The 2023 Autumn Statement contained a slew of measures to support businesses, and even claimed “the biggest business tax cut in history”.
But the measures provoked mixed reactions from small and medium-sized enterprise (SME) owners and advisers, who feel the government should do more to support small firms.
In this article, we talk about the measures announced by Chancellor Jeremy Hunt and what they mean for your business.
Here’s what we cover:
- Full expensing made permanent
- R&D reforms
- Business rates
- Cash basis changes for self-employed and partnerships
- Making Tax Digital updates
- Construction Industry Scheme reform
- National Insurance changes
- Minimum wage increases
- Tackling late payments
- Funding support measures
- Final thoughts on the 2023 Autumn Statement
Full expensing made permanent
At the Spring Budget 2023, the government introduced two temporary first-year allowances, enabling businesses to offset investment in items such as equipment and machinery against tax at a higher than usual rate.
For qualifying expenditure incurred between April 2023 and April 2026, companies can claim a 100% first-year allowance for main rate expenditure – known as full expensing – and 50% for special rate expenditure.
These allowances are in addition to the Annual Investment Allowance (AIA), set at £1m. The Autumn Statement made both first-year allowances permanent from 2026/27.
The chancellor hailed this as the biggest business tax cut in modern history, adding that his complete package of measures will help increase business investment by around 1% of gross domestic product (GDP).
Most commentators agree this change will give companies greater confidence to invest.
Adrian Young, a tax partner at accounting and business advisory firm Hurst, says: “Making full relief for capital expenditure permanent is welcome.
“It will help businesses plan for capital investment, and offset that cost against their tax quickly.”
However, Adam Owens, director of tax advisory at Xeinadin Group, says full expensing predominantly favours larger corporations as the AIA already covers most small businesses.
He says: “This ignores the specific needs of small businesses, which are the backbone of our economy and a major catalyst for growth and innovation.”
Chris Denning, corporate and international tax partner at MHA, adds: “The UK’s business investment is low compared to the G7. The Super Deduction, a similar measure to full capital expensing, has not done much to revive this investment.
“We need to fix this investment level and full capital expensing is not a silver bullet, so it needs to form part of a long-term plan for business taxation.”
Chris Campbell, head of tax at the Institute of Chartered Accountants of Scotland (ICAS), says it’s a complex area of tax planning.
He says businesses should seek advice immediately when planning capital expenditures rather than waiting until the end of the tax year, as tax factors may affect the decision.
For example, full expensing is only available on new items. If you bought a new truck but had to wait several weeks for it to arrive, it may not be worth the tax relief compared to the business benefits of getting a used truck that’s on the road immediately, says Chris.
The system of corporation tax reliefs for research and development (R&D) will simplify and change from April 2024. The R&D Expenditure Credit and R&D Tax Relief for SMEs schemes will merge.
Plus, the threshold in additional support for R&D intensive loss-making SMEs will also reduce from 40% to 30%, bringing around 5,000 more businesses into scope for this relief.
Susan Cattell, head of tax technical policy at ICAS, welcomes the merged scheme.
She says: “A simpler, single scheme will be easier for companies to deal with, reducing the scope for error and, alongside other compliance measures, limiting opportunities for abuse.
“But the start date of April 2024 is too soon. We would have preferred more time for consultation.
“There will also be complexity arising from the additional relief for R&D intensive SMEs, which was only introduced from April 2023, but will change from April 2024.”
Jay Bhatti, R&D senior tax manager at MHA, says this reform has “short-changed SMEs”.
He says the unified scheme does nothing to fix critical flaws with the UK’s system, especially for SMEs who find gaining the relief not worth the effort involved.
Also many complain it is skewed towards financial technology firms in the South East, says Jay.
Chris Campbell says this is another complex area, so SMEs wishing to claim R&D relief should take appropriate advice.
“[The] measures are just one step in the journey,” says Chris. “For example, there are some other recent changes to the R&D regime.
“And there may be more to come in the Spring Budget. There’s a lot to think about.”
To support small businesses and the high street, for 2024/25 the government will freeze the small business multiplier in England on business rates for a fourth consecutive year.
It will also extend the current Retail, Hospitality and Leisure Relief for eligible businesses.
Tina McKenzie says: “Business rates are one of the worst taxes small firms face. Thousands of pubs, cafes and small shops in high streets will be pleased with this support.”
Cash basis changes for self-employed and partnerships
Cash basis will become the default accounting practice for those who are self-employed along with partnerships, rather than accrual accounting for 2024/25 onwards. This will begin from 6 April 2024,
The move follows a consultation first announced during the 2023 Spring Budget, which closed earlier in the year. The outcome promises to make it “easier for small businesses as they set up and grow”.
Cash basis will be the default option for calculating taxable profit (this is currently the accrual basis). If they wish to adopt the accrual method, partnerships and those who are self-employed will have to opt-out of using cash basis.
As well as this, the limits for applying cash basis will be completely abolished.
Currently there’s an ‘entry threshold’ of £150,000, i.e. turnover must be below £150,000 in order to join the scheme, and an ‘exit threshold’ of £300,000, i.e. once the business hits £300,000 turnover it must stop using the scheme.
From April 2024, these limits will no longer exist, meaning the self-employed and partners can use cash basis regardless of their turnover.
The chancellor added that the changes will be “included in the Autumn Finance Bill 2023”.
Making Tax Digital updates
The chancellor confirmed that those who are self-employed and on lower incomes won’t have to adhere to Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) rules in the near future.
