The Spring Budget last March contained a combination of income tax and National Insurance threshold freezes, a cut to the additional-rate tax threshold, reductions in the capital gains tax and dividend allowances, the abolition of the pension lifetime allowance and the introduction of the so-called “full expensing” capital allowances regime.
The Autumn Statement yesterday saw the Chancellor move from his March message that no tax cuts were possible to announcing major cuts, primarily in the form of a cut to National Insurance and a boost to business in making so-called “full expensing” permanent. These measures were not on the table, even a couple of weeks ago, and are the product of two bits of good news; inflation has dropped and there is more fiscal headroom than expected. However, they are also a gamble because the outlook for the next 12 months still appears very uncertain.
For individuals, possibly the most interesting announcement came in the form of National Insurance cuts which the Chancellor said will impact over 29 million working people.
The main rate of Class 1 employee National Insurance contributions (“NIC”) will be cut from 12% to 10% from 6 January 2024. This means the average worker on £35,400 will receive a cut in 2024-25 of over £450 and provide a combined rate of income tax and NICs for an employee paying the basic rate of tax of 30% – the lowest since the 1980s.
The UK Government is also cutting National Insurance for the self-employed from 6 April 2024 by reducing the main rate of Class 4 NIC from 9% to 8% and effectively abolishing Class 2 NIC. It is understood that these two changes will benefit around 2 million self-employed individuals and result in the average self-employed person on £28,200 saving £350 in 2024-25.
What is interesting to note here is the absence of NIC cuts for employers and the fact that NIC thresholds have been frozen, the latter measure, for many, diluting if not entirely eliminating any savings arising from the aforementioned rate cuts.
For a lot of businesses, the most noteworthy announcement in the Spring Budget earlier this year was the introduction of a new investment allowance allowing companies incurring qualifying expenditure on the provision of new plant and machinery between 1 April 2023 and 1 April 2026 to claim one of two temporary first-year allowances:
- a 100% first-year allowance for main rate expenditure – known as “full expensing”; and
- a 50% first-year allowance for special rate expenditure.
These new allowances have softened the impact of the increase in the corporation tax rate from 19% to 25% from 1 April 2023 and will now be made permanent.
However, it should not be overlooked that full expensing is a measure that essentially provides an acceleration of relief and, as such, results in an upfront cash tax saving rather than an absolute tax reduction.
Other key measures worth noting include:
- The Undertaxed Profits Rule (“UTPR”), which forms part of the G20-OECD global minimum tax framework, will be introduced in the UK for accounting periods beginning on or after 31 December 2024, with legislation included in an upcoming Finance Bill.
- Further to the publication of draft legislation on 18 July 2023, the UK Government will make amendments to the rules for Real Estate Investment Trusts to enhance the competitiveness of the regime. Changes will variously take effect from Royal Assent of the Autumn Finance Bill 2023, apply to accounting periods ending on or after 1 April 2023, or are deemed to have always had effect.
- The UK Government will consult on the design of a new framework for encouraging the establishment and growth of captive insurance companies in the UK. The consultation will launch in Spring 2024.
- The Offshore Receipts in respect of Intangible Property (“ORIP”) rules will be abolished in respect of income arising from 31 December 2024. ORIP’s repeal will be legislated for in an upcoming Finance Bill and take place alongside the introduction of the UTPR (and the wider “Pillar 2” minimum global tax rate initiative), which will more comprehensively discourage the multinational tax-planning arrangements that ORIP sought to counter.
- The introduction of tougher consequences for promoters of tax avoidance schemes. These include a new criminal offence for those who continue to promote avoidance schemes after receiving a notice requiring them to stop; and a new power enabling HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance, including those who control or exercise influence over a company. These changes will take effect from Royal Assent of the Autumn Finance Bill 2023.
- Individuals with income taxed only through Pay As You Earn will no longer need to file a Self-Assessment return from 2024-25.
- The annual chargeable amounts for the Annual Tax on Enveloped Dwellings (“ATED”) will be increased by the September CPI figure of 6.7% for the 2024-25 ATED charging period.
- The UK Government is legislating in the Autumn Finance Bill 2023 to require employers, company directors, and the self-employed to provide new or improved data to HMRC to enable better outcomes for citizens and businesses. These changes will take effect from the tax year 2025-26.
- Incentives for UK investment zones and tax reliefs for Freeports to be extended from 5 to 10 years as well as the introduction of additional Investment Zones in Greater Manchester, the Midlands and Wales. As a reminder, in 2020, the UK Government announced the creation of a limited number of new Freeports, which are special areas within the UK’s borders where different economic regulations apply and are designed to incentivise new investment within the boundaries of Freeport “tax sites”. They benefit from a range of tax reliefs covering Customs, NIC, Business Rates, Stamp Duty Land Tax and enhanced building and capital allowances.
This was another quiet UK fiscal event from a Crown Dependencies perspective with no announcements that would appear to have a direct impact upon our islands. That said, confirmation of the introduction of the UTPR (and the repeal of ORIP) could be seen as a final cementing of the UK’s commitment to the global minimum tax rate initiative. As a reminder, the governments of the Crown Dependencies announced their joint approach to Pillar 2 in May of this year and all eyes will now be back on them as they determine the details of how implementation will look in each of the islands.
KPMG Crown Dependencies
KPMG Crown Dependencies