Mark McLaughlin | 24 Nov 2023

Mark McLaughlin comments on a selection of tax announcements in the Chancellor’s Autumn Statement 2023.

Mark McLaughlin CTA (Fellow) ATT (Fellow) TEP is General Editor of the Tax Annuals 2023/24 and author of Tax Planning 2022/23.

The headline theme of the Chancellor’s Autumn Statement 2023 was tax cuts. The rumour mills that generally precede major tax events were fully engaged again this year.

It never happened…

For example, inheritance tax (IHT) cuts had been mooted (or alternatively the possible abolition of IHT), together with a possible cut in the basic rate of income tax. Such major changes were never likely to happen, not least because the government can hardly afford them in the current harsh economic climate.

No changes were made to the rates of income tax, capital gains tax or IHT, and the main allowances and exemptions for those taxes are to remain unchanged in 2024/25.

Nevertheless, the government stated in its Autumn Statement 2023 document that it was “announcing tax cuts for 29 million people”. ‘Tax cuts’ is perhaps a stretch of terminology in some instances; but there was certainly some good news for individuals and businesses in the Chancellor’s speech, and the announcements that followed it.

‘Tax cuts’

The government conflated income tax and National Insurance contributions (NICs) into ‘tax’ when pointing out that the current combined rate for employees paying income tax at the basic rate (20%) and NICs (12%) is 32%. The government estimates that the proposed reduction in the main rate of Class 1 NICs for employees from 12% to 10% will result in the “average worker” receiving a tax cut of over £450 in the tax year 2024/25, although this reduction in the NIC’s rate is set to apply from 6 January 2024.    

This measure apparently accounts for 27 million out of the 29 million people estimated to benefit from the ‘tax cuts’ announced in Autumn Statement 2023. So, who are the other two million people? These are the self-employed, due to the intended reduction in the main rate of Class 4 NICs from 9% to 8% (for those individuals with profits above £12,570) and the abolition of Class 2 NICs, both with effect from 6 April 2024.

Into the sunset…and beyond

The government seemingly had a penchant for ‘sunset clauses’ when introducing or increasing some tax reliefs during its tenure; in other words, those reliefs were intended to be for a ‘limited period only’ (using ‘Black Friday’ speak!).

A noticeable feature of the tax measures announced in Autumn Statement 2023 has been the government’s tinkering with, or elimination of, some of these sunset clauses. For example:

  • Full expensing – The 100% full expensing capital allowance (or 50% for special rate expenditure) for companies (which was introduced for qualifying expenditure on the provision of plant and machinery incurred from 1 April 2023) was originally intended to end before 1 April 2026. However, it was announced that full expensing will be made permanent by the removal of the expiry date of 31 March 2026.

  • Investment zones and freeports – When originally announced, it was intended that the various tax benefits for businesses in investment zones and freeports would be available for a period of five years. However, it was announced that the investment zones and freeports programmes in England will be extended to run for 10 years until 30 September 2031 (with a similar extension being intended to for the programmes in Scotland and Northern Ireland, respectively).

  • Enterprise investment scheme (EIS) and venture capital trust (VCT) – EIS and VCT investment opportunities were originally due to end on 5 April 2025. Those sunset clauses for taking advantage of the income tax and CGT benefits have now been extended by ten years, until 5 April 2035.

The government seem to regard relief extensions as effective tax cuts. For example, full expensing has been described as a “permanent tax cut of £11 billion a year”. The difficulty with describing such measures as ‘tax cuts’ is that they are not reductions in the rate of tax on income, but tax breaks for qualifying expenditure incurred. Whilst many taxpayers will be grateful for these tax breaks, some might struggle to regard them as tax cuts in the true sense of that expression.

Did someone say ‘simplification’?

Tax simplification has been something of a ‘holy grail’ for HMRC and the major tax and accounting bodies for many years. Following the closure of the Office of Tax Simplification in March 2023, tax officials at HMRC and the Treasury have been given a mandate to focus on simplifying the tax code. So, how are they doing so far?

Certainly, the abolition of Class 2 NICs will reduce the volume of tax legislation; not by much, but every little helps. In addition, the government announced the following measures to assist small businesses as they set up and grow:

  • Expansion of the ‘cash basis’ regime for trading income from 2024/25, to remove the existing turnover restriction whereby eligible businesses (e.g., the self-employed and partnerships of individuals) are only able to join if their cash basis turnover is less than £150,000 (and under which businesses are forced to leave in certain circumstances where their turnover exceeds £300,000). Changes are also proposed to the cash basis, notably the removal of the current £500 interest restriction and the removal of restrictions in the use of cash basis losses, to allow such losses to be used in the same way as accrual basis losses.

