On Wednesday, 22 November 2023, the Chancellor delivered the Autumn Statement. Alongside the clear overarching objective of economic growth and reduction of inflation, the Chancellor announced several tax cuts and investment initiatives. Although the tax cuts will be welcomed by benefiting taxpayers, the potentially inflationary effects may send a conflicting message to markets that thrive in the periods of certainty. Many players in the VC industry will, however, be optimistic about the UK’s commitment to back the UK’s best AI-driven companies as well as the extension of the EIS and VCT tax relief. Below is a summary of the key announcements affecting businesses and individuals.
1. Capital allowances
The Government has announced that companies will be able to claim 100% relief for qualifying main rate capital expenditure on plant and machinery (e.g. IT equipment) and 50% for qualifying special rate capital expenditure (e.g. certain long-life assets) on a permanent basis. This was originally announced as a temporary measure in the Spring Budget 2023 and was set to expire on 31 March 2026.
In practice, this means companies will get 25p off their corporation tax liability for every £1 that they invest. This is a generous relief by global standards. It will sit alongside the annual investment allowance which allows taxpayers a £1 million threshold for claiming a full tax deduction on qualifying capital assets.
The Government also announced consultation will be carried out in January 2024 on other changes to capital allowances legislation. This will include consideration of extending the relief to leased assets and general simplification of the regime. The consultation will address allowances for plant and machinery, rather than buildings and R&D allowances. It will not address the scope of eligible expenditure or rates of relief.
2. Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT)
The Government will extend the EIS and VCT tax relief regimes to 6 April 2035, which were originally set to expire on 6 April 2025. This will provide welcome certainty to founders and investors.
The extension of the sunset clause was flagged in the Government’s response to recommendations from the Treasury Committee in September 2023. While the extension has been accepted, the Government declined several other recommendations made by the Treasury Committee on the EIS regime, such as higher funding limits and company age limits.
3. Research and development
The Government has confirmed the merger of the R&D Expenditure Credit and the R&D SME schemes. This announcement follows public consultation which ended on 13 March 2023 and concludes the broader review of the UK’s competitiveness as a location for research which began in 2021.
The changes will take effect for expenditure incurred in accounting periods beginning on or after 1 April 2024. This represents a simplification of the R&D regime, with one set of rules applying to all businesses.
4. IR35 – non-compliance with off-payroll working
The Government has announced an administrative IR35 measure designed to address the potential over-collection of employment taxes. Where an individual (usually engaged through a personal service company) has been treated under the IR35 rules as employed by the client company (the “deemed employer”), the deemed employer would be required to deduct income tax and NICs from the fees paid to the individual.
However, the current rules do not permit HMRC to offset income tax and NICs that the individual may have already paid through the personal service company against the payroll liability of the deemed employer (instead, the individual taxpayer needs to claim a repayment of any overpaid amounts). This measure will have the effect of reducing the ultimate payroll liability of a deemed employer while minimising overpayments by the individuals. The Government has announced that this measure will be effective from 6 April 2024.
5. International tax
The UK continues to push forward with OECD-compliant international tax rules to address aggressive cross-border tax planning by large multinationals. These rules will affect companies with annual revenues in excess of €750m and will be effective for accounting periods beginning on or after 31 December 2023.
In summary, these rules impose the global minimum 15% tax corporate rate agreed by the OECD in 2021 via several mechanisms including a multinational top-up tax, domestic top-up tax and untaxed profits rule. The measures are anticipated to raise £12.7 billion over 6 years.
6. Extending the limit for stamp duty exemption for companies traded on growth markets
The stamp duty growth market exemption is being expanded. This exemption effectively disapplies the charge to stamp duty and stamp duty reserve tax on the transfer of securities admitted to traded on recognised growth markets. Currently, “recognised growth markets” are FCA-regulated multilateral trading facilities that are approved by HMRC (for example, the AIM). The Government has announced that from 1 January 2024, the level up to which a majority of companies listed on the exchange can be capitalised will increase from £170 million to £450 million.
7. Promoters of tax avoidance
A new criminal offence and power will be added to HMRC’s arsenal to deter promoters of tax avoidance. The criminal offence will apply where the person continues to promote tax avoidance in the face of a “stop notice”. HMRC will also be given the power to apply to court for a director of a company involved in promoting tax avoidance to be disqualified. These measures complement existing anti-avoidance measures aimed at individuals and organisations that promote or facilitate tax avoidance arrangements carried out by other taxpayers and are expected to apply after enactment of the Finance Bill.
1. National Insurance Contributions (NICs) – employees
The key tax change for individuals is the cut to the main Class 1 employee NICs rate from 12% to 10%. This measure is expected to benefit 27 million employees, with the average worker saving approximately £450 in 2024-25. This measure is expected to be in force from 6 January 2024.
2. National Insurance Contributions – self-employed
The Government has also announced it will simplify taxes for the self-employed by abolishing Class 2 NICs. Meanwhile, Class 4 NICs will be cut from 9% to 8% from 6 April 2024. Overall, these measures are expected to benefit 2 million people, with the average self-employed person saving approximately £350 per year.
If you have any questions about any of the developments announced at the Autumn Statement, please contact your usual Marriott Harrison advisor.