Autumn Statement 2023 summary:
110 growth measures announced as the UK gears up for a 2024 election

In an effort to incentivise work, the Chancellor announced various changes to NICs for the employed and self-employed.

Class 1 (primary) NICs

As regards NICs for the employed, the main rate of Class 1 (primary) NICs will be reduced by 2%, from 12% to 10%. For employees paying the basic rate of income tax, the combined rate of income tax and NICs will accordingly drop from 32% to 30%.

This measure will take effect from 6 January 2024.

Class 2 NICs

As of 6 April 2024, individuals who are self-employed and are earning profits above £12,570 will no longer be required to pay Class 2 NICs, which currently sits at a rate of £3.45 a week. They will though continue to receive access to contributory benefits including the state pension.

There will be no change for individuals with profits between £6,725 and £12,570 who will continue to receive contributory benefits, including the state pension, through National Insurance credits without paying NICs.

Individuals with profits under £6,725 (the Small Profits Threshold) who choose to pay voluntary Class 2 NICs to access contributory benefits, including the state pension, will continue to be able to do so.  For that purpose, the weekly rate will remain and be frozen at £3.45 for 2024/25.

The effect of these changes is to abolish Class 2 NICs by removing the requirement for self-employed individuals to pay such NICs and thereby simplify the tax system for the self-employed.

Class 4 NICs

In further keeping with the government’s theme of reducing and abolishing NICs, the Chancellor also announced that the main rate of Class 4 NICs, payable by the self-employed, will be reduced by 1% from 9% to 8%.

This new rate of 8% will continue to apply to profits between £12,570 and £50,270 with the current rate of 2% continuing to apply to profits above £50,270.

This change to Class 4 NICs will also take effect from 6 April 2024.

Rates and thresholds

Alongside the measures set out above, the government will also freeze the Class 2 and Class 3 NIC rates in 2024/25 (for those paying voluntarily). This will not affect any existing arrangements for payments of voluntary Class 2 or Class 3 NICs that are connected with previous tax years.

The Lower Earnings Limit and Small Profits Threshold are also being frozen.

The Lower Earnings Limit is the minimum amount and level of earnings that an employee needs to earn in order to qualify for benefits, such as the state pension and jobseeker’s allowance. Workers earning less than the Lower Earnings Limit threshold do not pay NICs (unless they do so voluntarily).

A summary of the rates and thresholds for NICs from 6 April 2024 can be found in the table below:

Capital allowances – full expensing made permanent

The 2023 Spring Budget saw the introduction of “full expensing” (replacing the previous 130% “super deduction”), which allows companies investing in plant and machinery to claim a 100% first-year allowance for main rate expenditure and a 50% first-year allowance for special rate expenditure.  This was legislated for as a temporary measure, with an expiry date of 1 April 2026.  As had been widely requested by business representatives, “full expensing” will now be made permanent.  Expenditure on plant and machinery for leasing remains excluded.

The government will also consult on simplifying the capital allowances legislation more generally.

Research and development (R&D) tax reliefs

The Chancellor confirmed the merger of the current R&D relief scheme for small and medium-sized enterprises (SMEs) with the R&D expenditure credit (RDEC) scheme for other enterprises, with the merged scheme to apply for accounting periods beginning on or after 1 April 2024.  The merger of the two schemes had been subject to technical consultation over the summer.

The rate of relief under the merged scheme will be the current RDEC rate of 20%.  The notional tax rate applied to loss-making companies in the merged scheme will be the small profits rate of 19%, rather than the main rate of corporation tax of 25% (as is currently used under the RDEC).  It is intended that the merged scheme will simplify the system of claiming relief for R&D and adopts a more straightforward position on subcontracting (where the decision maker is allowed to claim for contracted out R&D). However, there has been criticism that the merger of the two schemes is being rushed, and that this could create uncertainty.

Alongside the merged scheme, legislation will be introduced in the Autumn Finance Bill 2023 (the “Bill”) to provide enhanced support for “R&D intensive SMEs”, where loss-making companies will be eligible for a payable tax credit of 14.5% if they meet the definition of R&D intensity.  This measure was previously announced at the 2023 Spring Budget, with the “intensity threshold” set at 40%.

In order to make the enhanced support for R&D intensive SMEs more accessible and stable, the intensity threshold will be reduced to 30% from 1 April 2024.  A one-year grace period will also be introduced to allow companies that have made a successful claim, but fail the intensity threshold for the following period, to continue to claim for such following period (subject to meeting the other conditions for the relief).

Time extension for freeport tax reliefs

Broadly, a freeport is a distinct customs zone that operates outside the UK’s customs borders, thereby allowing goods to be imported, processed and re-exported without incurring customs duties.  Designated freeport tax sites (which are specific locations within the freeport) benefit from a package of tax reliefs, including a stamp duty land tax exemption for non-residential land, enhanced capital allowances (structure and buildings allowance and plant and machinery allowance) and an exemption from employer’s NICs for a period of three years.  The reliefs are currently subject to sunset dates in 2026.