  • The introduction of a package of changes (to take effect from April 2026) to simplify the design of making tax digital (MTD) for income tax self-assessment, which the government states will benefit around 1.7 million businesses and landlords set to be mandated to use MTD.

  • Merging the research and development expenditure credit (RDEC) and the small and medium sized enterprises (SME) scheme by combining both reliefs under a common set of rules, with the rate of relief offered under the merged scheme being at the current RDEC rate of 20%, and the notional rate applied to loss makers in the merged scheme being the small profits rate of 19%. The merged scheme takes effect for accounting periods beginning on or after 1 April 2024. Furthermore, loss-making SMEs whose R&D expenditure constitutes at least 40% of expenditure (incurred on or after 1 April 2023) or 30% (for accounting periods beginning on or after 1 April 2024) of total expenditure (i.e., ‘R&D intensive SMEs’) will be eligible for a higher payable credit rate of 14.5% (from 1 April 2023), if they meet the definition for R&D density.

  • From 2024/25, the government is abolishing the income threshold (currently £150,000) above which individuals with income taxed only through PAYE are required to file a self-assessment return. This will supposedly remove the requirement for up to 338,000 taxpayers to submit a tax return. The current MTD threshold will be retained at £30,000.

On the other hand…

Unfortunately, not all measures in Autumn Statement 2023 enhance the simplification of the tax regime. For example, measures (to be introduced no earlier than the tax year 2025/26) will require businesses to change the information provided to HMRC through income tax self-assessment and real-time information (RTI) returns completed by employers. HMRC intends to implement three specific new requirements:

  1. Employers will be required to provide more detailed information on employee hours paid via RTI reporting for PAYE purposes.

  2. Shareholders in owner-managed businesses (OMBs) will be required to disclose in their self-assessment returns the amount of dividend income received from their own companies separately to other dividend income, and the percentage share they hold in their own companies.

  3. The self-employed will be required to provide information on their start and end dates of self-employment via self-assessment returns.

The government’s stated policy objective behind these changes is to “improve the quality of the data collected by HMRC to provide better outcomes for taxpayers and businesses, as well as improving compliance, resulting in a more resilient tax system.” Whilst this objective is laudable, it is not difficult to imagine dividends in OMBs being a potential ‘flag’ for closer scrutiny by HMRC in practice.

The long arm of the law

Practitioners reading this article will hopefully not be affected by certain tough measures being introduced by the government, or have clients affected by them. However, an awareness of them is still important.

Most notably, the government intends to double the maximum prison term from seven to 14 years for individuals convicted of the “most egregious” examples of tax fraud. The categories of offences where the maximum sentence for tax fraud is seven years includes fraudulent evasion of income tax (TMA 1970, s 106A) and fraudulent evasion of VAT (VATA 1994, s 72(1)).  This measure will mostly come into effect from the date of Royal Assent to Finance Bill 2023-24. 

In addition, a new power is to be introduced (under the Company Directors Disqualification Act 1986, as amended) introducing a new power to allow HMRC to apply to the court for a disqualification order in relation to directors and other persons who control or exercise influence over a company involved in promoting tax avoidance and operating against the public interest. The powers potentially available will be disqualification following a winding up under FA 2022, s 85 (which broadly applies where it appears to an HMRC officer that it is in the public’s best interest for protecting the public revenue that the business be wound up); and disqualification on a finding of unfitness, if the person is or was a director of a company promoting tax avoidance. This measure will broadly apply from Royal Assent to Autumn Finance Bill 2023.

A new criminal offence is also to be introduced in relation to promoters of tax avoidance who fail to comply with a ‘stop notice’ under the Promoters of Tax Avoidance Schemes (POTAS) regime in respect of tax avoidance arrangements. This will apply where the promotion in breach of a stop notice takes place from Royal Assent to the forthcoming Finance Bill.

Further information

The devil is in the detail. A brief article such as this can only skim the surface of tax measures included in the Autumn Statement 2023, and there were many more tax announcements than those highlighted. However, HMRC and Treasury guidance on the tax measures announced in the Chancellor’s Autumn Statement 2023 can be accessed here:

Finance Bill 2023-24 is due to be published on 27 November 2023. The progress of the Finance Bill through to Royal Assent can be followed on the UK Parliament website:

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