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Unpacking The Autumn Budget 2023

Limited Company, Sole Trader, Tax

Unpacking The Autumn Budget 2023

The Autumn Budget 2023, unveiled by the Chancellor, brings a mix of changes that will impact various aspects of the UK economy. From adjustments to National Insurance Contributions (NIC) for self-employed workers to significant alterations in pension regulations, the budget encompasses a wide range of measures. In this blog, we’ll dissect the key points of the Autumn Budget, ensuring a thorough understanding of the implications for businesses and individuals alike, all in compliance with UK accounting rules.

 

Self-Employed Workers: NIC Reductions =

 

  • Self-employed individuals will see a decrease in their National Insurance Contributions (NIC) starting 6 April 2024. The abolition of Class 2 NIC (currently £3.45 per week) will occur, but those with profits exceeding £6,725 will retain access to contributory benefits, including the State Pension. This change results in an annual tax saving of just under £180.

 

  • Those with profits below £6,725 can opt to continue voluntarily paying Class 2 NIC to maintain access to contributory benefits. The £3.45 weekly rate for voluntary payments remains unchanged for the 2024/25 tax year.

 

  • The primary rate of Class 4 NIC will be reduced to 8% (down from 9%) starting 6 April 2024. This reduction applies to profits falling between £12,570 and £50,270, while the 2% rate remains unchanged for profits above this threshold. For individuals already contributing to Class 4 NIC, this translates to a tax saving of £10 for every £1,000 of profit within the main Class 4 NIC band, up to a maximum of £377 per year. It’s essential to note that the accounting period reform, effective from 6 April 2024, will impact profits allocated to the 2024/25 tax year.

 

Annual Tax on Enveloped Dwellings (ATED):

 

The ATED charge will increase by 6.7% from April 2024, affecting properties valued between £500,001 to £1m and reaching £287,500 annually for properties valued over £20m.

Consideration of “de-enveloping” properties may be beneficial, especially as ATED charges rise.

 

Pensions:

 

Despite the removal of the lifetime allowance charge, further changes to the taxation of inherited pension funds are expected.

The Chancellor plans to allow employees to request consolidation of workplace pensions into a single pot, streamlining the pension management process.

 

Employer Pensions:

 

The authorised surplus payments charge on repayments from defined benefit pension schemes will be reduced from 35% to 25% starting April 6, 2024.

A consultation on the regime allowing surpluses to be repaid will be initiated.

 

Employment Taxes:

 

From January 6, 2024, the main rate of Class 1 NIC for employees will drop from 12% to 10%, potentially saving employees up to £63 per month.

The thresholds for Class 1 NIC will remain the same, as will the 2% rate. Employers’ NICs, at a rate of 13.8%, will also remain unchanged.

 

National Minimum Wage Rate:

 

A substantial increase in the National Living Wage from April 2024, particularly affecting those aged 21 or 22 who will receive the same rate as those 23 and over.

Employers need to review and update their policies to ensure compliance with the new NMW/NLW rates. Individuals who are 21 or 22 years old will now receive a wage of £11.44 per hour, aligning with the rate for those aged 23 and above. This adjustment reflects a 12.4% increase (9.8% for the older age group). Those in the 18-20 age range will experience a 14.8% raise, bringing their hourly wage to £8.60. Similarly, individuals under 18 and apprentices under 19 will both see a substantial increase of 14.8%, resulting in hourly rates of £8.60 and £6.40, respectively.

 

Corporation Tax – Capital Allowances:

 

‘Full expensing’ will be made permanent to encourage business investment in plant and machinery.

This measure is estimated to lead to £14 billion of extra business investment by 2028-29.

 

What Wasn’t in the Statement?

 

While the Autumn Budget addressed crucial financial aspects, certain anticipated changes were not included, such as a cut in the corporation tax rate, alterations to income tax thresholds, increases in stamp duty land tax thresholds, or reforms to inheritance tax. These topics may resurface in discussions leading up to the 2024 Budget.

 

In conclusion, the Autumn Budget 2023 sets the stage for several impactful changes across various financial domains. Businesses and individuals should stay informed and adapt their strategies accordingly to navigate the evolving economic landscape.

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