As announced at the Autumn Statement, the government will extend the sunset date for the tax reliefs for freeports in England to 30 September 2031, thereby extending the lifespan of those reliefs from five to ten years.  In each such freeport, the extension will be contingent on the agreement of delivery plans and will be legislated for once such delivery plans are agreed.  For freeports in Scotland and Wales, the reliefs will also be extended from five to ten years, subject to agreement with the devolved administrators.

Time extension for investment zones tax reliefs

The 2023 Spring Budget saw an introduction of investment zones that benefit from a tax relief package similar to that applicable to freeports (see above).  The lifespan of such reliefs will likewise be extended from five years to ten years.  Some new investment zones have also been announced.

The abolition of the LTA (the most recent level of which was set at £1,073,100) was a surprise announcement at the 2023 Spring Budget.  The Finance (No. 2) Act 2023 included legislation to abolish the lifetime allowance charge.

The Bill will include legislation to complete this measure and remove the LTA completely, with effect from 6 April 2024.  In addition, it will clarify the taxation of lump sums and lump sum death benefits, and the application of protections. It will also confirm the tax treatment for overseas pensions, transitional arrangements, and reporting requirements.

Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) – extension of sunset clause

Following the introduction of a sunset clause to the EIS and VCT legislation (through the Income Tax Act 2007) in 2015, the government has announced a welcome extension of the existing sunset clause for the EIS and VCT schemes from 6 April 2025 to 6 April 2035.

Investors in new shares in EIS qualifying companies and VCTs will continue to be able to access both income and capital gains tax reliefs, incentivising private investment in younger companies in the UK.

While many are calling for a removal of the sunset clause altogether, the Bill will provide for a ten-year extension of the sunset clause, thereby providing a degree of certainty to young companies and their investors.

Employee Management Incentive (EMI) options – extension of notification deadline

As previously announced at the 2023 Spring Budget, there will be an extension to the time limit in which notifications must be made to HMRC as regards the grant of EMI options. This will be extended from the current deadline of 92 days following the grant of EMI options to 6 July following the end of the tax year in which the grant of EMI options was made.

This extension will apply to EMI options granted on or after 6 April 2024 and will be introduced by way of new legislation in the Bill.

The government has introduced new measures to address the potential over-collection of income tax and NICs in cases of non-compliance with the off-payroll working rules, thereby resolving an existing unfairness in the tax system.  These measures will take effect from 6 April 2024.

As announced at the Autumn Statement, in cases where a worker was incorrectly treated as self-employed, HMRC will now be able to set off taxes estimated to have already been paid by that worker (or their intermediary) against the PAYE liability of the person identified as the deemed employer.  The off-payroll working rules currently require a deemed employer to account for any resulting PAYE liabilities in full.  In order to avoid double taxation, the worker (or their intermediary) then has to apply to HMRC for repayment of taxes already paid by them (which would not have been payable if the off-payroll working rules had been correctly applied from the start).  Making such claim is onerous and subject to time limits.  The new IR35 set off will share the cost of liabilities under the off-payroll working rules in a fairer manner between the worker (and/or their intermediary) and the deemed employer.

Further detail on how HMRC will calculate the PAYE liability in cases of non-compliance can be found in HMRC’s policy paper here.

At the 2023 Spring Budget, the government announced a consultation on reforming the cash basis system for the self-employed (further information on that consultation can be found in our summary of the 2023 Spring Budget available here).

The cash basis is a simplified accounting method for smaller businesses operated on a self-employed basis to calculate taxable profits for income tax purposes, which reduces the complexity of reporting to HMRC.

The government is now expanding the income tax cash basis for the self-employed and partnerships through legislation included in the Bill, with such expansion taking effect from 6 April 2024. For small businesses the cash basis will apply by default, unless an election is made to use the accruals basis. The turnover, interest and loss relief restrictions that currently apply to the cash basis will be removed.

Further detail on the expansion of the cash basis can be found in HMRC’s policy paper here.

The Chancellor confirmed the government’s commitment to continue to support small businesses, high street shops, independent cafés and pubs with a range of measures relating to business rates.  This includes an extension of the 75% retail, hospitality and leisure (RHL) relief for 2024/25.

English local authorities will be compensated for the loss of income due to such business rate measures and will receive new funding for administrative and IT costs.

To support continued investment in the UK’s renewable generation capacity, a new investment exemption from the Electricity Generator Levy (EGL) will be introduced, which will apply to new projects for which the substantive decision to proceed is made on or after 22 November 2023.  The exemption will be included in the Bill.  The EGL will end as planned on 31 March 2028.  A technical note on the exemption is available here.

The government has also published its conclusion of a review of the fiscal regime for oil and gas (available here), which includes setting out principles for the tax treatment of future oil and gas price shocks after the end of the Energy Profits Levy (EPL).  The EPL will end on 31 March 2028, or earlier if the Energy Security Investment Mechanism (ESIM) is triggered, which will happen if oil and gas prices fall for a sustained period prior to 31 Mach 2028.

