Autumn Statement 2023 – Summary of Key Changes

Spring Budget 2023 Recap

The Spring Budget, presented on 15th March 2023, laid the foundation for the Autumn Statement with several critical fiscal changes:

• Corporation Tax Increase: A rise from 19% to 25% for businesses with profits exceeding £250,001, starting April 2023.
• Capital Allowances: The introduction of ‘full expensing’ from April 2023 allows 100% capital allowances for three years.
• Research & Development (R&D): Enhanced credit for loss-making, R&D-intensive SMEs, effective from April 2023.
• Expansion of SEIS: Increased investment limits and asset thresholds for the Seed Enterprise Investment Scheme from April 2023.
• Creative & Cultural Industry Tax Reliefs: The introduction of new Audio-Visual Expenditure Credits from April 2024, reforming existing reliefs.
• Pension Tax Relief Changes: An increase in the annual allowance from £40,000 to £60,000.
• Money Purchase Annual Allowance: Raised from £4,000 to £10,000.
• Lifetime Allowance: Removal of the lifetime allowance from April 2023.
• Capital Gains Tax: Revisions to benefit separating spouses and civil partners.
• Investment in Manufacturing: A £4.5 billion fund to drive investment in key manufacturing sectors.

This analysis will explore how the key announcements from the new Autumn Budget 2023 will impact UK businesses and private individuals.

Autumn Statement 2023 Impact on Businesses

Full Expensing Made Permanent

The Autumn Statement 2023 cemented the permanence of full expensing for most business assets. This policy, initially set to expire in April 2026, now has no end date thanks to legislation in the Autumn Finance Bill. Full expensing allows businesses to immediately deduct the total cost of eligible plant and machinery purchases from their taxable income. While assets for leasing remain excluded, this change removes uncertainty and encourages long-term investments to modernise operations.

Extension of Business Rates Discount for Retail, Hospitality, and Leisure

In a significant relief to retail, hospitality, and leisure businesses, the government extended the 75% discount on business rates. Additionally, the small business multiplier has been frozen. This measure is particularly vital for these industries, which have been among the hardest hit by the economic impacts of the pandemic. By reducing the overhead costs associated with business rates, this policy aims to support the recovery and stability of these sectors, preserve jobs, and stimulate economic activity in high streets and local communities.

R&D Tax Relief Reform

The Autumn Statement 2023 saw a significant overhaul in the UK’s R&D tax relief system. Key changes include:

Merger of Current SME and RDEC Schemes

• It was announced that the existing Separate R&D Expenditure Credit (RDEC) and SME R&D relief schemes will merge into a single scheme.
• The new combined scheme will have a rate of 20%, equalling the current RDEC.
• The notional tax rate for loss-making companies will be 19% – the small profits rate.
• Rules on subsidised spending will not carry over, allowing complete relief alongside grants covering part of R&D costs.

Enhanced Support for R&D Intensive SMEs

• Enhanced support for intensive SMEs will lower the R&D intensity threshold from 40% to 30%.
• A one-year grace period will permit companies temporarily dipping below 30% to still qualify the following year.

 Restricting Nominations and Assignments

• Nominating third-party payees for R&D tax credits will end in April 2024, with limited exceptions. Payments will go directly to claimants.
• New assignments of credits, whether equitable or statutory, will also be banned for assignments made after 22nd November 2023 – restricting fraudulent claims.

Extended Incentives for Freeports and Investment Zones

 The extension of financial incentives for Freeports in England to 30 September 2031 and the creation of additional ten-year tax reliefs for Investment Zones highlight the government’s strategy to stimulate regional economic growth and attract investment. These areas will offer expanded tax relief and simplified customs procedures, making them attractive business destinations.

The Freeport incentives are conditional on the agreement of delivery plans. At the same time, the Investment Zones reliefs will involve ongoing co-design of proposals with HM Treasury and the Department for Levelling Up, Housing and Communities. By extending these incentives, the government aims to create hubs of economic activity, fostering innovation, manufacturing, and international trade while working with Scotland and Wales to deliver similar programs. This move is part of a broader plan to level up economic opportunities across different regions of the UK.

