A wealth of tax announcements, with a few rabbitsby
While the Autumn Statement was largely as expected, Jeremy Hunt still managed to pull some rabbits from his hat amid the bumper crop of tax announcements.
Events over the last week or so followed the traditional pattern: a mix of rumours and predictions of varying degrees of accuracy. On the day, those predicting major announcements on inheritance tax and income tax were disappointed. Were changes to either tax really on the cards? We will probably never know.
For an Autumn Statement however, there were more tax announcements than many expected.
The fiscal landscape
The Chancellor’s declared aim was to prioritise measures that will boost investment and growth, while not feeding inflation.
His room for manoeuvre was limited. The Office for Budget Responsibility (OBR) forecasts growth for the current year at 0.6% (significantly better than the forecast in March this year) but has reduced its forecasts for the following three years to 0.7%, 1.4% and 2.0%. Consumer Prices Index inflation is expected to be 3.6% in 2024, falling to 1.8% in 2025 and 1.4% in 2026 before rising to 1.7% in 2027.
The OBR also forecasts that by the end of 2023/24 the UK Public Sector Net Debt will be an eye-watering £2.7tn (97.9% of GDP). Government borrowing is set to be £123.9bn in 2023/24, £84.6bn in 2024/25, £76.8bn in 2025/26, £68.4bn in 2026/27 and £49.1bn in 2027/28. The latest current-year borrowing forecast was, however, sufficiently better than the March forecast that the Chancellor had some fiscal headroom.
So how did he use it?
The entirely expected announcement was full expensing, with 100% relief for main rate assets and 50% first-year allowance for special rate assets in the year of acquisition. The price tag for making this relief permanent is substantial, peaking at £10,935m in 2027/28 (though the Institute for Fiscal Studies (IFS) points out that the ultimate cost of full expensing is much lower because most of the upfront cost will be recouped in later years). The OBR observed that in the short term, investment decisions could fall with the removal of the 1 April 2026 “sunset”.
The announcement on merging of the research and development (R&D) expenditure credit (RDEC) and small or medium-sized enterprise (SME) schemes for accounting periods commencing on or after 1 April January 2024 was also not unexpected.
The changes to employee class 1 NI contributions and the changes to class 2 and class 4 contributions tick the box as rewarding work. The costs are again significant, at around £9bn a year for the class 1 changes. The cost of the changes to class 2 and class 4 contributions are much lower. The changes to class 2 and class 4 take effect from April 2024 but the change to class 1 takes effect “in year” from 6 January 2024.
The Green Book, as always, contained a few nuggets.
The eagle-eyed will have noted that the extra funding for HMRC is ring-fenced for enhancing debt management capacity rather than improving service delivery more generally.
The Chancellor’s Economic Advisory Council – formed at around the time the Office for Tax Simplification was being wound down – is also now being stood down.
The enterprise investment scheme and venture capital trust reliefs will be extended to 6 April 2035.
Taxpayers with only PAYE income will not in future be required to file a self assessment (SA) tax return. This will remove around a third of a million taxpayers from SA, though given the accuracy of some PAYE codes this idea comes with a potentially problematic downside.
The cash basis will become the default basis of calculation for all self-employed taxpayers from April 2024 (with an election required for the accruals basis).
For Making Tax Digital, an announcement of the outcome of the review announced by the then Financial Secretary to the Treasury in December last year was widely anticipated.
Keeping the mandation threshold under review for self-employed businesses and landlords with relevant income below £30,000 makes sense.
While I still question whether quarterly reporting is the best way to deliver more accurate record keeping, I am relieved to see that HMRC now accepts that cumulative quarterly reporting is a very much better option than returns containing only transactions for that quarter. It removes a significant concern over the proposed requirement to correct errors or omissions in the quarter in which they occurred.
The requirement for an end-of-period statement (EOPS) had been widely criticised and the EOPS has now been dropped. There is also recognition of the issues faced by landlords of jointly let property, of the need for authorisation of multiple agents (bookkeepers and accountants) and of the issues faced by businesses with non-fiscal year ends.
I will have more to say on this, but my immediate reaction is that the announcement addresses – or at least recognises – some of the key issues that representative bodies have been highlighting for a long time. There is, however, still a long way to go and a lot to deliver.
Waiting for rabbits
The Chancellor pulled some unexpected rabbits from his hat – especially given that this was an Autumn Statement not a Budget – and I suspect some of the widely trailed potential rabbits that didn’t make it to the Chancellor’s speech will reappear in the spring. That’s the way with rabbits.
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Paul Aplin was for many years a tax partner with an independent West Country firm. He is a past president of ICAEW, a former Chair of the ICAEW Tax Faculty, a member of CIOT Council and the Tax Technology Committee of CFE. He is a non-executive director of three companies, a member of HMRC’s Admin Burdens Advisory Board and the OTS Board....