The legislation comes into effect from April 2026 for the self-employed and landlords whose income is more than £50k, and April 2027 for those earning more than £30k. However, anyone earning less than £30k will remain exempt from MTD for ITSA.
But this could change in the future.
The requirement to complete an End of Period Statement as part of MTD for ITSA is being removed as a separate requirement. Instead, it will be incorporated into the Final Declaration process.
- Foster carers and those who can’t get a National Insurance number will be exempt from MTD
- The government will seek to find a solution for any taxpayers who are represented by more than one tax agent
- Joint landlords won’t have to submit quarterly updates of their expenses
- The design of quarterly updates will be improved by making them cumulative in nature – that means taxpayers won’t be required to make amends to previous quarters.
The chancellor added: “The government is also legislating in the Autumn Finance Bill 2023 to ensure taxpayers, who join MTD from 6 April 2024, are subject to the government’s new, fairer penalty regime for the late filing of tax returns and late payment of tax.”
Construction Industry Scheme reform
Following a consultation earlier in 2023, the government is introducing reforms to the Construction Industry Scheme (CIS).
- Adding VAT as part of the Gross Payment Scheme (GPS) compliance test
- Providing more power to HMRC to remove GPS where there are cases of fraud
- Simplifications to other areas of the CIS, “subject to technical consultation”.
National Insurance changes
The chancellor announced that from 6 January 2024, Class 1 employee National Insurance contributions (NICs) will be cut from 12% to 10%.
Meanwhile, Class 2 self-employed NICs are to be abolished altogether and Class 4 NICs cut from 9% to 8%. Both come into effect from April 2024.
This simplifies NICs for the self-employed and will benefit two million people, with an average saving of more than £350 a year.
The Association of Independent Professionals and the Self-Employed (IPSE) welcomes these changes. But they may not be enough to regain support from the self-employed after support gaps during Covid and implementation of the off-payroll working rules, which negatively impacted hundreds of thousands, it says.
Adam Owens, director of tax advisory at Xeinadin Group, adds that the NIC savings “sound great” but the government is continuing to freeze income tax personal thresholds until 2027/28.
He adds that with high inflation, that freeze has caused an effective tax hike for self-employed people, so the chancellor is “robbing Peter to pay Paul”.
Analysis shows the cuts to employed and self-employed NICs will cost the government £9bn annually, compared to the £50bn a year it’s expected to make from freezing income tax and NIC thresholds.
HMRC says you should start preparing for the changes to NICs with your payroll software provider now.
Minimum wage increases
From 1 April 2024, the National Living Wage will increase by 9.8%, from £10.42 to £11.44 an hour for eligible workers aged 21 and over. This minimum wage will apply to those aged 21 and 22 for the first time.
Young people and apprentices on the National Minimum Wage will also receive an increase to £6.40 an hour.
Adrian Owens highlights that National Minimum Wage levels have doubled in cash terms since 2010. This is a positive move but, as it’s wholly employer-funded, it will add pressure on businesses struggling with other inflationary issues, he says.
Rob Jones, founder of RJF Accounting, says: “The rise in the National Living Wage is substantial and necessitates a closer look at your cost structures and budgeting for potential increases in labour expenses.”
Tackling late payments
Alongside actions to tackle late payments through the Prompt Payment and Cash Flow Review, the government will now require more stringent payment times for firms bidding on large government contracts.
The chancellor said: “From April 2024, firms bidding for government contracts over £5m will have to demonstrate they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years.”
Tina McKenzie, policy chair at the Federation of Small Businesses (FSB), says: “The chancellor is right to condemn the scourge of late payments.
“Driving out the worst payers from government contracts and increasing the reputational risk faced by large corporates who use small suppliers for free credit will lessen the stress so many business owners face.
“It will also increase the working capital they can use to grow.”
Funding support measures
The chancellor announced several funding support measures for business, including:
- £4.5bn for auto, aerospace, life sciences and clean energy manufacturing from 2025/26 for five years
- £16m more for Made Smarter Adoption, which supports manufacturing SMEs using advanced digital technologies
- £500m over the next two years to the AI compute capacity programme
- £50m for a two-year apprenticeship pilot.
Investment zones and freeports
The government extended tax reliefs available in freeports and in its investment zones programme from five years to 10 years.
It announced four new investment zones in West Midlands, East Midlands, Greater Manchester, and Wrexham and Flintshire.
There will also be a £150m Investment Opportunity Fund to support investment zones and freeports.
Business advisers broadly welcomed these initiatives and encouraged SMEs to assess how you could use them to foster growth and innovation.
Extension of Enterprise Investment Schemes and Venture Capital Trusts
The government will extend the existing sunset clauses for the Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) from 6 April 2025 to 6 April 2035.
Nicholas Hyett, investment manager at Wealth Club, says: “The extension of the VCT and EIS sunset clauses is good news for two schemes that have supported billions of pounds worth of investment into UK startups.
“It removes uncertainty that has been lingering over the sector for some time, potentially putting off new entrants and new investors.
“It is a shame the sunset clause hasn’t been abolished altogether – which would have avoided more uncertainty in a decade’s time.”
Final thoughts on the 2023 Autumn Statement
Some last-minute positive news on the economy gave the chancellor more room for manoeuvre in this statement than many expected.
So some measures surprised on the upside, but the statement still left the SME sector wanting more overall.
With so many changes, and potentially more to come in spring 2024, you need to analyse the impact on your business carefully and take prompt action where necessary.
This should enable you to plan to benefit from some of the more positive measures, and mitigate the less welcome ones.
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