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Are you ready for changes to the Self-Assessment tax return criteria?

Recent developments in the Self-Assessment tax return criteria have brought significant changes that everyone who files an Income Tax Self-Assessment (ITSA) should be aware of.

Announced in the Autumn Statement 2023 and through various updates and consultations throughout the year, these changes reflect HM Revenue and Customs’ (HMRC) ongoing efforts to simplify and modernise Income Tax services.

Below, we go over some of the key changes to the tax return system and how you should react to them.

Key changes in 2023

There have been three major announcements regarding the Self-Assessment criteria in 2023:

  • Raising the income threshold: The income threshold for filing a Self-Assessment tax return, assuming no other criteria are met, was increased from £100,000 to £150,000. This adjustment applies from the 2023/24 tax year.
  • Simplifying high income child benefit charge: A written ministerial statement in July outlined plans to streamline the process for taxpayers liable for the high income child benefit charge. The Government proposed a system allowing employed taxpayers to pay this charge through their tax code, eliminating the need to register for Self-Assessment. However, further details on this proposal are still pending.
  • Removal of the £150,000 threshold: The Autumn Statement 2023 revealed that the £150,000 income threshold would be completely removed from the 2024/25 tax year onwards.

Unchanged criteria

Despite these updates, several criteria for Self-Assessment remain unchanged:

  • Self-employment income over £1,000.
  • Other untaxed income of £2,500 or more.
  • Claims for tax relief on employment expenses exceeding £2,500.
  • Income from savings or investments over £10,000 (tax on amounts below this level may be collected through a PAYE coding adjustment).

If you are confused as to whether you need to file a tax return for Income Tax Self-Assessment because of the new thresholds, visit the Government website to check your eligibility.

Alternatively, please get in touch with one of our team to discuss your tax liabilities and filing process.

The bigger picture

While these changes aim to simplify tax compliance many accountants have raised concerns about the piecemeal nature of these amendments being potentially confusing.

HMRC has confirmed that other criteria are unchanged but continue to be under review.

Having said this, it is important to discuss the changes with your accountant as soon as possible.

Looking forward

The importance of HMRC’s ongoing developments cannot be overstated, such as the single customer account programme, in enhancing how taxpayers outside of Self-Assessment finalise their income tax liabilities.

As HMRC plans further changes in its digital services and operational processes, the landscape of Self-Assessment is poised for more transformation.

For more detailed information on Self-Assessment criteria, taxpayers are advised to refer to HMRC’s Self-Assessment manual and use their online tool to ascertain if they need to submit a tax return.

Understanding these changes is crucial for taxpayers to remain compliant and navigate the evolving tax landscape effectively so please keep an eye on further updates from HMRC and stay informed and prepared by communicating with your accountant.

If you are concerned about any of the issues raised by changes to the Self-Assessment criteria, please do not hesitate to get in touch with one of our team.

Understanding the role of gifting in Inheritance Tax Planning

Inheritance Tax (IHT) planning is a critical aspect of financial management, especially for those looking to pass on assets to their loved ones without incurring the cost of significant taxation.

One method to potentially reduce your IHT burden is through strategic gifting. However, it is important to consider the significance of gifting in the context of IHT and the importance of meticulous record-keeping for such gifts.

The strategic role of gifting in IHT planning

Gifting can play a pivotal role in reducing the Inheritance Tax liability on an estate. In the UK, IHT is levied on the value of an individual’s estate upon their death.

However, certain gifts made during a person’s lifetime can either be exempt from IHT or potentially become exempt, depending on the circumstances and timing of the gift.

  • Exempt gifts: Some gifts are immediately outside of IHT, regardless of when the donor passes away. These include annual allowances (up to a certain amount per year), small gifts per recipient per year, wedding gifts within specified limits, and gifts to charities or political parties.
  • Potentially exempt transfers (PETs): Gifts that don’t fall under the exempt categories are typically considered PETs. These gifts can become exempt from IHT if the donor survives for seven years after making the gift. If the donor dies within this period, the PET may become chargeable at a tapered rate, where the tax liability can decrease on a sliding scale depending on the date of their passing.

