Impact on Employers, Individuals and Businesses

Impact for Employers

Like opening a sneaky Christmas present on Christmas Eve, it has become common place for “Budget Eve Gifts” to be released before Budget day.  

One such gift with this Autumn Statement was the announcement that the National Living Wage (‘NLW’) was to increase by £1.02 per hour to £11.44 and will now be available for 21 and 22 year olds.  This is higher than was predicted and equates to £1,800 per annum (or £2,300 for 21 and 22 year olds) more for those working full time.   

Not only is it a good news story for a large population of potential voters, impacting around 2.7 million, it will also raise revenues for the Treasury. The Chancellor therefore not only increased the role Employers have in assisting with the delivery of his commitments, but also obliges Employers to bear the cost.

However, this may impact employers who operate salary sacrifice schemes if deductions now fall below the NLW rate causing employers to fall foul of National Minimum Wage legislation. 

The “gifts” continued for employment taxes; from 6 January 2024, employee National Insurance Contribution rate will reduce from 12% to 10% saving a worker on average wage around £450 a year. While good news for employees, the timeline may present challenges to Payroll teams throughout the country.

The Chancellor also announced a consultation to reform work place pensions which could see employees retaining just one pension ‘pot’ by allowing them to ask employers to contribute to an existing pension scheme. While this may streamline pension savings for employees it will no doubt create additional compliance for Employers.

While not included in the Chancellors speech, the full Budget Statement outlines new VAT compliance tests that contractors must meet when applying for gross payment status and a simplification of the Construction Industry Scheme.

Finally, a small but perhaps pertinent snippet was a short paragraph on new legislation being included in the Autumn Budget Finance Bill 2023 that will give HMRC new powers to collect new or improved data from Employers, Company Directors and the Self-employed from 2025/26.  This may signal increased reporting obligations.

Impact for Individuals

Alongside the reduction in National Insurance Contributions payable by employees, the Chancellor announced some good news for the self-employed.  The action taken today across all national insurance classes, worth over £9 billion per year, amounts to the largest ever cut to employee and self-employed national insurance.

Class 2 National Insurance Contributions will be abolished with effect from April 2024, meaning self-employed individuals and partners of partnerships no longer have to pay the £3.45 per week charge while continuing to receive access to contributory benefits, including the State Pension.

Class 4 National Insurance Contributions, also paid by self-employed individuals, will be reduced from 9% to 8% on profits earned between £12,570 and £50,270.     

It is estimated that two million self-employed people will benefit from the combined impact of the Class 2 and Class 4 cuts, with an average self-employed person on £28,200 saving £350 in 2024-25.

In addition, pensioners will see a rise in their state pension, in line with the government’s triple lock promise, by 8.5% from April 2024, resulting in an increase in their pension of up to £900 a year.   

Impact for Businesses

The Chancellor has announced that ‘Full Expensing’, the successor to the 'Super Deduction', will now be made permanent. This had been previously scheduled to end in 2026, and for businesses which regularly exceed the £1million Annual Investment Allowance on qualifying expenditure this will be seen as a welcome benefit. Full Expensing permits companies to receive up to a 25% in-year tax saving on capital expenditure.

More significant changes were announced in respect of the UK Research and Development tax relief schemes, with the Small and Medium-Sized Enterprises (“SME”) and Research and Development Expenditure Credit (“RDEC”) schemes set to merge from 1 April 2024 in a single RDEC style scheme.

For existing SME claimants, this will result in a significant reduction in the value of an R&D claim which is likely to outweigh the value attributed to the ‘simplification’ of the scheme. The headline benefit rate of the new scheme will be 15p for each £1 invested, which is much lower than the maximum under the old scheme, which up until 31 March 2023 had been as generous as 33p/£1 in some circumstances.

Whilst this announcement had been anticipated within the industry, there were a couple of slightly more positive changes outlined today. Firstly, through a change in the mechanics of the RDEC scheme, loss making companies will receive a slightly greater rate of benefit (16.2p/£1), and secondly the threshold to qualify for the ‘R&D intensive SME’ has been lowered.

It will now be possible to qualify for the standalone scheme if 30% of the total company expenditure is qualifying R&D expenditure. This will still be a challenging test to meet, and likely outside of the reach of most companies except for start-ups, but the prize is a valuable relief rate worth 27p/£1.

More detail on the merged scheme will come available in the run up to 1 April 2024 and this will provide an opportunity to plan ahead to maximise the value of a potential R&D claim.