With a General Election looming next year, in his Autumn Statement the Chancellor made his bid for the business vote by announcing a raft of tax and spending changes that will affect UK small businesses - including major changes to National Insurance.
Jeremy Hunt promised 110 different measures to “help grow the British economy” and our Chief Accountant, Emily Coltman FCA, has pulled out the most important for your small business clients. Here are the key takeaways:
Major cuts to National Insurance
The Chancellor announced significant changes to National Insurance (NI), including to Class 2 and Class 4 NI, which could affect around two million self-employed people.
Compulsory Class 2 NI to be abolished
From April 2024, no one will be required to pay Class 2 self-employed NI contributions. Currently, self-employed people with profits above £12,570 pay a weekly flat rate of £3.45, but this will be scrapped from 6th April 2024. However, they will continue to receive access to contributory benefits, including the State Pension.
Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the State Pension, through a National Insurance credit, but they won’t actually have to pay any National Insurance.
Those with profits under £6,725 and others who pay Class 2 NI contributions voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so.
The main rate of Class 2 NI contributions had been due to rise to £3.70 per week in April 2024. But for those paying voluntarily, the current rate of £3.45 per week will be maintained for 2024-25.
Class 4 NI to be cut by 1%
The main rate of Class 4 self-employed NI contributions is to be cut from 9% to 8% from 6th April 2024. Self-employed people will pay Class 4 NI at the new rate of 8% on profits between £12,570 and £50,270 per year, and at 2% on profits over £50,270.
Class 1 employee’s NI main rate to be cut by 2%
Class 1 NI employee’s contributions are also to be cut. From 6th January 2024, these will be reduced from 12% to 10% on earnings between £12,571 and £50,271 (and will remain at 2% on anything above that).
‘Full expensing’ to become permanent
The Chancellor announced that the ‘full expensing’ policy - announced in this year’s Spring Budget - will now become permanent. Full capital expensing allows qualifying businesses to deduct investment in certain equipment from their profits to reduce the amount of Corporation Tax payable.
Companies that invest in other assets that don’t qualify for the full 100%, such as long-life assets, also benefit from a 50% first-year allowance and it was confirmed today that this will continue.
Business rates relief help
Business rates multiplier
For 2024-25, the small business multiplier in England will be frozen for a fourth consecutive year at 49.9p, while the standard multiplier will be increased in line with the September Consumer Prices Index (CPI) to 54.6p.
Retail, hospitality, and leisure relief
The current 75% relief for eligible Retail, Hospitality and Leisure (RHL) properties is being extended for 2024-25. Around 230,000 RHL properties in England will be eligible to receive support up to a cash cap of £110,000 per business.
National Living Wage rise
The National Living Wage will increase to £11.44 from April 2024. That’s an increase of just over £1 from the current £10.42 per hour. The new rate will apply to workers aged 21 and over.
Help to tackle late payments
In a bid to tackle the late payment problems encountered by many businesses, from April 2024 any firms bidding for government contracts worth more than £5m will have to demonstrate that they pay their purchase invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years.
Cash basis changes
The government is to introduce changes to cash basis accounting following a consultation launched earlier this year.
From 6th April 2024, the changes introduced by the government will mean:
- cash basis is set as the default, with an opt-out for accruals (which is the reverse of the current position where accruals is the default)
- the turnover threshold for businesses to use the cash basis will be removed
- the £500 limit on interest deductions in the cash basis will be removed
- restrictions on using relief for losses made in the cash basis will be removed
For more information, you can read the government’s consultation outcomes here.
Simplifying Making Tax Digital
The Autumn Statement also references the outcome of the government’s review into the impact of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) on small businesses, which was published today.
This includes measures that simplify the requirements for quarterly updates, and remove the need to provide an End of Period Statement. The changes will take effect when MTD for ITSA is introduced in April 2026.
To learn more about all the changes announced in the Autumn Statement, you can read the full report on the government’s website.