Autumn Statement 2023: A Summary of the Highlights
Jeremy Hunt announces tax cuts for firms and workers. The Chancellor cuts national insurance rate and confirms rise in benefits and state pension but overall taxation levels still rise whilst the OBR halves growth forecast and warns inflation will exceed 2% until 2025. We uncover the changes with a specific focus on Small Businesses and Startups. Let's dive in.
The Autumn Budget Statement 2023 introduced several key changes for small-to-medium-sized businesses:
- National Insurance Cuts: National insurance contributions for both employed and self-employed individuals have been reduced. This includes a reduction from 12% to 10% for employees and from 9% to 8% for self-employed on certain earnings.
- Business Rates Discount: The 75% discount on business rates for retail, hospitality, and leisure sectors has been extended for another year.
- Full Expensing Extended: The Chancellor has made "full expensing" permanent, allowing businesses to claim back costs of investments in IT and machinery in the year they are purchased.
- National Living Wage Increase: The Living Wage for individuals over 21 will rise from £10.42 to £11.44 per hour, effective from spring 2024.
- New Investment Zones: Three new investment zones will be established in the West Midlands, East Midlands, and Greater Manchester, focusing on advanced manufacturing and projected to generate significant private investment and job creation
- Reforms in Critical Infrastructure Investment: The government plans to remove barriers to investment in essential infrastructure. This includes reforms in the UK's planning system and efforts to speed up electricity grid connection times, which will benefit businesses in sectors like energy security and the transition to net zero.
- Support for Small Businesses and High Street Shops: The small business multiplier will be frozen for another year, and the 75% Retail, Hospitality, and Leisure (RHL) relief will be extended for 2024-25. These measures are expected to support small businesses, high street shops, independent cafes and pubs
- Additional Measures: Other initiatives include tougher regulations on late payments to improve prompt payments for SMEs and the expansion of the list of qualifying technologies for Energy-Saving Materials VAT Relief.
The Autumn Budget Statement 2023 has introduced several key changes that will significantly impact tech startups, R&D tax credits, and AI development:
Tech startups, R&D tax credits, and AI development
- Simplified R&D Tax Relief: Chancellor Jeremy Hunt announced the creation of a new simplified R&D tax relief scheme. This scheme merges the existing expenditure credit and small and medium-sized enterprises (SME) schemes. It includes a reduction in the rate at which loss-making companies are taxed within the merged scheme, from 25% to 19%. Additionally, the threshold for additional support for R&D intensive loss-making SMEs has been lowered to 30%, which is expected to benefit an additional 5,000 SMEs.
- Increased Investment in AI: The government has announced a further £500 million over two years to enhance access to compute power, essential for the development of AI models. This brings the total planned investment in compute to more than £1.5 billion, aiming to make the UK an "AI powerhouse." This investment is expected to enable researchers and SMEs to develop new foundational models and maximize the UK’s potential in AI, including applications like drug discovery.
- Full Expensing for Business Investments: The government is making full expensing permanent, allowing companies to claim back up to 25p for every pound invested. This change is particularly significant for tech startups, as it rewards firms for investing in their businesses, including investments in IT and machinery. The Office for Budget Responsibility (OBR) expects this will unlock an additional £14 billion of investment over the forecast period, thus improving the UK’s capital stock and driving sustainable growth.
- Overseas Expenditure: The government announced in July 2023 that no overseas expenditure on contractors will be allowed except for in exceptional circumstances. This is in a bid to ensure all development costs are incurred in the UK.
These changes reflect a strategic focus on fostering innovation and growth in the tech sector, particularly in areas like AI and advanced manufacturing. By simplifying tax reliefs and increasing investment in critical areas, the UK government aims to create a more conducive environment for tech startups and research-driven enterprises.