The necessity of record-keeping for gifts

Keeping detailed records of all gifts made for IHT purposes is essential.

Accurate record-keeping not only ensures compliance with tax laws but also helps in accurately determining the potential IHT liability.

  • What records to keep: For each gift, record the date of the gift, the value at the time of the gift, the recipient’s details, and the nature of the gift (whether it is cash, property, or other assets). It is also prudent to note whether the gift falls under any exempt category or is a PET.
  • Why keep records: Detailed records are invaluable in case of an HM Revenue and Customs (HMRC) inquiry. They provide clarity on which gifts are exempt, which are PETs, and whether the seven-year rule applies. In the event of the donor’s death, these records assist executors in accurately reporting the estate’s value and determining any IHT liability.

Final thoughts

Effective gifting can be a key strategy in reducing IHT liability, but it requires careful planning and meticulous record-keeping.

It is important to understand the nuances of distinct types of gifts and their implications for IHT.

Keeping comprehensive records of all gifts is not just a matter of compliance – it is a crucial step in ensuring that your estate is managed and taxed according to your intentions.

Considering the complexities of IHT and the strategic significance of gifting, consulting a professional accountant can be highly beneficial.

An accountant can provide tailored advice, help you navigate the intricacies of IHT planning, and ensure your record-keeping is comprehensive and compliant.

Effective planning and record-keeping today can make a significant difference to the financial legacy you leave for your loved ones.

For tailored advice on gifting and IHT planning, please consult one of our accountants.

Are you ready for the Self-Assessment tax return deadline?

As the 31 January 2024 deadline for filing and paying your Self-Assessment tax return fast approaches, it is crucial to be aware of various claims and deductions that can potentially reduce your tax liabilities.

Below are some tax reduction strategies, to help you to navigate the Self-Assessment process more effectively.

Understand your allowances and reliefs

The first step to completing a successful tax return and reducing your liabilities is to understand the allowances and reliefs you are entitled to.

  • Personal allowance: The most fundamental relief is your Personal Allowance – the amount of income you do not have to pay tax on. For the 2023/24 tax year, this is £12,570 but it is important to check for any changes or if your income exceeds the threshold, causing a reduction in this allowance.
  • Savings allowance: If your income from savings is below £1,000 (if you are a basic rate taxpayer), or £500 (if you are an additional rate taxpayer) you are entitled to the Savings Allowance. For those in the additional rate band, you are not entitled to a savings allowance.
  • Dividend allowance: For those with dividend income, the Dividend Allowance allows for £1,000 of dividend payments tax-free. However, this will be changing to £500 from April 2024, so it is important to plan your investment strategy wisely.

Claiming deductions

There are several deductions that individuals can claim on their Self-Assessment tax returns:

  • Work-related expenses: If you’re employed, you can claim tax relief on certain job expenses that haven’t been reimbursed by your employer, such as professional subscriptions, tools or uniforms.
  • Home office expenses: With more people working from home, claiming home office expenses is increasingly relevant. This includes a proportion of heating, electricity, Council Tax, mortgage interest or rent, and internet and telephone use.
  • Charitable donations: Donations to charity under Gift Aid can reduce your tax bill. Higher rate taxpayers can claim the difference between the rate they pay and the basic rate on their donation.

Pension contributions

Contributions to your employees and your own pension can significantly reduce your tax liability.

For higher earners, this is an effective way of reducing their taxable income while saving for retirement.

The current pension allowance per year is £60,000 and the lifetime allowance is just over £1 million.

Capital Gains Tax allowances

If you’ve sold assets like property or shares, you may be liable for Capital Gains Tax.

The tax rates depend on your Income Tax bracket. as well as the type of asset you have sold.

For basic rate taxpayers, the rate is 10 per cent for non-property assets (18 per cent for residential property gains).

For higher and additional rate taxpayers the Capital Gains Tax rate is 20 per cent (28 per cent for residential property).

Each taxpayer has an allowance, known as the Annual Exemption. For the 2023/24 tax year, the Capital Gains Tax allowance has been significantly reduced, halving from the previous year’s threshold of £12,300 to £6,000.

As a result, individuals who realise gains exceeding £6,000 on assets within a year will now need to pay Capital Gains Tax on the amount above this threshold, according to their marginal tax rate.

