Autumn Statement 2023 – our summary for small businesses

Autumn Statement 2023

As you’ll likely know yesterday, Wednesday 22 November, the Autumn Statement 2023 was announced. By now, you’ll no doubt have seen the headlines but one thing that’s frustrating is the lack of real commentary or opinion on Autumn Statements or Budgets.

In this article, we intend to strip away the fluff and the hoohaa of the announcements to focus on what matters for small businesses.

The headlines you’ll have seen:

1. Minimum Wage – increased to £11.44/hr from £10.42. Represents a 9.8% increase from April 2024. This will now also apply to 21 and 22 year olds as well (they previously had a lower rate). 18-20 year olds will receive a 14.7% pay rise to £8.60/hr. Apprentices will receive £6.40/hr a 21.2% increase.

Takeaway: For those reliant on minimum wage workers this represents a significant increase to your cost base from April.

2. Employee National Insurance – cut by 2%. Will reduce from 12% to 10% for income between £12,570 and £50,270. Applies from 6 January 2024. 

Takeaway: This will reduce the amount of national insurance paid but check out *our thoughts on the tax burden below. It will also lead to complications from January with additional admin to take account of the mid-year change to tax rates.

3. Self-employed National Insurance – Class 2 NI abolished and Class 4 cut by 1%. Class 4 will therefore reduce from 9% to 8% for income between £12,570 and £50,270. 

Takeaway: This will reduce the amount of national insurance paid, but again check out *our thoughts on the tax burden below.

4. Capital Allowances – full expensing made permanent. 

Takeaway: Irrelevant for the majority of small businesses which already receive a 100% tax deduction up to £1m in any case. This scheme is therefore only relevant for the largest corporates with significant infrastructure investments.

5. Research & Development – the scheme applicable to SME’s is to be merged with the large corporate RDEC scheme.

Takeaway: Yet another change to the R&D relief scheme. With a constantly evolving landscape if R&D is relevant to you seek professional advice.

6. Pensions – pension market reforms to support investment into high-growth sectors and consultation on allowing employees to have contributions paid into their existing pension scheme in a so-called “one pot for life.”

Takeaway: Will be interesting to see where the consultation ends up.

Some things you might not have seen:

1. HMRC –  was owed £45.5 billion in unpaid tax on 30 September 2023. The Autumn Statement included £163 million to support HMRC with managing and collecting debts.

Takeaway: Expect to see more pressure from HMRC on late payments and overdue taxes.

2.  CIS – for those in the construction industry with Gross Payment Status (GPS), VAT compliance will be added into the statutory compliance obligations for subcontractors who wish to claim GPS.

Takeaway: If you’re a subcontractor in the construction industry and currently have or intend to apply for GPS it is essential you maintain compliance with VAT, Corporation Tax, Self Assessment & PAYE.

*Our thoughts – headline rate reduction but a high tax burden continues

An Autumn Statement with a general election on the horizon is always going to be political. Suggestions in the news today are that the January reduction to employee NI indicates a possible Spring election next year. Reducing any headline rate of tax is an attractive measure in the run-up to an election.

The reality is the last few years have seen frozen personal tax allowances during a period of high inflation. During this time, many employers have already taken steps to increase employee wages to support the higher cost of living.  The self-employed should also already have increased prices (and their earnings) to account for the higher costs they are incurring.

What this means is with higher wages but frozen allowances more people are already paying more tax. The Office for Budget Responsibility (OBR) suggests nearly 4 million more people are now paying income tax for the first time and 3 million more have been pushed to a higher rate.

Don’t take this the wrong way, a reduction is still a reduction and it will help to reduce the amount of tax paid moving forward but it doesn’t change the fact many people have already seen increases to their tax bills.

As a result and despite the headlines of tax reductions, the UK tax burden is now higher for many than it was several years ago.

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