The government will introduce legislation to reform the film, TV and video games tax reliefs so that they are replaced by refundable expenditure credits.  These will be available from 1 January 2024.

As part of implementing the Pillar 2 framework in the UK, the Finance (No. 2) Act 2023 introduced a multinational top-up tax and a domestic top-up tax, to have effect in respect of accounting periods beginning on or after 31 December 2023.

The Bill will provide for some amendments to that existing legislation, to facilitate the implementation of the Global Anti-Base Erosion Rules agreed by the UK and other members of the OECD and take account of commentary and administrative guidance that has since been published by the OECD. The amendments have previously been subject to consultation.

In addition, the government is now also going ahead with implementing the “undertaxed profits rule” (UTPR) to operate as a backstop to the top-up tax.  The main rule under which the top-up tax will be charged is the income inclusion rule (IIR), under which a group’s ultimate parent company (or in some situations its intermediate holding companies) will pay top-up tax in respect of profits of foreign subsidiaries in low-tax jurisdictions.  The UTPR comes into play where a group’s ultimate parent company is located in a jurisdiction that has not yet brought the IIR into effect.  Under the UTPR, top-up tax is allocated among all of the jurisdictions in which the group has a presence, to the extent they have implemented the UTPR.

The UTPR will take effect in the UK for accounting periods beginning on or after 31 December 2024. At the same time, the existing anti-avoidance rules relating to offshore receipts in respect of intangible property will be repealed, as the tax planning arrangement that those rules are aimed at should be sufficiently covered by the UTPR.

Following consultation, the government will introduce tougher consequences for promoters of tax avoidance.

Specifically, the Bill will introduce a criminal offence for promoters of tax avoidance who continue to promote avoidance schemes after receiving a stop notice instructing them to stop promoting the schemes described in that notice.  It will also introduce a new power allowing HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance, including those who control or exercise authority over a company.

These changes will take effect when the Bill receives Royal Assent.

As announced at the 2023 Spring Budget, the government will double the maximum sentences for the most heinous cases of tax fraud from seven years to fourteen years.  This measure will also take effect when the Bill receives Royal Assent.

Extension to growth market exemption

With effect from 1 January 2024, the government will extend and increase access to the existing ‘growth market exemption’, a relief from Stamp Duty (SD) and Stamp Duty Reserve Tax (SDRT).

The growth market exemption means that no SD or SDRT is chargeable on a transfer of shares or securities that are:

• admitted to trading on a recognised growth market; and
• not listed on a recognised stock exchange.

The new extension allows any FCA regulated multilateral trading facilities, run by investment firms that are approved as ‘recognised growth markets’ by HMRC, to access the growth market exemption without needing to be recognised on a stock exchange. This aims to include smaller, innovative growth markets on the list of those that can access the exemption.

Currently, one of the conditions for a market to qualify as a ‘recognised growth market’ is for the majority of the companies on the market to have market capitalisations of less than £170 million. The new measure increases this level and the ‘market capitalisation condition’ from £170 million to £450 million.

Removal of the 1.5% charge on certain issues of securities and related transfers

For a number of years, EU law (based on relevant case law) disapplied the 1.5% of SD or SDRT charges that would otherwise apply on the issue of UK securities into depositary receipt systems and clearance systems and certain related transfers.  When the Retained EU Law (Revocation and Reform) Act 2023 (the “REUL Act”) took effect, this raised the issue of those charges coming back into force unless new legislation was passed to remove them.  Such legislation will now be included in the Bill, which will also preserve the 0% charge on issues of bearer instruments.

These changes will take effect from 1 January 2024.

Interpretation of VAT and excise law

Legislation is being introduced in the Bill to clarify how VAT and excise law should be interpreted in light of changes made by the REUL Act.

The REUL Act ends the special status afforded to retained EU law in the UK after Brexit. Amongst other things, the REUL Act revokes certain retained EU law and makes provision relating to a) the interpretation of retained EU law and its relationship with other law and b) the powers to modify retained EU law.

In line with the REUL Act and in relation to VAT and excise law, it has been confirmed that it will no longer be possible for any part of any UK Act of Parliament or domestic or subordinate legislation to be quashed or disapplied on the basis that it is incompatible with EU law. This paves the way for a gradual divergence of UK VAT and excise law from equivalent EU laws.

VAT treatment of private hire vehicles

The government will consult in early 2024 on the impacts of the High Court ruling in the case of Uber Britannia Limited v Sefton Borough Council in July 2023, where it was held that an operator who accepts a private hire booking is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.  This compels the operator to charge VAT as the VAT threshold of currently £85,000 will likely be exceeded by an operator that manages a large number of drivers.  This puts the private taxi industry at a disadvantage compared with drivers of ‘black cabs’ that continue to operate as principals below the VAT registration threshold.  The consultation will seek to determine how to deal with this issue.

The rates of alcohol duty rates will be frozen until 1 August 2024.  By contrast, the duty rates on all tobacco products will be increased, with effect from 22 November 2023.