EIS and VCT Relief

The government extended the sunset clauses under the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes to 6 April 2035. This extension ensures the continued availability of income tax relief for investors in qualifying companies and VCTs.

Construction Industry Scheme (CIS)

HMRC plans to introduce new regulations from April 2024 that will remove most payments from landlords to tenants from the scope of the CIS. Additionally, compliance with VAT obligations will be added to the Gross Payment Status compliance test under the CIS.

Innovation

University spinouts commercialise ground-breaking research into technologies that will shape future industries. Recognising their immense economic potential, the government has pledged £20 million for a new proof-of-concept research funding scheme. This cross-disciplinary initiative will help prospective founders across UK universities demonstrate the commercial viability of their innovations.

Creative Relief / Audio-visual Expenditure credit

In the Autumn Statement 2023, the UK government announced significant reforms in the creative sector, particularly affecting the film, TV, and video games industries. These changes involve the introduction of the Audio-Visual Expenditure Credit (AVEC), which replaces the existing film, high-end TV, animation, and children’s TV tax reliefs, and the Video Games Expenditure Credit (VGEC), which replaces the Video Games Tax Relief (VGTR).

Under AVEC, film, high-end TV and video games will be eligible for a credit rate of 34%, while animation and children’s TV will receive a rate of 39%. AVEC also introduces a new minimum slot length of 20 minutes for high-end TV programmes and a broader definition for documentary programmes. The qualifying expenditure for AVEC and VGEC remains the same as the current film and TV reliefs – expenditure that is ‘used or consumed in the UK’. The subcontracting cap in place for VGTR will be removed for VGEC.

IR35 offsets

The UK Government has introduced offsets under IR35, effective from 6 April 2024, allowing contractors operating via Personal Service Companies (PSC) to offset income tax, NIC, and Corporation Tax paid against PAYE/NIC due under the Off-Payroll Working legislation. This applies to public and private sector employers, with retrospective effect from 6 April 2017 to 6 April 2021, respectively.

The measure aims to reduce double taxation risks and provide settlement certainty. However, employers will still owe the employer’s NIC and possibly Apprenticeship Levy, and the amount available for offset might not cover all liabilities due to how contractors typically remunerate themselves. Details on the implementation and specific taxes included in the offset are yet to be clarified.

VAT Treatment of Private Hire Vehicles

The government will consult on the impacts of the July 2023 High Court ruling in Uber Britannia Ltd v Sefton MBC on the VAT treatment of Private Hire Vehicles. This consultation will explore how the ruling affects the broader VAT implications for the private hire vehicle sector.

Enterprise Management Incentives (EMI)

Simplification measures for granting tax-advantaged EMI options have been confirmed. From 6 April 2024, the deadline for notifying the grant of an EMI option will extend from the current 92 days following the grant to 6^th July following the end of the tax year. HMRC will update the guidance, forms, and returns for employers in the coming months.

Off-payroll working – PAYE Offset

From 6 April 2024, changes in UK tax regulations will impact Off-Payroll Working engagements. If such engagements were mistakenly classified as self-employed for tax purposes, HMRC can now adjust the PAYE (Pay as You Earn) liability of the ‘deemed employer’. This adjustment will account for taxes and National Insurance Contributions already paid by the worker and their intermediary.

This applies to Income Tax and National Insurance assessments under PAYE from 6 April 2024. HMRC has been proactive, contacting potential deemed employers to pause settlement negotiations in light of this upcoming change. Additionally, safeguards will be introduced to prevent claims for repayment or relief on any recovered amounts.

Data Collection via Real-time Information

HMRC is set to enhance its data quality through several fundamental changes. Firstly, employers must now offer more comprehensive details on employee hours paid, using real-time information in PAYE reporting. Additionally, shareholders in owner-managed businesses must distinctly report dividend income received from their own companies on self-assessment returns. This includes specifying their percentage ownership.

Lastly, self-employed individuals will be required to include their self-employment’s start and end dates on their self-assessment tax returns, ensuring a more precise timeline of their business activities. These measures aim to refine and clarify the financial information collected by HMRC.