Be aware that this threshold will fall again from April 2024 to just £3,000, so it is important to consider any sales, disposals or transfers of any assets subject to CGT.

Investment schemes

Investing in certain schemes can offer tax relief:

  • Enterprise Investment Scheme (EIS): Offers income tax relief on investments made in qualifying companies.
  • Seed Enterprise Investment Scheme (SEIS): Similar to EIS but for smaller, early-stage companies, offering even greater tax relief.
  • Venture Capital Trusts (VCTs): Investments in these can offer income tax relief, albeit with certain risks.

Rent-a-Room relief

If you rent out a furnished room in your house to a lodger, the Rent-a-Room scheme allows you to earn a certain amount tax-free on this rent.

The annual Rent-a-Room limit is £7,500., but this is reduced to £3,750 if someone else receives income from letting accommodation in the same property, such as a joint owner.

The scheme is available to both homeowners and tenants, provided the property is your main residence and you have the permission to rent out the room (tenants should check their lease agreements).

It is important to note that the scheme only applies to residential properties and not to rooms let as an office or for other business purposes.

Reporting and paying your tax

It is vital to accurately report all your income and claim only the reliefs and allowances you are entitled to.

Remember, the deadline for online tax returns and paying any tax owed is 31 January 2024.

Late filing or payment can result in penalties, so it’s wise to start preparing well in advance.

In addition, tax affairs can be complex, and seeking advice from a tax professional is often a prudent step, especially if your situation is complicated.

Understanding and utilising these allowances and reliefs can make a significant difference in your tax bill.

As you prepare your Self-Assessment tax return, remember these tips to not only comply with the legal requirements but also to manage your tax liabilities effectively.

Stay informed and consider seeking professional guidance to navigate the intricacies of tax laws and regulations.

If you want to discuss your upcoming tax return with an accountant, please get in touch.

New HMRC rules set “hustlers” in their sights

HM Revenue & Customs (HMRC) has recently been granted new powers by the Government, aimed specifically at addressing unpaid taxes from e-traders and side hustlers.

This move places greater scrutiny on individuals selling items on platforms like eBay, Vinted, or Depop.

These sellers must now be more vigilant about their sales and the income generated from them, as these platforms are required to monitor and report seller earnings from 1 January 2024. Non-compliance by platform operators could result in substantial fines.

Online selling, a common method for earning additional income, affects a large number of people who could find themselves impacted by these new regulations, especially if their earnings exceed certain thresholds.

The £1,000 tax-free allowance

There’s a £1,000 tax-free allowance for UK residents who have a primary job but also earn additional income from casual or irregular sources.

This might include activities like freelance writing, crafting, pet or house-sitting, or tutoring.

Many individuals, especially when starting such activities, may not consider the tax implications of these earnings, as they often fall under the tax-free threshold.

However, once your additional income exceeds £1,000, it’s necessary to register as self-employed and file a Self-Assessment tax return. This process is required to report your additional income and work out your tax dues.

Completing a Self-Assessment tax return

Self-Assessment is HMRC’s method for collecting income tax from individuals not covered by the PAYE (Pay-As-You-Earn) system.

Tax returns must be submitted by the end of the tax year (5 April) to which they apply, and the tax due must be paid by 31 January of the following calendar year.

Missing the deadline for submitting a return can result in a minimum fine of £100, increasing for delays beyond three months.

Implications of the new rules

For many, these changes won’t affect their earnings if they remain below the £1,000 threshold.

Those regularly exceeding this amount are likely already familiar with and compliant with Self-Assessment requirements.

However, it’s the middle bracket of earners, those close to the threshold, who need to be particularly mindful of their earnings.

A common oversight is not recognising that sales on e-trading sites count as taxable income.

With HMRC now automatically informed of such earnings, failing to report them could lead to accusations of unpaid taxes.

Therefore, it’s crucial for all e-traders and ‘side hustlers’ to meticulously record their sales and earnings to understand their tax obligations.

For further information or clarification on these tax rules, please contact our expert team for guidance.

