The Chancellor’s relentlessly upbeat Autumn Statement has more than a little of the Famous Five about it. Unending enthusiasm, everything’s brilliant, golly gosh we might have got into some scrapes but it’s all turned out smashing! And what with all that smuggler booty that’s been confiscated in Whispering Cove, there’s simply tons of money to hand out. So tax cuts for everyone! Yes, absolutely, tax cuts. What do you mean they’re just slower tax rises? Tish tosh. What you need is lashings of ginger beer!
Draw your own conclusions about the macro-economics of today’s Autumn Statement. We’re here for one thing and one thing only: tax. So here are today’s main tax announcements.
NICing from Peter to pay Paul
The 12% main rate of NICs paid by employees (on income between £12,570 and £50,270) is cut to 10% with effect from January 2024. The 9% main rate of NICs paid by the self-employed (paid on the same annual income band) is cut to 8% with effect from April 2024. And from April 2024, the self-employed will no longer be required to pay flat-rate weekly Class 2 NICs (truly the Cinderella of the social security world). Crucially, this latter change is being enacted without affecting entitlement to contributory benefits like state pension, provided that the relevant self-employed person has profits of at least £6,725.
Every Chancellor needs a positive headline to come out of a statement like this, and the Chancellor must be hoping that NICs will be his route to a cheery front page. The reality is somewhat bleaker. The freezing of income tax and NICs thresholds in a high-inflation environment has been a boon for the Treasury, and led to much higher tax costs for individuals. This NIC cut is really only handing back some of that windfall. For most people taxes this year will still be higher than last year in real terms. Still, if the Treasury is going to hand money back to people (presumably on the basis that public services are all tip-top and have no need for extra cash) then at least the main proportionate beneficiaries are low- and middle- income earners.
(Not quite) full expensing
Much more significant for the business tax landscape, but far harder to craft a red-top headline around, is the poorly-named “full expensing”. This will make the current (temporary) full expensing regime permanent. In short, rather than having tax relief on investment in plant and machinery doled out over a number of years, businesses will be able to fully write it off against taxable profits in the year they incur the expense.
But unlike the Chancellor I don’t live in an Enid Blyton book, so here come the caveats: (1) #NotAllPlantAndMachinery because certain long-life assets and integral features get 50% write-off in the first year and the 3% rate of relief available on structure / buildings allowance is unaffected, (2) other kinds of capital expenditure (e.g. on intangibles) are unaffected (3) this is a timing difference only, at relatively modest cost to the Treasury (4) because timing differences get smoothed by deferred tax in the accounts, listed entities may find that it makes little difference to the accounting measures of tax, and (5) unless you make sufficient profits, you’ll just accumulate tax losses with the hope of being able to use them in future.
Creative Sector
Having previously announced reforms to the tax relief regimes for the audio-visual and video games industries, together with draft legislation, further details are now emerging regarding the structure of Audio-Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC). Announcements were made today around the administrative requirements of the new regimes
There was a very welcome reversal of the Government’s position on ‘connected party profit’. In short, if a studio is claiming relief under these regimes then part of the expenditure on which they claim relief might be the cost of outsourcing some part of the production. If the service provider is a third party: no problem! However if that service provider is connected to the studio, then the draft legislation published in July would prohibit a claim in respect of any mark-up imposed by that service provider. The government has now confirmed that an arm’s-length profit (calculated in line with transfer pricing principles) will be eligible for credit, which will be a great relief to businesses that can already benefit from relief on such connected party purchases.
The government is also calling for evidence on extending relief to the visual effects industry.
Other changes
Lots of tinkering is going on, much of which is welcome but hard to get too excited about. Although no doubt our Enid-Blyton channelling Chancellor would find a way. Hang on, I’ll try my best. Get ready for a jolly rollercoaster of fascinating details!
Since business rates are a major cost for many struggling brick-and-mortar businesses it’s good to see the government announce that it will freeze the small business multiplier, and maintain the 75% relief for eligible retail / hospitality / leisure businesses, for a further year.
There are some improvements to how the merged Research and Development Expenditure Credit regime will work for loss-making companies, and a new slightly relaxed definition of ‘R&D intensive’ which will also benefit certain loss-making SMEs.
The sunset clauses for EIS and VCT tax reliefs (due to expire 6 April 2025) will be pushed out to 2035. Which might be exciting if anyone didn’t think that was more-or-less inevitable.
The Construction Industry Scheme is getting an overhaul, with new tests designed to prevent non-compliant businesses from being authorised to receive ‘gross payment’ and cut down on supply-chain fraud. Businesses will need to demonstrate their compliance with VAT rules, in addition to the existing tests. There is also a tantalising promise that CIS rules will be reformed to take many tenant-landlord payments outside the scope of CIS.
And finally, the government has confirmed its intention to tweak off-payroll working rules (i.e. the expanded IR35 rules, introduced in 2021). These changes will ensure that where a company has (incorrectly) failed to make PAYE deductions, and is later required to account for PAYE, it will be easier for it to get credit for tax that may have been paid by the ultimate individual contractor. This reduces the potential for HMRC to double-recover and should lead to an more equitable balance of risk.
Can’t wait to hear about all the Chancellor’s thrilling adventures in next year’s Budget. I safely predict that he will somehow find even more money for wise and thoughtful tax cuts that in no way resemble an ill-advised electoral bribe.
(Image courtesy of OpenAI's Dall-E)
In a speech focused at least partially on an upcoming election, Chancellor Jeremy Hunt has outlined his choices and decisions about the nation's finances.