Despite suggestions that inheritance tax and income tax rates might be cut, Jeremy Hunt remained silent on those topics and instead offered tax saving measures in the form of a reduction in certain National Insurance Contributions and a permanent commitment to full expensing for certain capital expenditure. This article covers the headline grabbing tax announcements along with a few relevant tax measures hidden in the detailed documents published alongside the Chancellor’s speech.
Life Sciences and Technology related tax measures
R&D Tax Reliefs
The merger of the two existing RDEC and SME tax relief schemes has been under discussion for some time. Today, the Chancellor confirmed that the two schemes will be merged in respect of accounting periods starting on or after 1 April 2024. For the majority of current claimants, this is a slight delay compared to the draft legislation published in July which would have applied to changes to expenditure incurred on or after 1 April 2024, giving businesses a little more time to prepare for the new rules.
The main purpose of the merger is to simplify and improve the UK’s R&D tax relief system. A technical note on specific provisions of the new scheme has been published alongside the Autumn Statement, including further detail on contracted out R&D, subsidised expenditure and externally provided workers.
The Chancellor also confirmed that the notional tax rate applied to loss-makers under the merged scheme would be reduced from 25% under the existing RDEC scheme to 19%. This change will ensure that loss-making companies receive more cash benefit upfront, and will be particularly welcome news for early stage businesses.
At the Spring Budget 2023, the Chancellor announced a more generous SME intensive scheme, aimed at the most intensive loss-making SMEs. The threshold to qualify for this additional support was initially met where a company’s qualifying R&D expenditure was 40% or more of its total expenditure. Today, this threshold was reduced to 30%, bringing more companies into the SME intensive category.
Corporate and business taxes
The Chancellor has confirmed that after 1 April 2026, UK companies will continue to benefit from the full expensing capital allowance (initially introduced for a fixed three year period following the announcement in Spring 2023) which allows UK companies to deduct 100% of the cost of qualifying main rate plant and machinery from their taxable profits in the year of investment. UK Companies will also continue to be able to deduct 50% of the cost of special rate (including long life) assets from their profits in the year of investment. Cars, assets for leasing and second-hand assets will be excluded from both the 100% and 50% first-year allowances. This measure was hailed as “the biggest business tax cut in modern British history” although, in reality, the impact of this announcement will not be felt until long after the next election.
Offshore Receipts in respect of Intangible Property and OECD Pillar 2
As expected, the Government confirmed that it will introduce the Undertaxed Profits Rule, which forms part of the ‘Pillar 2’ G20-OECD global minimum tax framework designed to ensure Multinational Enterprises will be subject to a minimum 15% effective tax rate in every jurisdiction in which they operate. The Undertaxed Profits Rule will apply for accounting periods beginning on or after 31 December 2024, with legislation included in an upcoming Finance Bill. Linked to the Pillar 2 proposals, the Government will abolish the complex Offshore Receipts in respect of Intangible Property (ORIP) rules in respect of income arising from 31 December 2024 as the behaviour these rules are designed to discourage will be addressed as part of the Pillar 2 implementation.
Personal and employment taxes
National Insurance Contributions (NICs)
Probably the most significant announcement for a large proportion of individual taxpayers was the reduction in Class 1 employee NICs from 12% to 10% from 6th January 2024. This is expected to result in a tax saving for 27 million working people and means that the average worker (earning £35,400) will receive a tax cut of over £450 in the 2024/ 2025 tax year.
The Chancellor also announced that, in an attempt to simplify NICs for the self -employed, he would abolish the Class 2 NICs payment of £3.45 per week. Accordingly, from April 6th 2024, self-employed individuals will no longer be liable to pay Class 2 NICs but will still be eligible for contributing benefits, such as the State Pension. Class 4 self-employed NICs will also be reduced from 9% to 8% from 6th April 2024.
It was also confirmed that in 2024-25, the Government intends to freeze the NICs Lower Earnings Limit and the Small Profits Threshold at 2023-24 levels.
National Minimum Wage
Starting on 1st April 2024, qualified workers aged 21 and over will get an hourly rate of £11.44 due to a 9.8% increase in the National Living Wage.
Off Payroll Working Rules
The Off Payroll Working Rules (often referred to as IR35) were introduced to tackle non-compliance and missing tax in relation to individuals (especially freelancers) working through personal service companies (PSCs). These rules require businesses who engage individuals through PSCs to determine whether the individual is a ‘deemed employee’ and account for employment taxes accordingly. Correcting an unfairness in the operation of the rules up to now, it was announced today that the Government will legislate in the Autumn Finance Bill 2023 to allow HMRC to reduce the PAYE liability of a deemed employer to account for taxes that have already been paid by a worker and their PSC on payments received, where an error has been made in applying the off-payroll working rules.
Measures for growth companies
Some good news for EIS and VCT investors (and those companies seeking such investment) was hidden in the Autumn Statement document with confirmation that EIS and VCT reliefs will continue beyond 2025 with an extension of the ‘sunset’ clause to 2035. Confirmation that companies will be able to raise funds pursuant to those schemes beyond 2025 will be welcome news, although it is notable that no announcements were made in respect of the Treasury Select Committee’s recommendations from July this year to expand the scope of the schemes. Perhaps not surprising given that an evaluation of the effectiveness of VCT and EIS reliefs (also published today) has confirmed that the reliefs are appropriate to deliver the policy objectives behind the schemes and no better alternatives were identified.
Growth companies looking to list on certain recognised stock exchanges will welcome the news that a relief from Stamp Duty (SD) and Stamp Duty Reserve Tax (SDRT) – the Growth Market Exemption first introduced in 2014 – will be extended to include smaller, innovative growth markets. It will also increase the maximum market capitalisation threshold for a market to access this exemption from £170 million to £450 million. These changes will be included in the Autumn Finance Bill 2023 for implementation from 1 January 2024.
Other notable announcements
- Various announcements in respect of tax reliefs for the visual effects industry were made, including a call for evidence on trends in the industry to inform a potential additional tax relief for expenditure on visual effects and a 5% uplift in relief for animated feature films under the Audio-Visual Expenditure Credit.
Tackling the Tax Gap
- In an attempt to ‘tackle the tax gap’, additional investment into HMRC’s debt management capability was announced today, along with tougher consequences for promoters of tax avoidance. The Construction Industry Scheme (which is in place to combat missing tax specifically in the construction industry) will also be reformed to improve HMRC’s powers under the scheme, whilst other aspects of the scheme will be simplified, subject to a technical consultation.
- With effect from the 2025 / 2026 tax year, employers, company directors and the self-employed will be required to provide ‘new or improved data’ to HMRC. It remains to be seen exactly what additional data will be required.
- The small business multiplier in England will be frozen for a fourth consecutive year and the current 75% relief available for certain retail, hospitality and leisure properties is to be extended for another year.
Investment Zones and Freeports
- The new Investment Zones programme was launched as part of the Spring Budget earlier this year, giving the chosen areas access to a variety of tax reliefs. Today, the Chancellor announced the next set of Investment Zones, as well as an extension to the Investment Zones programme and an extension to the availability of Freeport Tax Reliefs from five years to ten years.
If you would like further information in relation to any of these measures, please contact a member of our tax team.