Autumn Statement 2023: initial reaction from Knill James Tax Partner Mike Chapman

The week ahead of a Budget or Autumn statement feels a bit like a phoney war – rumblings in the distance with masses of press conjecture; a few feints and false trails laid (were there any changes to Inheritance Tax?) and a couple of pre-announcements (namely on minimum wage levels).

It's also possible to a degree to ignore the grandstanding by the Chancellor in the House (though it makes great theatre) where Jeremy Hunt made a large play on being able to have headroom for tax cutting due to three factors:

1. Better than expected economic results,
2. Lower debts levels, and
3. The halving of inflation.

To an extent this has helped the Chancellor but probably not as much as the impact of Fiscal Drag - the freezing or lowering of tax allowances & thresholds in wage inflationary times, bringing more of the population into the tax net or putting them into higher rates for the first time.

One only has to see that the Income Tax Personal Allowance and Basic Rate band have already been frozen until the end of 2027/28 to appreciate the additional revenue the Chancellor was able to play with against the background of a better economic performance.

The main announcements:

Capital Allowances Full Expensing

Full Expensing was introduced in the Spring Budget effective from 1 April 2023 to counteract the traditionally low level of capital investment in the UK. The relief permits companies a 100% deduction for all expenditure incurred on certain items of plant and machinery. Originally for a three-year period until 31 March 2026, the relief has now been extended indefinitely. Given the increase in headline Corporation Tax rates from 1 April this year and the demise of the Capital Allowances 130% 'Super-deduction' on the same date, this break for companies has been broadly welcomed.

However, as described at the time, it is only available to companies (not partnerships or sole traders) and the expenditure must be on certain plant and machinery which is new and unused. Also, with the Capital Allowances Annual Investment Allowance (AIA), now confirmed at £1m per annum, this will generally be sufficient to absorb an SME's Capex on most categories of plant and machinery to provide a 100% deduction.

In total, the extension to the relief is welcome even if it is likely to disproportionally benefit the larger corporates. It's also interesting to note from today's Treasury policy costing documents that the extension to the relief may now indeed cause companies to postpone capital expenditure with the cost to the Exchequer at £1.4b in 2025/26, rising to £10.9b in 2028/29.

National Insurance

The most welcome announcement for individuals was the reduction in main rate of Employee (Class 1) National Insurance Contributions (NICs) from 12% to 10% which will benefit some 27 million taxpayers. Even better is that the rate change will be introduced from 6 January 2024 rather than at the start of the next fiscal year on 6 April 2024. Payroll providers everywhere will now be fretting over the part-year implementation of the change!

The policy costing documents indicate that the benefit of the change will be £2.23b in 2023/24, rising to £8.7b in 2024/25.

The Chancellor also announced the abolition of the anachronistic Class 2 NICs as well as a reduction of the main rate of Self-Employed (Class 4) NICs by 1% (from 9% to 8%) from April 2024. Compared to Class 1 NICs the impact of these changes is relatively small at £380m and £345m in 2024/25 for Class 2 and Class 4, respectively.

Revenue raising

With the combination of fiscal drag and the better economic forecasts there are few measures in the Autumn Statement papers this year which are designed to raise revenue.

Perhaps the only announcement of note is the additional funding to improve HMRC's capacity to collect outstanding tax debts. HMRC will recruit additional staff into operational teams to improve debt collection capability.

The measure is forecast to bring in an extra £4.5b until 2028/29 but whether this will improve HMRC efficiency in any other respect is anyone's guess!