The key changes for the Enterprise Investment Scheme (EIS) announced in the Autumn Budget Statement 2023 are as follows:
Enterprise Investment Scheme (EIS) & VCT Schemes:
- Extension of the EIS and VCT Scheme: The most significant change is the extension of the existing sunset clauses for both the EIS and Venture Capital Trust (VCT) scheme. Initially set to expire on April 6, 2025, these schemes have now been extended to April 6, 2035. This extension ensures the continued availability of Income and Capital Gains Tax reliefs for investors in new shares issued before this date by EIS qualifying companies and VCTs.
- No Changes in Company Age and Funding Limits: The government has indicated that they do not support the extension of company age limits and funding limits under the EIS and VCT schemes as a means to aid regional and scale-up investment. Consequently, no immediate changes are expected in these areas. This decision came as a response to the Treasury Committee's report on venture capital published in the summer of 2023.
These changes reflect the government's commitment to continuing support for investment in qualifying companies through these schemes, while also indicating a reluctance to modify the fundamental structure of the schemes regarding company age and funding limits.
The key changes in the Autumn Budget Statement 2023 for pensions, Individual Savings Accounts (ISAs), and savings are as follows:
- Triple Lock Guarantee: The full state pension will increase by 8.5% to £221.20 a week, translating to up to £900 more a year, starting in April 2024. This is in line with the triple lock policy, which ensures state pensions increase by the highest of average earnings growth, Consumer Price Index (CPI) inflation, or 2.5%.
- Simplification of Pension System: The government is considering reforms to simplify the pensions market. This includes enabling individuals to have a single pension pot for life and potentially expanding the role of collective defined contribution schemes. Also, pensions under £1,000 may be consolidated through a multiple default consolidator model.
- Multiple Subscriptions and Transfers: Savers will be allowed to have multiple subscriptions of the same type of ISA from April next year. The government will also enable partial transfers between providers during the year and remove the need to reapply for an existing dormant account.
- Expanded Investment Options: Innovative finance ISAs will be permitted to include long-term asset funds and open-ended property funds with extended notice periods. Certain fractional shares may also be eligible for ISA investment, subject to further policy discussions.
- Unchanged Thresholds: The thresholds remain at £20,000 for cash and stocks & shares ISAs, £9,000 for a junior ISA, and £4,000 for the Lifetime ISA. There was no introduction of a British ISA, which had been speculated to offer an additional £5,000 allowance for investing in UK companies.
- Reduction in Contributions: Employees’ class 1 national insurance contributions will decrease from 12% to 10%, effective from 6 January 2024. This reduction means an average salary earner (£35,400) will save over £450 a year in 2024-25.
- Benefits for Basic Rate Taxpayers: The combined rate of income tax and national insurance contributions for basic rate taxpayers will fall to 30% from 32%, the lowest since the 1980s.
- Changes for Self-Employed: Class 2 national insurance contributions will be abolished entirely, saving the average self-employed person £192 a year. Additionally, class 4 contributions will be reduced to 8% from 9% in April.
The key takeaways from the Autumn Budget Statement 2023 regarding the national living wage are as follows:
National Living Wage and Young Workers:
- Increase in National Living Wage: The national living wage is set to rise significantly, from £10.42 to £11.44 per hour. This increase, amounting to 9.8%, will come into effect from April 2024.
- Expansion to Younger Workers: For the first time, this increased living wage will also apply to younger workers, specifically those aged 21 and 22. Previously, this wage bracket did not include these younger age groups.
- Financial Impact for Workers: The raise in the national living wage is expected to provide a significant boost in annual income for full-time workers. It's estimated to amount to more than £1,800 per year for a full-time worker.
These changes reflect a considerable shift in the government's approach to the national living wage, aiming to increase the income of lower-paid workers and extending the benefits to a younger workforce.
What's Your View? Here's What We Think.
These changes reflect a significant shift in the UK's approach to pensions, savings, and national insurance, aiming to provide more flexibility and benefits to savers and workers. For more detailed information, you can refer to the official Autumn Statement 2023 on the UK Government website.
Overall, these measures are seen as positive steps towards supporting small businesses and startups, particularly in challenging economic times. They are expected to provide significant benefits in terms of tax relief, investment opportunities, and simplified regulatory frameworks. It's definately not perfect, but it's better than the current status quo.