an End of Period Statement, with emphasis instead placed on a final declaration;
- Exempting some taxpayers altogether, including foster carers and those without a National Insurance number; and
- Enabling taxpayers using MTD to be represented by more than one tax agent.
There will also be new rules to ensure that taxpayers who volunteer to join MTD for income tax from April 2024 will be subject to the new, fairer points-based penalty regime for late filing of tax returns and late payment of tax, as already implemented for VAT. This approach assures the compliant majority that an occasional failure in the context of overall good compliance will not be treated in the same way as persistent poor compliance.
IR35 offsetting
Where a contractor is deemed to be an employee under the Off-Payroll Working legislation (otherwise known as IR35), it is proposed that income tax and NIC paid by the contractor operating via a personal service company, plus any corporation tax paid by the personal service company, can be offset against any assessments of PAYE/NIC.
These measures have not been immediately enacted and are subject to change through the parliamentary process. They are expected to take effect from 6 April 2024.
You can find further insights about the Autumn Statement here: Autumn Statement Summary. In our next post, we will look at the impact of the Autumn Statement on tax administration but in the meantime, if you have any questions concerning any of the issues raised in this post, and how they may affect you, please get in touch.