Autumn Statement 2023 Impact on Individuals

National Living Wage Increase

The Autumn Statement 2023 included a significant increase in the National Living Wage to £11.44 per hour, extending this rate to individuals over 21 years old. This increase represents a substantial uplift in minimum wage standards, reflecting the government’s commitment to improving living conditions for low-paid workers. By lowering the eligible age, more young workers will benefit from this increase, potentially reducing poverty and supporting younger workforce segments. This measure is particularly relevant given the rising cost of living, aiming to ensure that wages keep pace with inflation and help maintain the standard of living for lower-income groups.

National Insurance Adjustments

The Autumn Statement 2023 brought significant changes to National Insurance contributions, aimed at benefiting both employees and the self-employed:

• For Employees: The contribution reduction from 12% to 10% on earnings represents a substantial saving. This is expected to increase disposable income and boost consumer spending.
• For the Self-Employed: The abolition of Class 2 National Insurance and the reduction of Class 4 from 9% to 8% provide meaningful financial relief, helping to ease the tax burden on self-employed individuals.

These adjustments form part of a broader governmental strategy to encourage workforce participation and support the UK’s economic recovery by enhancing workers’ financial well-being across different employment statuses.

Pensions and Lifetime Allowance Changes

In the Spring Budget 2023, the Chancellor announced that starting from 6 April 2023, people will no longer have to pay extra tax if their pension savings exceed their lifetime allowance. As announced in the Autumn Statement 2023, from 6 April 2024, the Lifetime Allowance will be completely abolished from pension tax legislation. 

Additionally, legislation and supporting regulations will be introduced to apply the pension tax framework appropriately to redress payments from various parliamentary and legislative pension schemes to ensure fair taxation. The government also plans to tackle the issue of small pot pensions by considering a lifetime provider model, allowing individuals greater control over their pensions when changing employers.

ISAs (Individual Savings Accounts)

The ISA annual subscription limits for 2024 will remain unchanged from the 2023-24 limits. These include a general limitation of £20,000, Child Trust Funds and Junior ISAs at £9,000, and Lifetime ISAs capped at £4,000. There will also be changes to simplify the ISA scheme and expand the scope of permissible investments, aiming to make ISAs more accessible and versatile for savers.

Making Tax Digital for Self-Assessment (MTD ITSA)

The government plans to simplify MTD for ITSA, focusing on easing the requirements for quarterly updates, especially for taxpayers with complex affairs like jointly owned properties. The need to provide an End of Period Statement will be removed, and a technical consultation on these changes is expected later in 2023. Significantly, MTD for ITSA will not be extended to businesses with income below £30,000 for the foreseeable future, though this will continue to be reviewed.

Self-Assessment Compliance

From the tax year 2024-25, individuals whose income is taxed exclusively through the Pay as You Earn (PAYE) system will no longer need to file a self-assessment tax return. This reform aims to simplify tax compliance for individuals with straightforward tax affairs, reducing the administrative burden on taxpayers.

Annual Tax on Enveloped Dwellings (ATED)

Effective from 1 April 2024, the ATED annual charges will increase by 6.7%, in line with the September 2023 Consumer Price Index. The costs are tiered based on the property value, with properties valued between £500,000 and £1 million incurring a charge of £4,400 and those over £20 million attracting a charge of £287,500.

Self-Employed Cash Basis

The Autumn Finance Bill 2023 will introduce legislation to establish the cash basis as the default method for calculating trading profits for the self-employed and partnerships, effective from 6 April 2024. This change aims to simplify tax calculations by removing the turnover, interest, and loss relief restrictions currently applicable. Businesses wishing to use something other than the cash basis can use the accruals basis instead. This measure, however, will not affect companies, property businesses, or businesses that are excluded from using the cash basis, such as mixed partnerships and Limited Liability Partnerships.

Conclusion

The Autumn Statement 2023 lays out significant measures that bolster economic resilience, with considerable implications for both individuals and businesses.

If you need any help understanding how the new changes will impact your business or your personal situation, please don’t hesitate to get in touch. At DS Burge & Co, our friendly team of accountants are ready to help advise you on personal and business taxation. Contact us to find out more.