Autumn Statement: Round-up and key takeawaysNovember 23, 2023
Delivering his latest round of fiscal plans for the country in the House of Commons yesterday (22 November 2023), chancellor of the exchequer Jeremy Hunt said the autumn statement would ‘reward work and people’.
The autumn statement sets out the government’s tax and spending plans for the year ahead, including how these affect the take-home pay and household budgets of millions of people.
The government claims this year’s Autumn Statement is designed to ‘get the economy growing, debt falling and help return inflation to its 2% target’ with ‘long-term decisions to build a brighter future’.
Among the plans announced were reforms to taxation and wages including radical changes to National Insurance, benefits and pensions, apprenticeships, business tax and government spending, as well as confirmation of what lies next for IR35.
As a business working closely with recruitment and medium-sized businesses, we round-up the aspects of the autumn statement we consider could have the biggest impact – both good and bad – on these elements of the country’s corporate communities.
HMRC is proceeding with the set of off-payroll rules, which, as Tania Bowers, global public policy director at the Association of Professional Staffing Companies (APSCo) told The Global Recruiter, is ‘good news for the recruitment industry’:
“For the professional staffing sector, the news that HMRC is proceeding with the set of proposals to off-payroll rules is welcome. This latest development – outlined in the full details of the Autumn Statement – has followed three years of lobbying by APSCo on this issue. Although it doesn’t mitigate the dampening impact overall of off-payroll on professional contractors, who should be included in the Chancellor’s broad appreciation of the self-employed, it does reduce the unfairness of the rules on recruiters, who are the deemed employers.”
The Chancellor used the autumn statement 2023 to confirm the IR35 offset mechanism for the contractor sector will go ahead from April 6th 2024.
The plans mean the government will allow offsets of income tax and NIC paid by a contractor operating via a personal service company (PSC), plus any Corporation Tax paid by the PSC, where the contractor is deemed to be an employee under the off-payroll working legislation, IR35. This will entitle the deemed employer to deduct from assessments of PAYE/NIC due appropriate taxes already paid on the same payments by the deemed employee. These offsets are available for both public and private sector employees, and will only be available for settlements agreed after 6 April 2024, but from that date will retrospectively apply to cover historic assessments.
This is a big development, as until now the government had said the April commencement date was only its ‘intention’. This clarification and change fixes the double-taxation of IR35.
Taxation and wages
The chancellor has been under pressure to reduce the tax burden on both the public and business, which has been sat at a 70-year high.
National insurance (NIC):
In a boost to employees’ pay packets, the main 12 percent national insurance rate will drop to 10% from 6 January 2024 – saving those on an average salary of £35,000 over £450 a year.
The government is scrapping the ‘outdated and needlessly complex’ system of class 2 NICs and reducing the class 4 NICs due on earnings between £12,570 and £50,270 by one percentage point to 8 percent. The cuts will simplify the taxation of the self-employed and save them money.
Also, NI payments for the self-employed, known as class two national insurance, have been abolished because, the chancellor said, the government ‘values their work’. This will save the self-employed an average of £180 a year.
As a comparison based on a salary of £35,000 per annum an employee is £450 a year better off and as a self-employed worker on the same earnings £404 per annum better off, this is a clear indication of the Government’s intention to narrow the gap between employees and the self-employed.
High earners: As part of plans to simplify tax administration, the government has scrapped the requirement for high earners paying tax through PAYE to file a tax return as well. More than a third of a million people earning more than £150,000 a year will benefit from the move.
National Minimum Wage:
The minimum wage – which the government sometimes refers to as the national living wage – will rise to £11.44 per hour from April 2024, representing an increase of £1.02 from the current rate of £10.42.
Those aged 18 to 20 will get at least £8.60 an hour from April, which is an increase of £1.11. For those 16 and 17, and apprentices, the minimum pay will be £6.40 – a rise of £1.12 on last year.
Obviously, this will also be reflected in holiday pay sums.
The chancellor said the government will commit to triple-locking pensions, with the state pension to increase by 8.5 per cent in April in what is the second biggest ever rise. It comes during an extended period of high inflation, which has squeezed people’s disposable income and diminished the value of their savings.
The chancellor did say he is considering allowing employees to choose where their pension contributions from employers go, in a move that would stop people having to consolidate their pensions whenever they take up a new job.
A ‘new, simplified’ tax relief for research and development will combine the existing R&D Expenditure Credit and SME schemes. The Chancellor also confirmed that the planned “simplification” of R&D reliefs would go ahead, with the Small and Medium-sized Enterprise and large company R&D Expenditure Credit schemes being combined into a single RDEC-style regime.
The full expensing scheme – currently due to expire in 2026 – will be made permanent. The scheme allows firms to write off the entire cost of spending on new machinery and equipment, while also saving 25p from every pound spent on other types of investment.
The 75% discount on business rates of up to £110,000 for firms in retail, hospitality and leisure will be extended for another year.
Many of the measures indicate the government is looking at ways to help businesses to tackle the pressures on talent and recruitment. A lot of the legislation coming through looks set to encourage cross sector recruitment and employment, particularly in the retail, leisure and tourism sectors, and potentially also all GLAA sectors.
So many UK businesses, including recruitment businesses of all sizes and sector specialisms, are already struggling with the impact of the cost-of-living crisis, economic fallout from Russia’s invasion of Ukraine, high cost of borrowing due to sustained rises in interest rates, and the aftermath of the pandemic.
Following the autumn statement, they now have to look at how to afford another rise in the NLW.
Recruiters are already operating at pretty modest margins, and how they will offset, mitigate or pass on this huge (almost 10 percent) increase remains to be seen. We just hope that this won’t drive a rise in the number forced to look at using unethical, non-compliant, umbrella or mini umbrella companies for payroll. Nor a rise in the use of illegal workers.
Of course, the reforms to NIC are positive for UK workers, but it is disappointing that the chancellor didn’t include employer’s NI contributions in the reductions.
The proposed portable pension scheme is already being contested by some of the main pension providers who have already suggested this will increase pension administration and costs.
The boosting of four key programmes – NHS Talking Therapies, Individual Placement and Support, Restart and Universal Support – will benefit up to 1.1 million people over the next five years.
Key takeaways at a glance
- Class 2 NICs will be abolished from 6 April 2024
- Class 4 NICs will be cut from 9% to 8% from 6 April 2024
- Class 1 NICs will be cut from 12% to 10% from 6 January 2024
- NLW is being increased to £11.44 an hour for 21+ year olds
- ISA limits will be frozen at current rates for 2024/25
- Multiple subscriptions to ISAs of same type soon possible
- PAYE only taxpayers won’t need to file tax returns from 2024/25
- State Pension Triple Lock is being maintained
- RDEC & SME schemes will be merged
- Full expensing will be made permanent
Find out more
Read the government’s Autumn Statement 2023 press release here.