R&D tax relief schemes to merge in 2024 – What it means for future claims

Chancellor Jeremy Hunt has announced a number of reforms to policies concerning businesses and innovation, in a bid to enhance growth in the economy.

A significant measure concerns various tax relief schemes for businesses in the Research and Development (R&D) sector.

Many operators in this sector are eligible for Corporation Tax relief on qualifying expenditure to ease the burden of investing in capital and encourage growth.

Recent changes have left many businesses, particularly small and medium-sized enterprises (SMEs), in a state of uncertainty around what future claims might look like.

What has changed?

Under previous legislation, businesses conducting R&D could claim tax relief under two separate schemes – the R&D Expenditure Credit (RDEC) and the SME relief.

Each scheme had separate criteria for businesses fitting the standard definition of R&D.

Under new regulations, the SME and RDEC schemes will now be merged in a bid to simplify the process.

Under the new scheme, all qualifying businesses, regardless of staff levels or turnover, will be able to claim against R&D spending at a rate of 20 per cent on all qualifying expenditure from 1 April 2024.

In addition, the notional tax rate for loss-making companies will be reduced from the main rate of 25 per cent to the ‘small profits’ rate of 19 per cent in April 2024.

The new scheme also encourages firms which lack the capital resources to carry out projects to outsource their R&D operations.

By adopting similar rules to the existing SME scheme, the merged relief will allow tax relief claims on almost all outsourced R&D contracts to UK firms.

For the benefit of SMEs, subsidised expenditure is not deducted by the new merged scheme, meaning companies which receive grant funding for part of their R&D costs will not face a reduced amount of relief.

Who’ll be affected?

All businesses who claim R&D tax relief under either of the previous schemes may be affected.

To qualify for this credit, businesses must meet the following criteria:

  • Look for an advance in their field
  • Try or succeed at overcoming a scientific or technical uncertainty
  • Address an issue that cannot be easily worked by a professional in the field
  • Claim relief on a project related to their trade

Aside from the merge, SMEs may now claim additional relief on R&D expenditure if they qualify as ‘R&D intensive’, meaning at least 30 per cent of their expenditure covers R&D, for accounting periods after 1 April 2024.

How will future claims be affected?

The aim of the measure is to simplify the process of claiming R&D tax relief with a single set of qualifying rules.

Its impact on future claims will depend on whether the individual firm is a principal or subcontractor in an R&D agreement.

For firms themselves, this simplified way of claiming capital allowances on R&D expenditure is likely to provide a major incentive to investing in R&D and raising the profile of its R&D programme.

The measure also removes the need for growing companies to transition between the SME and RDEC schemes, meaning that firms can scale their operations and turnover without impacting their eligibility to claim for R&D under the scheme.

However, it is likely that subcontractors, which are currently able to claim under the existing schemes, will see a significant incentive removed as they can no longer claim relief on R&D expenditure under the merger.

This may mean that the R&D sector faces a period of uncertainty and slow growth while operators adjust to new regulations. Outsourcing agreements may also need to be renegotiated to reflect the new tax relief arrangements.

With no transition period between the two schemes, R&D operators may need to seek professional support to quickly identify how these new measures will impact them.

For advice on how your firm will be affected by these new measures, please contact our expert team today.

Making Tax Digital for Income Tax – Government kills off confusing year-end statement

Designed to reduce the tax gap and simplify tax management for individuals and businesses, the Government’s Tax Administration Strategy is set to introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) by 6 April 2026.

It will allow those who are self-employed, are landlords or are otherwise responsible for their own tax returns to keep digital records through the MTD system.

With a view to reducing tax lost to avoidable errors, MTD requires taxpayers to send digital records directly to HM Revenue & Customs (HMRC).

MTD taxpayers will be required to use compatible accounting software which, the Government hopes, will encourage wider efficiency and digitisation.

However, certain elements of the proposal have met with resistance due to confusion over new requirements.

As the scheme comes into force, the Government has now made a number of practical tweaks to the policy – seizing the opportunity presented by the Chancellor’s Autumn Statement

Tax and self-employment

MTD seeks to reduce the amount of tax lost by the Government due to errors made on an individual level.

