AAT members and accounting experts analyse Chancellor of the Exchequer Jeremy Hunt’s 2023 Autumn Statement.

National insurance cuts, permanent ‘full expensing’ tax breaks for business investments and National Living Wages increases which will also benefit 21-22 year olds are among the 110 measures announced on Wednesday in Chancellor Jeremy Hunt’s Autumn Statement, along with tougher crackdowns on late filing of tax returns and late tax payments.

• You can read AAT’s summary of the measures here

Full-expensing tax breaks

One of the biggest headliners for businesses in the statement was the announcement to make full-expensing tax breaks permanent, which Mr Hunt described as ‘the biggest business tax cut in modern British history.’.

Originally intended to last until 2026, full-expensing tax breaks enable businesses who pay corporation tax to claim up to 100%  of the cost of plant and machinery-related investments. They were first announced in the 2023 Budget and allow qualifying businesses to deduct the total investment cost from their profits, therefore reducing the amount of corporation tax they pay (a 25p reduction in corporation tax for every £1 investment spent on plant and machinery.)

National Insurance (NI)

National Insurance cuts were also announced. Class 1 NI employee contributions will decrease from 12%  to 10%  from January on earnings between £12,571 and £50,271 while Class 4 NI will reduce to 8%  from 9 per cent. Class 2 NI will be scrapped altogether, benefitting self-employed individuals with profits over £12,750.

And the National Living Wage which has been increased to £11.44 per hour from April next year, will for the first time, now extend to workers of 21 and 22-years of age. Previously, the National Living Wage only covered those over 23.

Late tax payments

Legislation in the Autumn Finance Bill 2023 will ensure that anyone joining Making Tax Digital (MTD) from April 2024 will be liable to the new tax regime for late filing of tax returns and late tax payments.

Other measures included:

• Support for late payments: businesses bidding for government contacts worth more than £5m will now have to prove they pay purchase invoices within 55 days on average.
• Business rates discount for hospitality, leisure and retail.
• An extra investment of £4.5bn between 2025 and 2030 in manufacturing.
• £1m for businesses investing in green technologies.  

So how will some of these measures affect businesses and the accountants who serve them? We spoke to accountants to gauge their views and reactions to the Autumn Statement.

Reactions

Living wage increase adds to pressure on struggling businesses

Sharon Wray FMAAT, Director, Sharon Wray Accountancy Services

It’s about time the government have made tax cuts, as the personal allowance has stayed static for a third year running. Unfortunately for accountants and bookkeepers, the national insurance changes come into force on 6 January, right in the middle of the very busy self-assessment season.

The self-employed also benefit from the Autumn Statement: the scrapping of Class 2 NI and a 1% cut to Class 4 NI seems to be a positive move. But it’s left me wondering how the self-employed will be able to top up their state pension credits if it’s not through self-assessment. The government have however announced there will be a Class 2 reform next year.

As to the National Living Wage: as much as I applaud the increase from £10.42 to £11.44 an hour, my concerns are for those businesses already struggling who will then need to increase their revenue to survive.

Finally, the permanent extension of the full-expensing capital allowance scheme will only benefit bigger companies. For the vast majority, it does very little.

Verdict: The National Living Wage increase is welcomed but it will put pressure on struggling businesses, while the full-expensing scheme will only benefit larger companies.

Making full-expensing tax breaks permanent will provide investment incentives

Vipul Sheth, Chartered Accountant and MD, AdvanceTrack Outsourcing

The decision to make permanent the full-expensing tax breaks for businesses is welcome.

It offers a continued incentive for investment, allowing companies to deduct spending on crucial assets from profits and ultimately reducing their corporate tax burden – particularly valuable to profitable businesses. That’s in addition to a valuable window for strategic tax planning, enabling businesses to optimise their investments and enhance cash flow.

Businesses will be hoping it helps stimulate growth and job creation. However, I would have liked to see him go even further and increase the allowance for Entrepreneurs’ Relief, which successive Chancellors have reduced to just £1m. Implementing any policy that does not encourage entrepreneurship will make the country poorer.

Verdict: Making full-expensing tax breaks permanent will provide a continued incentive to invest but it would have been good to increase the allowance for Entrepreneurs Relief, too.

Autumn statement is just ‘smoke and mirrors’ for small businesses and the self-employed

Stephanie Hurst, Corporate Tax Consultancy and Personal Tax Compliance Director, Monahans

Whilst many of today’s measures will be welcomed by businesses, I’m not convinced that any of the 110 changes aimed at business growth have gone far enough.

There are clear wins: the reduction of employee National Insurance (NI), increases in the National Living Wage and extension of Business Rate Relief – but all have also been negated in effectiveness by other policies. It’s a case of smoke and mirrors; the Chancellor is ostensibly putting more money in people’s back pockets, but not enough to alleviate the financial strains felt by lower income households in the current financial climate.

Meanwhile, the business rate reduction extension to 2025 will be welcome to those in retail, hospitality and leisure who battled through COVID-19. But the increase in wages [via the National Minimum Wage] that businesses will need to pay may slightly dampen its impact.

The one policy that some might view as positive is the confirmation of the EIS sunset clause, which will be extended until 2035, providing more certainty for small businesses looking to raise investment under the Enterprise Investment Scheme.

Meanwhile, the permanence of full-expensing relief which provides substantial tax cuts for businesses investing in certain plant and machinery assets will benefit larger businesses.

Verdict: Most of the statement is just smoke and mirrors for small businesses and self-employed, but 10 10-year extension of EIS sunset clause is welcome.

NLW is a mixed picture for employers

Ian Goodwin, Partner, Employment Tax, Mazars

The National Living Wage (NLW) hike is overwhelmingly good news for employees. From April, those on the lowest pay will see more money in their pockets, and importantly, from a younger age. And there is the added benefit of increased pension savings.

For employers, the picture is more mixed. Against a challenging backdrop of increasing costs, from overheads to supply chains, higher pay packets could be the straw that breaks some businesses’ backs. Employers will need to navigate new NLW compliance, consider pay rises across their employee base and manage increased pension contributions. It will also be more expensive to recruit entry-level workers and for those that have salary sacrifice schemes in place, these will need to be managed carefully with employees, particularly where pay differentials are likely to decrease following today’s announcement.

There is a risk that due to these increased costs and compliance burden, we’ll see an uptick in redundancies as employers struggle with staffing costs. To help minimise this risk now is the time for employers to seek advice and get on the front foot with robust governance in place.

Verdict: The National Living Wage is a mixed picture for employers who will have to navigate NLW compliance, consider pay rises and manage increased pension contributions.

Full-expensing tax breaks will bolster UK business

Toby Ryland, Corporate Tax Partner, HW Fisher

Businesses across the UK will be celebrating today – finally a simple tax policy from the Chancellor!

Full-expensing is a straightforward and easy tax relief that will make the decision to invest in new equipment much easier. It covers a wide variety of business necessities, from IT infrastructure, office furniture, certain commercial vehicles, warehouse and construction equipment, and fixtures for non-residential properties.

It means that tax deductions will follow the financial cost of investing in real-time rather than spreading the cost over a longer period. It’s simple to administer: companies can claim the relief through their Corporation Tax return.

For example, if a business spends £100 on new tools and machinery, it will get a tax deduction for the full £100 immediately. Prior to the Full Expensing rules, the company would need to have claimed capital allowances on the £100, and while they would have still got the full tax relief, it would be over a much longer period of time, in this case, at a rate of 18% per year.

Verdict: The tax relief will help to bolster UK business and is a step in the right direction to put the UK back on the map as a go-to destination to do business in.

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Annie Makoff is a freelance journalist and editor.