22 Nov 2023

Smoke and Mirrors: The Autumn Statement Budget

Stephanie Hurst, Tax Director at Monahans, shares her thoughts on the Autumn Statement Budget.

As we geared ourselves up for Jeremy Hunt to announce 110 measures to unleash significant growth in the UK economy, the reality wasn’t quite as ground-breaking as the news headlines suggested. So, what do the changes mean for businesses and what were the key takeaways from today’s announcements?

In contrast to last year’s Autumn Statement, the Chancellor was able to announce that inflation has fallen from 11.1% to 4.6%, with the OBR forecasting that the UK economy is set to grow by 0.6% this year and by 1.4% in 2025. The Chancellor’s announcement covered three major themes; boosting business investment, getting more people back into work and cutting taxes.

Boosting Business Investment
In the last Budget, the government announced a full-expensing relief which provides substantial tax cuts for businesses investing in certain plant and machinery assets. This relief was due to cease in 2026 but the Chancellor has announced that this relief will now be made permanent. Whilst this change is welcome, it will only really benefit companies who invest more than their Annual Investment Allowance of £1m per year and the relief only covers certain types of assets. The relief is also not available to sole traders or partnerships who are often those who need the most support.

The Enterprise Investment Scheme was due to end in 2025 but it has been confirmed that the government will extend this to 2035, easing the pressure on small businesses immensely. Although not mentioned during the Chancellor’s speech, this represents a significant opportunity for new businesses to obtain the support they need to grow and maybe the confidence boost they need to seek external investment. Many start-up companies raise investment using the Enterprise Investment Scheme (EIS) as this can provide significant tax benefits to individual taxpayers. This often makes the opportunity to invest in smaller businesses particularly attractive.

Mr Hunt also confirmed a rise in the National Living Wage to £11.44 per hour from April 2024 which is positive news for employees. However, this may have a larger impact on smaller businesses where profit margins are already very tight so the financial impact of this change will need to be fully considered.

To encourage home-grown innovation, changes will be made to the existing R&D schemes to combine them into one, simpler regime. Changes will be made to the amount of tax credit that a company will be able to receive and more R&D intensive businesses will be able to access higher rates of relief and payments,

Back To Work
The announcement focused on helping those with long-term illnesses and disabilities but revealed a Back to Work plan for those who are able to work. A total of £1.3 billion will be spent over the next five years to help nearly 700,000 people with health conditions find jobs and 180,000 more people will be helped through the Universal Support programme. Over the estimated period, the measures will more than halve the net flow of people who are signed off work with no work search requirements. If, after 18 months, jobseekers have not found a job, a programme will be rolled out requiring them to take part in a mandatory work placement to increase their skills and improve their employability. For those who do not engage with the process for six months, their case will be closed and their benefits stopped. The Chancellor’s motivation is to unlock the potential we have in the UK, increase the number of people in work by 200,000 and boost the economy.

Cutting Taxes
Although our self-employed workers were recognised for acting as the backbone of the UK during the pandemic, the announcements certainly did not favour the group. Mr Hunt was pleased to announce that the self-employed would no longer have to pay Class 2 National Insurance (NI) but this only saves those earning more than £12,570 a pitiful £3.45 a week. Meanwhile, self-employed people who pay Class 4 NI at 9% on earnings between £12,570 and £50,270 will see a cut of 1% to 8% from April. In comparison, the main rate for employees will be cut from 12% to 10% from January 2024 and will likely be better off.

Whilst any form of tax cuts are very welcome in the current climate, the reduction in NI doesn’t have a huge impact on the fiscal drag created by the freezing of income tax thresholds until 2028.

Many small business owners, particularly company shareholders, will have a remuneration structure with a small salary that does not attract NI at all so this will also have little impact for those entrepreneur’s who play a big part in the UK economy.

It's good news for the retail and hospitality industry though as Hunt announced that he will freeze all alcohol duty taxes until 1 August next year which means there will be no increase on the costs of beer, cider, wine or spirits. The 75% business rate discount will also be extended for another year which is a particularly generous move and will be welcomed with open arms by businesses in these sectors.

A Positive Change for Various Industries
Building on the success of the tech innovation centres in Edinburgh and Bristol, the Chancellor will invest a further £500m over the next few years to fund more innovation centres to make the UK an AI powerhouse. The creative industries and life sciences also enjoyed the spotlight as the investigation into more investment in visual effects launched to increase high-end TV tax credits.

Although there are plenty of changes within the Chancellor’s 110 growth measures, he interestingly did not mention Inheritance Tax or Stamp Duty Land Tax despite much speculation. Green energy has also been high on the agenda amongst businesses, but any particular incentives to encourage investment in this area were also missing from the announcement.

With a general election on the horizon, the Chancellor may well be keeping these in his back pocket to coincide with the Spring Budget in 2024.

The changes announced will ease some of the financial pressure on businesses and individuals alike although with inflation taking longer to come down than initially anticipated, the true impact remains to be seen.

You can also download and read our Autumn Statement Budget 2023: Summary and Key Announcements publication by clicking here.

Monahans is here to help your business navigate the world of taxation and relief. For more information on what the Autumn Statement Budget 2023 means for you and your business, please get in touch.

Stephanie Hurst