Autumn Statement- What Do The Changes Mean For You?

Jeremy Hunt delivered his much anticipated Autumn statement yesterday, which was possibly his last opportunity to make changes to taxes and benefits before the next General Election. The Chancellor was under pressure from fellow Conservative party members urging him to consider tax cuts in light of the current financial struggles faced by many UK voters. Despite this pressure from within the party, who were no doubt keeping in mind the impending General Election, Hunt made it clear in recent weeks that tax cuts were unlikely.

However, the press had reported a number of potential changes, including reductions in the rates of Inheritance Tax and Income Tax, in the run up to the statement.

From a personal tax perspective, what was delivered in his statement were several key tax reductions that will benefit self -employed taxpayers (including individuals operating in partnership). Key takeaways include;

• Class 2 National Insurance Contributions (NIC) abolished.
• Reduction in the Class 4 NIC main rate from 9% to 8%
• The cash accounting basis significantly extended.
• Making Tax Digital (MTD), which is due to be implemented in 2026, being simplified.

In addition, employees are also due to benefit from a reduction in the rate of Class 1 NIC from 12% to 10%.  There are also relaxations on the requirement to submit a Self-Assessment Tax Return for higher earners.

Abolition of Class 2 NIC

From 6 April 2024, Class 2 NICs will effectively be abolished.  These contributions are paid by self-employed individuals at a flat rate of £3.45 per week.  The move will benefit about 2million people and produce a saving of £179.40 annually.

Those with self employed profits below £6,725 or others who pay Class 2 NIC in order to access benefits and state pension will be able to continue to pay Class 2 NIC to maintain entitlements.  The rate of Class 2 will be frozen at £3.45 for 2024/25.

Reduction of Class 4 NIC main rate from 9% to 8%

Further to the abolition of Class 2 NIC, self-employed individuals are also benefiting from a further tax cut in the main rate of Class 4 NIC which will reduce from 9% to 8%.

Class 4 NIC is currently paid at 9% on profits between £12,570 and £50,270, however this will drop to 8% from 6 April 2024.  This could mean a potential Class 4 NIC saving of £377 to a self-employed individual earning at least £50,270.

Coupled with the abolition of Class 2 NIC, some self-employed taxpayers could see a reduction of up to £557 annually.

Cash Accounting Basis being extended

From the 2024/25 tax year, businesses will no longer need to make an election to use the cash basis for their accounting (with the current default being the accruals basis) and instead the simpler cash basis accounting will become the default method by which businesses calculate their profits.

Cash basis, in its current form, places restrictions on business on certain deductions being allowable against profits and how any subsequent losses can be relieved. The measures announced in the Autumn statement sees these restrictions lifted from 2024/25.

Furthermore, the current rules which state that businesses are only able to utilise the cash basis method of accounting if their turnover is less than £150,000 (and are forced to leave in circumstances where turnover exceeds £300,000) are being removed. The removal of this restriction means that eligible businesses of any size will be able to use the cash basis, allowing them to continue using the cash basis as they grow.

The changes have been made with the intention of making tax simpler which will be much welcomed by many business owners.

Making Tax Digital- further updates

Following the announcement last year that MTD would be introduced in stages for self-employed individuals and landlords it has been announced as part of the Autumn statement that those with turnover of less than £30,000 will not be brought into the regime for now.

Further welcome changes relate to the simplification of the previously announced reporting requirements. This includes the removal of separate tax year end reporting and the ability to correct reporting in previous quarters by adjusting the reporting for the current quarter.  This will hopefully help to reduce what will potentially be heavy administrative burden on business owners and landlords.

Changes for Employees

Alongside these changes, Jeremy Hunt also announced cuts in NICs for employees. The NIC rate paid on earnings between £12,570 and £50,270 will reduce from 12% to 10% from 6 January 2024, which translates to an annual saving of £754.

Finally, employees with salaries over £150,000 will not be required to submit a Self-Assessment Tax Return from April 2024, unless they have other income to declare.  Care needs to be exercised here, as the recent increase in interest rates means that many individuals may now be required to pay tax on their interest income which previously may have been within savings allowances.

If you would like to discuss any aspect of the Autumn Statement, please contact Kerry McGee, a member of our Private Client team, or your usual AAB contact.