Expect the expected!

I predicted that we should ‘expect the unexpected’ from the Autumn Statement 2023 and to some extent this was right. Over the weekend, various tax cuts were discussed in the media so most of the measures that were announced had been sufficiently trailed. However, the “unexpected” was perhaps the size of the tax cut as well as the timing but there were no surprise announcements as such. As someone who lives just outside Watford, I did enjoy the reference to the town in the Chancellor’s speech although I am not sure that I agree that the sun always shines!

The main headline change was the abolition of class 2 National Insurance (“NIC”) which is a potential saving of ￡3.45 per week so ￡179.40 per year for the self-employed. Class 4 NIC which is also paid by the self employed on earnings?between ￡12,570 and ￡50,270 will be cut from 9% to 8% which could save ￡380. These measures comes into effect from 6 April 2024.

There is a bigger tax cut for employees with the NIC rate cut by 2% which the Chancellor says will help 27m people, and mean that a person earning ￡35k will save over ￡450 per year which will come into effect from 6 January 2024. Whilst a tax cut is usually a welcome measure, the Institute of Fiscal Studies?data shows that with the frozen tax bands and allowances, real disposable household income will actually be 1.4% lower by 2027/28 than would have been the case if the personal allowance and higher-rate threshold had been increased in line with inflation.?So perhaps not such a significant tax cut after all?

There were a number of other measures announced that impact individuals too. For those opting voluntarily for Making Tax Digital there is a new penalty regime. There are also new powers to allow HMRC to request additional data through personal tax returns although this is not expected until 2025. The EIS and VCT sunset clauses have been extended to 6 April 2035 which was recommended by the Treasury. Also the cash basis is to be the default basis for the self employed too. These are amongst the most interesting of the 110 growth measures that the Chancellor announced.

Full expensing will be made permanent which will be a welcome measure for business although it is disappointing that this (and R&D reliefs) have not been extended to partnerships and the self-employed. This means that the different tax regimes for those who undertake their business through a company compared to a sole trade remain in place which does seem an odd mis-match in our tax system.

Despite all the media speculation, there was no mention of IHT in the Chancellor’s speech or indeed capital gains tax. Rachel Reeves, shadow Chancellor, did ask whether cutting IHT had been delayed or abandoned saying that cutting IHT was the wrong tax at the wrong time. This question remains unanswered.

Non-doms were not mentioned by Jeremy Hunt either. Rachel Reeves did reaffirm her commitment to abolishing the non-dom regime to help to fund nurses for the NHS if she became Chancellor but she did reference replacing it with a “more modern scheme so we will need to wait and see what this could look like.

This was clearly a fiscal statement targeted at rewarding work as the Chancellor made the choice to cut NIC, which is only paid on earnings, rather than cutting income tax which could have reduced the tax burden for the retired or landlords. What do I think that individuals can take away from the Autumn Statement? The OBR figures gave the Chancellor the headroom that he needed to make these tax cuts. However, the headroom is still tight and is based on a number of behavioural assumptions such as the amount of business investment that full expensing will create which do appear to be optimistic so we should keep a close eye on the numbers in the run up to the Spring Budget 2024 and beyond. As a potential election year, personal tax is likely to be a hot political topic during 2024 so the uncertain tax environment remains.