A key element of the scheme is Income Tax Self-Assessment (ITSA), requiring self-employed individuals and landlords to use the MTD software to record their earnings and calculate tax liabilities.

Starting in April 2026, self-employed persons and landlords earning over £50,000 will need to maintain digital records and submit quarterly updates on their earnings and expenses to HMRC using software compatible with Making Tax Digital (MTD). For those earning between £30,000 and £50,000, this requirement will come into effect from April 2027.

Each quarter, these taxpayers will be required to submit financial records including earnings, profit and loss.

Under existing proposals for MTD ITSA, taxpayers would have been required to submit an End of Period Statement (EOPS) in two parts:

  • EOPS reporting taxable profit/loss
  • A Final Declaration containing EOPS data, other income, allowances and reliefs

However, the EOPS caused a stir among taxpayers as it would have separated the current year-end process into two steps, resulting in confusion and uncertainty for traders.

It may have also actively harmed the overall aim of the scheme by introducing a new potential source of error.

What has changed?

The Government has now announced that the EOPS will not be a separate requirement to the Final Declaration, instead being built into a single process.

The change should simplify the ITSA process and reduce the possibility of mistakes and inaccurate reporting.

Supporting the Final Declaration is another change to the proposed policy, making the required quarterly updates cumulative.

What will this mean for taxpayers?

Taxpayers will now face a more straightforward process for submitting year-end reports under MTD.

Taxpayers can easily access their financial reports throughout the year with quarterly updates, making end-of-year submissions easier.

You’ll also be able to correct past errors in the next quarter, rather than needing to resubmit in the same quarter.

Overall, these new measures will go a long way to achieving the scheme’s goal of streamlining finances for self-employed individuals and sole traders, encouraging operators to embrace digital solutions for efficiency more widely.

How can we help?

If you are self-employed or a landlord, you may benefit from seeking professional financial advice before MTD comes into law.

Making a mistake and paying less tax than you owe could result in a large bill later on, or even legal difficulties.

We can advise you on using the MTD system, integrating it with your current accounting software and complying with all the accompanying regulations.

To access bespoke support, please don’t hesitate to get in touch with our team today.

The future of payments – Cards, cashless and beyond

Alongside measures designed to support growing businesses and workers, the Chancellor’s 2023 Autumn Statement saw the publication of the Future of Payments Review.

Chaired by former HSBC Chief Executive, Joe Garner, the review comes as many retailers are struggling with the shift to digital and card payment exclusively.

The past few years have seen many larger retailers prefer card payments or refuse cash payments outright – and recovery of cash has been slow.

As a result, consumers are also moving towards cashless spending – both through the expectation of needing to use a card, and the convenience of card payments.

A cashless solution?

Only 1.5 per cent of the UK population use cash as their main form of payment, according to a UK Finance study in 2023. In contrast, almost one-third of people use cash once per month or less.

What these figures reveal is a general trend towards cashless spending. But is this right for small businesses?

Many independent business owners struggle to operate a card-only payment system because many card providers charge a small percentage of the total payment as a transaction fee.

For most providers, this is between one and four per cent, which can have a huge impact on profitability for a business with low-profit margins and small sales volumes. Very small businesses may also operate without a buffer fund to cover these additional costs.

Alternatively, operators have to pass this cost onto the customer, which many are not willing to do as the cost of living remains high and consumers seek good value.

An alternative vision

The Future of Payments Review has made 10 recommendations to the Government to improve the payment landscape for consumers and business operators. It seeks to provide retailers with a wider range of options for accepting customer payments.

Primarily, it recommended the creation of a National Payments Vision and Strategy, which prioritises customer experience, retailers and security.

Open banking, which enables consumers to share certain financial details with retailers in order to make a direct bank-to-bank payment, has been central to the review.

The benefit to consumers is clear, with a straightforward payment option that rivals card payments in convenience. Retailers, too, may be able to reduce card payment costs and streamline their finances.

However, the current climate has made the adoption of open banking challenging.

Traditional banks currently have a virtual monopoly on card payments – which the review has found the current system to be too reliant upon – and not enough is being done to incentivise open banking alternatives.

This monopoly makes it hard for retailers to actively choose which payment methods to accept based on their associated costs because consumers are most comfortable with the ‘journey’ of card payments.

