The Autumn Statement was a mixed bag, with the Government attempting to offer some headline policies ahead of a general election, without disrupting the progress made on cutting inflation.
What’s changing for individuals?
The Chancellor announced a series of cuts to National Insurance Contributions (NIC) which will affect both the self-employed and employed. Whilst the cuts initially look exciting, this is against a backdrop of many tax thresholds and allowances being frozen until 2027/28. So, it isn’t really a tax cut at all. If anything, it slightly lessens the tax increases which would’ve been felt prior to the statement. The reality is taxes remain higher than before the 2022 Autumn Statement.
The National Living Wage (NLW), will rise by £1.02 to £11.44 per hour. This is a great headline announcement for any Chancellor and the fact that the threshold is being lowered to include 21-year-olds is a great step forward. But the cost of such a policy is shouldered directly by employers, who are already dealing with high energy costs and rising wages. There is also the point of inflation, which could be further fuelled by such an increase in salaries.
What’s changing for businesses?
For businesses, making the full expensing policy for capital expenditure permanent looks great on paper and is one of the biggest corporate tax giveaways in history per the Chancellor’s claims. But this is only likely to benefit larger companies that have expenditure of more than £1m given the availability of the annual investment allowance. This means there is unlikely to be any real benefit for many SMEs.
Also announced by the Chancellor is the merging of the two Research and Development tax credit (R&D) schemes, which comes as no real surprise given the previous consultations on the policy. R&D is a great tax relief scheme which is often underused but whilst the changes are intended to simplify the process of making a claim, it’s likely to be less tax beneficial than historically the SME scheme has been. In addition, given the merged scheme is likely to be more akin to the RDEC scheme, this is a much more complex mechanism for making an R&D claim for an SME company. Therefore again, this means small companies could potentially miss out.
Overall, the Chancellor’s announcement fell flat for the majority. With a general election looming but the continued backdrop of sluggish economic growth, a huge debt pile, limited business investment, and households strapped for cash, it’s understandable why the Chancellor opted for the route he did of a few headline policies dressed up as lifelines to businesses and working people. When you delve into the detail, it becomes clear that the reality is far from those headlines and there will be limited real-term benefits.
With rumours of a snap election in Spring, the UK may be in a very different place politically this time next year, but we will have to hang tight in the meantime.
Contact Wellers for tax planning advice.