Employees

The Chancellor decided to cut the rate of employee National Insurance by 2%, to 10%, this has taken effect from 6 January 2024.

The combined rate of income tax and National Insurance for an employee paying the basic rate of tax is therefore now 30%, down from 32%.

Self-employed

Currently the National Insurance system for the self-employed is overly complicated, with two separate classes of National Insurance payable in order to access state benefits. Therefore, the government will simplify the tax system by abolishing Class 2 self-employed National Insurance, to take effect from 6 April 2024. This is currently a fixed tax charge of £3.45 per week where the annual self-employment profits for an individual have exceeded the minimum threshold of around £7,000 p.a.

Capital allowances: Full Expensing

The Chancellor announced that the ‘Full Expensing’ capital allowance regime, which was introduced in the spring 2023 budget as a temporary measure, would now be made permanent.

Full Expensing is a capital allowance available to companies only, which provides 100% tax relief on purchases of qualifying plant and machinery, or 50% relief for ‘special rate expenditure.’

Unlike the Annual Investment Allowance (AIA) which also provides 100% relief but only on a maximum of £1m p.a. of qualifying spend, there is no annual limit on the amount of expenditure that can qualify, meaning that larger investment projects can also benefit.

Capital allowances have fluctuated hugely over the last few years, causing a real headache for businesses. The intention with recent decisions to make full expensing and the higher AIA limit “permanent” is to try to create a bit more certainty for those planning longer term capital spending and projects.

Research and development

Similar to Full Expensing, R&D is a tax relief available to companies only, but even more specifically it’s broadly only available on costs undertaken speculatively in exploration of an advance in a specific field. There have been various changes announced to R&D tax reliefs over the last 12 months. Some of the more significant changes have included reducing the R&D ‘enhancement’ rate from 130% to 86% for smaller companies, and increasing the tax credit rate for larger companies (known as the RDEC) from 13% to 20%, both of which have applied since 1 April 2023.

In his Autumn Statement the Chancellor has additionally confirmed that the RDEC scheme will apply to all companies regardless of their size. Rather than smaller companies claiming the more generous ‘enhanced expenditure’ deduction, they will now also claim the ‘above the line’ RDEC credit, which is effectively a taxable credit based on 20% of R&D expenditure.

Spring Budget

Since the Autumn Statement, the government has announced the Spring Budget will take place on 6 March so look out for more changes then.
For more information please contact a member of our Tax Team.