Autumn Statement 2023: Do you want the good news or the bad news?! And the boiling frogs approach continues…

The Autumn Statement 2023: Do you want the good news or the bad news?

If the Chancellor was being transparent, he would start each of his announcements in the Autumn Statement with the phrase:

“Do you want the good news, or the bad news?”

Unfortunately – for obvious wanting to win upcoming general election reasons – he doesn’t do this.

It’s left to the accountants and tax experts to decipher what’s been said, and more importantly, what’s not been said, in the hours and days after the Statement is published.

So here is the good news – and the unspoken bad news – for some of the key measures announced in this year’s Autumn Statement 2023.

And it’s still bad news for frogs…

Full expensing made permanent

The announcement that the full expensing regime has been made permanent is good news for businesses, because the previous deadline of 2026 did not give businesses enough time to make significant investment decisions and it is a generous investment incentive.

But here’s the bad news. The full expensing regime is only available to businesses who pay corporation tax – although unincorporated businesses can claim the Annual Investment Allowance (AIA) which is now permanently set at £1m. In fact, the AIA will still be used by most businesses before they use the full expensing allowances.

The full expensing regime will also only really benefit the largest construction, engineering and manufacturing businesses who are able to make significant investments.

While these large companies have a critical role to play in driving the economy, smaller SMEs and businesses based in service sectors – which make up the majority of UK industry! – will not see much benefit from this announcement.

And this measure is unlikely to help SME businesses for whom significant investment isn’t the current priority – but staying afloat is.

Simplification of the UK’s R&D Tax Regime

The ‘simplification’ of the UK’s R&D Tax regime is definitely something to be welcomed.

Claiming tax credits on R&D should be an attractive proposition for all companies carrying out innovation projects and promoting R&D and innovation by businesses is crucial if the UK economy is to grow.

However, the R&D tax regime is still very complicated and 2023 has already seen some major changes to the UK R&D tax credits scheme.

Launching the changes in April 2024 doesn’t give much time for businesses to adapt and adds another layer of complexity, particularly for SMEs who often don’t have R&D expertise inhouse.

SMEs genuinely undertaking eligible R&D often do not know how to claim, if they’re eligible to claim, and if their claim complies with HMRC’s new, stricter rules on R&D tax credits. There is still much work to do to simplify the regime.

Cut in National Insurance for Employees and the Self-Employed – but not employers

A cut in National Insurance for employees and for the self-employed is good news. Many people will see their income increase slightly from January.

But at The Uncommon Practice, we’re unashamedly on the side of business owners and we’re disappointed to see that employer’s NI did not get reduced as well.

Many employers would have hoped for a reduction in employer’s NIC to offset the significant increase in the National Living Wage. And businesses have only been given a couple of weeks to make the necessary changes to their payroll, as the measure comes into effect in January.

Increase in the National Living Wage

The significant increase in the National Living Wage – also known as the national minimum wage – is genuinely welcome news for many employees struggling with a cost-of-living crisis.

However, once again, for many employers, this is a mandatory pay uplift and will add to costs at a time when prices are already rising significantly. Cashflow forecasting and budgeting has to become a priority for all businesses.

As we’ve already said, the government could have offset the rise in wages with a reduction in employer’s NI but chose not to.

It’s also true that a rise in the national minimum wage is likely to increase wage costs throughout a business, as more senior members of staff are unlikely to accept a similar level of pay as their junior colleagues.

The Boiling Frogs Approach Continues!

And unfortunately, it’s an unwelcome continuation for the boiling frogs approach to taxation!

The Chancellor wants us to believe that taxes have been cut by his Autumn Statement. But the reality is that taxes are still at their highest level on record. According to the Office for Budget Responsibility (OBR), the percentage of the nation’s income going to the taxman is set to rise to a post-war high.

Here’s the point: while National Insurance has been trailed as a tax cut – and income tax hasn’t increased – more people will be paying higher taxes after this Autumn Statement than before.

They just might not realise it.

While Jeremy Hunt announced a cut in National Insurance, he chose to leave NI and income tax thresholds the same – frozen until 2028.

Usually, tax thresholds rise in line with inflation, but they have been kept the same since 2021.

And when tax thresholds and allowances are frozen and don’t increase in line with average earnings or inflation, then more individuals, households, and businesses are dragged into higher tax brackets and pay more tax.

The technical name for this is ‘Fiscal Drag’. It’s actually taxation by stealth.

Or as we call it: the “Boiling Frogs” approach to taxation.

If the government had announced big tax rises, we – the simple frogs – would have noticed the hot water and jumped out of the pan.

Instead, the government continues to freeze thresholds, is warming up the water slowly, and hoping that we won’t notice, while we’re slowly doomed and dragged into higher tax brackets.

Here’s fiscal drag in action: According to the BBC News, 2.2 million more workers now pay the basic rate income tax of 20% compared with three years ago, while 1.6 million more people have found themselves in the 40% tax bracket in the same period. And the OBR have said that by 2029, 4 million new income taxpayers will be created.

The £45bn that the treasury will gain in income taxes dwarfs the £10bn cost of the National Insurance cut.

Jeremy! Think of the frogs! No wonder he doesn’t mention the bad news.

Wrexham announced as an Investment Zone!

BUT… there was some genuinely good news for The Uncommon Practice and other businesses based in Wrexham and Flintshire, because it was announced that Wrexham and Flintshire will be one of 12 new Investment Zones who will receive funding and tax relief to boost productivity and growth.

But wait! What’s the bad news? As far as we can see for local Wrexham businesses like us, there isn’t any.

The Top Priorities for UK SME Business Owners:

So as the dust settles on the Autumn Statement 2023, here are the top priorities for UK SME business owners:

1. Make sure you’re claiming all of the allowances and reliefs you’re entitled to. If you do not know what these are, or how much to claim, speak to us without delay.

2. Costs are still rising. Make cashflow forecasting and budgeting a priority. Make sure that you are on top of your numbers and that you are using your up-to-date figures to make the best business decisions possible.

3. Make sure your payroll will be updated to account for the National Insurance and minimum wage changes. Our payroll clients do not need to worry about this, but if we don’t currently support your payroll, please get in touch.

4. If you’re planning any innovation projects and are unsure if they qualify for R&D tax credits or if you need help deciphering the changing R&D tax credits regime, get in touch with us.

Finally, if there is going to be a general election early next year, then the bad news is it’s likely we will have a Spring Statement with more changes for businesses to digest and implement.

The good news is that the government will probably be looking to make some vote winning announcements, tax thresholds may be moved, and fewer frogs will be harmed.

Important Disclaimer

This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by The Uncommon Practice.