The idea is to create a ‘customer journey’ for open banking, making it as familiar and viable a choice for consumers as a credit or debit card.

This will give retailers a larger choice of payment methods to accept, meaning they can take payments without additional costs or losing business from consumers who do not use particular payment methods.

Safeguarding your operation

We understand that you want to provide your customers with the best possible experience, which may mean offering a variety of payment options.

You will also want to review which payment options provide the most benefit and the least cost to your business as more payment options become available.

As Government policy evolves, it is likely that retailers will face uncertainty as well as reaping the benefits of innovation.

For advice on covering the costs of card payments and planning for new payment methods, please contact our team today.

An essential financial opportunity maximising your State Pension

In retirement planning, you may encounter a multitude of options and strategies to increase your pot, but some have a catch.

However, some prospects are more valuable, and one such opportunity is currently presenting itself to individuals aged 40 to 73 in the United Kingdom.

If you fall within this age bracket, it is imperative to consider purchasing missing National Insurance (NI) years from the period between 2006 and 2016, a move that could significantly enhance your State Pension.

The deadline: Act before 5 April 2025

The deadline for seizing this opportunity is set at 5 April 2025.

While the primary focus is on those aged 40 to 73, even individuals under 40 can benefit from assessing whether it’s worth topping up their NI record.

Recognising the overwhelming demand for this opportunity, the Government has extended the deadline not once but twice.

Initially scheduled to conclude on 5 April 2023, it was then extended to 31 July 2023, and subsequently, to 5 April 2025.

Moreover, the cost of making voluntary NI contributions remains frozen until the latter date.

The significance of National Insurance years

At present, the ‘new’ State Pension stands at £203.85 per week.

However, the precise amount you receive hinges on the number of qualifying full National Insurance (NI) years in your record.

While most individuals accumulate NI years through employment and NI contributions, it’s essential to note that claiming benefits or providing care for others can also count towards your qualifying years.

Generally, around 35 full NI years are required to attain the maximum State Pension.

Nevertheless, some individuals may require more years in employment, contingent on their age and NI record up to this point.

A rare opportunity to buy back years

Ordinarily, individuals are allowed to buy back up to six years of missing NI contributions.

However, when the ‘new’ State Pension was introduced, transitional arrangements were established to enable individuals to fill gaps all the way back to 2006.

The initial deadline extension now grants individuals until 5 April 2025 to take advantage of this rare opportunity.

In conclusion, for individuals aged 40 to 73 in the UK, the option to purchase missing National Insurance years is a financial opportunity that should not be overlooked.

Given the potential for significant financial gain and the extended deadline until 5 April 2025, it is advisable for you to evaluate this option as a vital component of your retirement planning strategy.

Your State Pension could be substantially enhanced, ensuring a more secure and comfortable retirement.

To discuss this with a qualified and experienced accountant, please get in touch. 

Navigating the challenge of late payments

In the world of business, cash flow is king and, for small business owners, it is a lifeline that keeps their ventures afloat and enables growth.

However, in recent times, late payments have been an issue that has been casting a shadow over small businesses across the UK.

Below, we investigate this pressing concern and how it might impact your business finances.

The late payment predicament

Recent data has revealed that late payments to small businesses have reached a concerning three-year high.

On average, small businesses are now waiting for nearly 30 days to receive payments from their customers.

This represents an increase of half a day compared to the earlier part of the year.

September witnessed payments arriving a staggering 7.7 days after their due date.

The impact on small businesses

For small business owners, the repercussions of late payments are multifaceted.

They extend beyond mere financial inconvenience:

  • Cash flow crunch: Late payments can lead to cash flow challenges, making it difficult for businesses to meet their immediate expenses, including supplier payments, salaries, and operational costs.
  • Disrupted planning: Managing a business requires careful planning and budgeting. Late payments disrupt this planning, as businesses struggle to predict when funds will become available.
  • Financial strain: In cases where customers delay payments, business owners may find themselves personally covering expenses or relying on personal credit, leading to financial stress and instability.
  • Professional image: Constantly chasing payments can impact the professionalism of your business, as it reflects poorly on your ability to manage your finances effectively.

