OCL Accountancy – Autumn Statement 2023: National Insurance cut by 2%
With inflation decreasing faster than expected the Chancellor was able to make some cuts after all. What do you need to know?
There were rumours about possible tax cuts following the publishing of October’s inflation figure. In the end, the only major changes announced were to NI and apply to both employees and the self-employed. These headline tax cuts come with the caveat of ‘stealth’ tax increases due to the continued freezing of income tax bandings and NI thresholds until 5th April 2028. As earnings increase, individuals will move into higher tax bands. The dates these NI changes become effective are different.
6 January 2024: From this date, the Primary Class 1 main rate will be cut from 12% to 10%. As with the mid-year changes we saw in 2022/23, this will require updates to payroll software so it will be important to ensure these have been facilitated before running the January payroll. Note that the rate for earnings above the Upper Threshold will remain 2%.
6 April 2024: From this date, compulsory Class 2 NI contributions (the fixed rate paid by the self-employed) will be abolished altogether. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the state pension through a NI credit without paying NI contributions as they do currently. It will still be able to be possible to pay Class 2 voluntarily, i.e. for those with profits below the small profits threshold who wish to accumulate contributory benefits. Additionally, the main rate of Class 4 NI will be cut from 9% to 8%.
Cash basis expanded: Another welcome announcement is that the cash basis for self-employed businesses preparing accounts will no longer be subject to a turnover limit – previously they would have to switch to the accruals basis once turnover exceeded £300,000. Additionally, businesses using the cash basis will no longer be subject to restrictions for deductions for interest payments or using losses, meaning they will be able to use sideways loss relief. These changes will be effective from 6 April 2024 – the first year that the tax year basis applies.
Rounding up other notable announcements:
• Annual investment allowance and full expensing will be a permanent tax
break for companies.
• Pension tax relief annual allowances remain fixed in 2024/25.
• The two R&D reliefs – RDEC and the SME scheme – will be merged from 1 April 2024.