Autumn Statement 2023: what UK business tax measures were announced?

The UK chancellor, Jeremy Hunt, delivered his Autumn Statement 2023 on 22 November, which was accompanied by a better-than-expected economic and fiscal forecast by the Office of Budget Responsibility.

With the government having met its pledge to halve inflation, the chancellor said that he was delivering an "Autumn Statement for growth", which focused on targeted tax cuts for business and workers.  

Tax cuts announced

The chancellor announced that he would cut the main rates of National Insurance contributions (NICs) for employees and the self-employed, and simplify the tax system by abolishing Class 2 NICs.

The main rate of employee National Insurance (Class 1 NICs) will be cut by 2 percentage points from 12% to 10%, from 6 January 2024 and the main rate of self-employed National Insurance (Class 4 NICs) will be cut by 1 percentage point from 9% to 8% from 6 April 2024. As the Class 1 NICs cut will take effect from January (and so earlier than the next tax year), the government highlight that employers that cannot amend their payroll system in time for employees to see the benefit in their January payslip should rectify this in subsequent months, so that employees receive the full value of the National Insurance rate cut.

In addition, from 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs, but will continue to receive access to contributory benefits including the State Pension.

Aside from national insurance, no cuts were made to the headline rates of income tax and no changes were made to the income tax personal allowance and thresholds, which still remain frozen until April 2028.

While there were rumours that the chancellor may look to cut (or make amendments to) inheritance tax, nothing was announced and so perhaps the chancellor is leaving this for the Spring Budget next year or the Conservative Party's manifesto for the next general election.

Boosting business investment

Capital allowances

In welcome news for businesses and constituting the "largest business tax cut in modern British History", the chancellor announced that he would make permanent the new capital allowances regime announced in this year's Spring Budget. The new regime had originally introduced a temporary 100% first-year allowance for main rate expenditure on the provision of new plant and machinery – known as full expensing (or a 50% first-year allowance for special rate expenditure for qualifying expenditure) until April 2026.

Making this temporary regime permanent should boost business investment and improve longer-term strategic capital investments, with the knowledge that the measure should (unless unwound by any future government) extend beyond April 2026. However, the change does require companies to be profitable to get the full benefit.

The government has also confirmed that it will publish a technical consultation in due course on extending full expensing to assets for leasing (as leased assets currently remain excluded from the full expensing regime) and will also launch a technical consultation on wider changes to further simplify the UK’s capital allowances legislation.

Investment zones

The government confirmed that the tax reliefs for investment zones (which aim to accelerate innovation in high-potential knowledge-intensive growth clusters across the UK) would be extended from five years to ten years, until 2031.

The zones will benefit from a package of tax reliefs including Stamp Duty Land Tax relief, enhanced first-year capital allowances for plant and machinery, enhanced structures and buildings allowances, employer NICs relief and business rates relief.

EIS and VCT relief

One measure that had been  expected to be announced was the extension of the sunset clauses under the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes, which will extend those sunset clauses to 6 April 2035, continuing the availability of income tax relief for investors in qualifying companies and VCTs.

R&D

In order to help drive innovation and growth in the UK, the government confirmed that, following a consultation over the summer on the proposed new regime, it would merge the current research and development (R&D) expenditure credit (RDEC) and R&D small and medium-sized enterprise (SME) schemes for accounting periods beginning on or after 1 April 2024.

The government will also implement the enhanced support for "R&D intensive SMEs" that was announced at Spring Budget 2023, providing a higher rate of payable tax credit (14.5%) for eligible loss-making SMEs whose R&D expenditure constitutes at least 40% (for expenditure incurred on or after 1 April 2023) or 30% (for accounting periods beginning on or after 1 April 2024) of total expenditure.

The rate offered under the merged scheme will be implemented at the current RDEC rate of 20% and the notional tax rate applied to loss-makers in the merged scheme will be the small profits rate of 19%, rather than the 25% main rate set in the current RDEC.

Green tax measures

New exemption from Electricity Generator Levy

The government has announced that it will introduce an exemption from the Electricity Generator Levy (EGL) for new renewable generation projects that create a new electricity generating station, or expand an existing generating station, if the substantive decision to proceed is made on or after 22 November 2023. The exemption will strengthen the incentives for investment in renewable energy generation.

At this stage, the government is seeking views on the proposal, including where generators and investors would like further detail or clarification in subsequent guidance from HMRC and it will publish draft legislation as soon as possible for the exemption in a future Finance Bill.

VAT relief on installation of energy-saving materials

The government has confirmed that, as expected, (following its consultation response in the summer) it will introduce legislation to expand the VAT relief available on the installation of energy-saving materials by extending the relief to additional technologies, such as water-source heat pumps, and bringing buildings used solely for a relevant charitable purpose within scope.

These reforms will be implemented from February 2024 and their full details will be published in a summary of responses document shortly. 

Employee incentives

Measures to simplify the process for granting tax-advantaged enterprise management incentive (EMI) options were introduced earlier this year. The documents published at the Autumn Statement confirm the final, previously announced EMI simplification measure which is due to come in next year. From 6 April 2024, the deadline for notifying the grant of an EMI option is to be extended from the current 92 days following grant to the 6 July following the end of the tax year. HMRC is expected to publish updated guidance, forms and returns for employers to use in the coming months.

The government's call for evidence on non-discretionary tax-advantaged share schemes closed on 25 August 2023. Given the significant interest in this consultation, it is expected that the Treasury has received a large number of responses and proposals for reform. It was perhaps too early for a progress report to be provided at this Autumn Statement, but it is to be hoped that there will be simplification of these much-valued plans. An update is expected on this (and separately on the targeted consultation on employee ownership trusts and employee benefit trusts) in the coming months, perhaps at the Spring Budget 2024.

Funds

Very little was announced in the Autumn Statement in relation to the UK funds industry and despite the government confirming in the Spring Budget 2023 that it would publish is response to the consultation on proposed reform of the VAT rules on fund management "in the coming months", the response is still awaited. The government's response to the consultation earlier this year on the proposals for the introduction of a new type of investment fund – the Reserved Investor Fund –  is also still awaited.

However, as part of the ongoing review of the UK funds regime, some further changes were announced to enhance the Real Estate Investment Trust (REIT) regime rule alongside changes that were proposed in July. These include amendments to some of the conditions that determine whether a company qualifies as a REIT.

The objective of the measure is to modernise the regime and alleviate some constraints and administrative burdens, to enhance the attractiveness of the UK REIT regime for real estate investment and to ensure that the rules keep pace with commercial practice.

Construction Industry Scheme

HMRC confirmed in its response to the consultation on Construction Industry Scheme (CIS) reform that in addition to adding compliance with VAT obligations to the Gross Payment Status compliance test it would introduce regulations (to come into force from April 2024) to remove the majority of payments from landlords to tenants from the scope of the CIS.

This is a welcome development, which Osborne Clarke highlighted in its response to the consultation in the summer. 

Osborne Clarke comment

The Autumn Statement was always going to be a challenging one for the chancellor, with the UK still in the midst of a difficult economic position. However, with the government finances in a stronger position than anticipated, the chancellor was able to offer some tax cuts in an effort to increase economic growth. The announcements were, however, measured and perhaps the chancellor is positioning himself to introduce further tax cuts in the Spring Budget 2024, the Conservative government's last full budget before the country goes to the polls.