The Prompt Payment Code

The Prompt Payment Code (PPC) sets the standard for prompt payments from larger businesses to their small business suppliers.

According to the PPC, 95 per cent of invoices from small businesses with fewer than 50 employees should be paid within 30 days.

However, it’s important to note that adherence to the PPC is voluntary, which has led to concerns about its effectiveness.

Seeking solutions

While the Government has launched a review to address late payment issues, it’s crucial for small business owners to take proactive steps to mitigate the impact:

  • Clear payment terms: Establish clear payment terms and policies with your customers to ensure they understand your expectations.
  • Invoicing efficiency: Streamline your invoicing process to make it easier for customers to pay promptly.
  • Diversify income streams: Consider diversifying your income sources to reduce reliance on a single customer or client.
  • Communication: Open and regular communication with customers about payment expectations can help prevent delays.

Late payments represent a genuine challenge for small business owners and, as such, it is vital to remain vigilant and proactive in managing this issue to safeguard the financial health and sustainability of your business.

By adopting sound financial practices and advocating for timely payments, you can navigate this challenge effectively and ensure the continued success of your enterprise.

To find out how we could help you manage the consequences of late payments, please get in touch. 

Autumn Statement 2023

With a General Election looming on the horizon, Jeremy Hunt rose to deliver his second Autumn Statement as Chancellor in the knowledge that his latest measures could have a substantial impact, not only on the future economic success of the nation but the electoral success of his own party.

Taking away the politics from his announcements, the Chancellor launched into his Autumn Statement with the news that inflation had more than halved this year and that the Government had fiscal headroom of up to £25 billion thanks to the additional tax receipts accrued due to rising incomes and frozen tax rates.

As the Chancellor said, the Government had taken difficult decisions to put the country back on track and prevent a recession.

This gave Jeremy Hunt a greater ‘War Chest’ and more room to deliver on the promise of tax cuts made days before by the Prime Minister.

Nevertheless, the Chancellor still had to strike a fine balance and try to not only deliver tax cuts but also financial surety and economic stability – for businesses and individuals alike.

In announcing his measures and future consultations, Jeremy Hunt concluded his speech by saying this was an “Autumn Statement for Growth” thanks to his 110 business-boosting measures.

The Economy and Inflation

Going into the Autumn Statement the Chancellor already knew that he had hit the Government’s target of halving inflation by the end of 2023.

The Office for Budget Responsibility (OBR) confirmed that the rate had already hit 4.6 per cent and would fall again to 2.8 per cent in 2024 and again to 2 per cent in 2025.

Jeremy Hunt said he would not take any risk with inflation and would continue to bring the rate down.

Whilst this is largely positive news, back in March the OBR estimated that inflation would fall to 0.9 per cent in 2024, meaning that inflation remains fairly persistent for a longer period, which could impact future decisions by the Bank of England’s Monetary Policy when it comes to setting the base rate in future.

More broadly, the latest GDP projections indicate that UK growth is more robust than anticipated this year, but not as strong as initially expected in 2024, 2025, and 2026.

The latest forecast shows that GDP growth will reach 0.6 per cent this year before rising to 0.7 per cent next year.

This means next year’s figures are down on the OBR’s previous estimates from March, which suggested growth of 1.8 per cent in 2024. In the following year, GDP growth will rise again to 1.4 per cent before growing to 1.9 per cent in 2026.

Support for Small Businesses

Having run a small business himself, the Chancellor said that he understood the pressures they faced and wanted to boost their growth and productivity.

To support those businesses in the hospitality, retail and leisure sectors, Jeremy Hunt confirmed that the 75 per cent business rates discount would be extended. The Chancellor also confirmed that he would freeze the small business multiplier for a further year.

However, his big announcement was that he would permanently extend the Full Expensing capital allowance, to provide certainty to businesses looking to invest.

Originally due to end in 2026, the establishment of this Corporation Tax relief as a permanent allowance is thought to be worth over £10 billion a year – making Full Expensing the biggest business tax cut in modern British history according to the Government.

Building on the previous Budget’s creation of Investment Zones, the Government will plan to create 12 investment zones in the spring including new areas in the West Midlands, the East Midlands and Greater Manchester.

The tax reliefs for freeports and investment zones will also be extended from five years to 10 years. Alongside this, there will be £80 million for new projects in Scotland, Wales and Northern Ireland.

Future and Innovation

Looking to the future and the UK’s fast-growing technology economy, Jeremy Hunt announced a package of funding and support for innovative businesses.

Amongst these measures was an additional £500 million funding for UK artificial intelligence (AI). The Government will invest in more "innovation centres" to help make the UK an "AI powerhouse" over the next two years.

The Chancellor is also due to publish plans to make £4.5 billion available over the next five years to unlock further private investment into strategic manufacturing sectors, including additional money for electric cars and the life sciences industry.

Many were also expecting changes to R&D tax relief, and while he quickly mentioned it in his speech the greater detail was to be found in the Autumn Statement documents.

Following previous proposals and consultation, the documents confirmed that the current Research and Development Expenditure (RDEC) and SME schemes will merge. Expenditures from accounting periods starting on or after 1 April 2024 will be eligible for the combined scheme.

This merger represents a significant simplification of tax rules, introducing unified qualifying criteria and a more transparent credit system. The hypothetical tax rate for loss-making entities in this merged scheme will be reduced from the current RDEC's 25 per cent to 19 per cent.

The threshold for additional tax relief for R&D-intensive, loss-making SMEs will also be lowered from 40 per cent to 30 per cent. This adjustment will bring about 5,000 more R&D-intensive SMEs into the relief's purview. The Government will also implement a one-year grace period, allowing companies falling below the 30 per cent R&D expenditure threshold to continue receiving relief for a year.

However, from 1 April 2024, R&D tax credit claimants will now be unable to designate a third-party recipient, except in limited cases. Additionally, new assignments of R&D tax credits will cease from 22 November 2023. Generally, R&D tax relief payments will be made directly to the claiming company, ensuring better control and expedited receipt of funds.

Assisting with the Cost of Living

A dominant factor in many people’s lives has been the cost of living due to high inflation rates. Whilst inflation has fallen, many individuals are still experiencing the daily impact of higher costs and so the Chancellor wanted to make it clear that the Government was there to support people.

Key to this was the headline announcement of a cut to the employee National Insurance rate from 12 per cent to 10 per cent from 6 January 2024. This means that individuals earning the national average wage of £35,400 will receive a tax cut in 2024-25 of over £450.

To help self-employed individuals, the Chancellor confirmed further changes to National Insurance, including the abolition of Class 2 NIC.

Currently, self-employed individuals earning over £12,570 must pay a weekly fixed rate of Class 2 National Insurance Contributions (NICs), which was set to increase to £3.70 from 6 April 2024.

At the same time, the main rate of Class 4 NICs will fall from 9 per cent to 8 per cent – providing further savings to the self-employed.

The Chancellor also confirmed that the National Living Wage (NLW) would rise to £11.44 per hour from 1 April 2024, while the NLW will be expanded to include 21-year-olds for the first time by lowering the age threshold.

Pensions

The Government will uphold pensioner incomes by preserving the Triple Lock and adjusting the basic State Pension, new State Pension, and Pension Credit standard minimum guarantee for 2024-25 in accordance with the average earnings growth of 8.5 per cent.

The Government will also address the persistent issue of "small pot" pensions by initiating a call for evidence on a lifetime provider model.

This approach would enable individuals to have their contributions transferred to their existing pension scheme when they switch employers, offering more autonomy and oversight over their pension.

Jeremy Hunt said he will consult on giving pension savers a "legal right to require a new employer to pay pension contributions into their existing pension", which could provide an "extra £1,000 a year in retirement for an average earner saving from 18".

As previously confirmed, the Government will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance. This will take effect from 6 April 2024.

Final Thoughts

The outcome of this Autumn Statement is perhaps not surprising given the fiscal buffer available to the Chancellor going into his speech and the upcoming General Election in 2024.

While there are many benefits provided through Jeremy Hunt’s 110 measures, the devil is in the details and the reality is that many individuals and businesses will go into 2024 with concerns about costs, alongside the support being provided.

Link: Autumn Statement 2023