Chancellor Jeremy Hunt has revealed the government’s tax and spending plans for the year ahead.
At 12.30pm on 22 November 2023, Hunt delivered his Autumn Statement in the House of Commons. This is likely to be the government’s last mini-budget ahead of a general election, which Prime Minister Rishi Sunak has indicated could be held in October next year.
The Office for Budget Responsibility (OBR) has also released their latest economic outlook for the UK today.
Last week’s news that inflation fell to 4.6 per cent in the year to October, down from 6.7 per cent for the previous month, encouraged some Conservative MPs to push for wider tax cuts ahead of today. And because of what’s been referred to as ‘fiscal headroom’, the chancellor has indeed announced some tax cuts in today’s statement.
But what has been revealed that could affect small businesses and the self-employed? Keep reading to find out.
Key updates for small businesses
While the Spring Budget focused on childcare expansion, here’s a rundown of what the chancellor announced today:
1. National Insurance reform for the self-employed
The chancellor has ‘reformed and simplified’ taxes paid by the self-employed.
He’s abolished Class 2 National Insurance saving the average self-employed person £192 a year. Access to entitlements such as state pension and credits will be maintained in full.
Class 4 National Insurance has been cut to eight per cent for the self-employed earning profits between £12,570 and £50,270.
The current Class 4 rate is nine per cent for the self-employed earning profits between £12,570 and £50,270. It’s two per cent on profits for anything over this.
Hunt said, from April 2024 the cut to the initial rate by one percentage point will save the average self-employed person £350 a year.
2. Business rates frozen for small businesses
Business rates are set to rise with inflation from next spring, however today’s announcement saw the small business multiplier frozen for a further year.
The 75 per cent business rates relief for eligible retail, hospitality, and leisure businesses (up to £110,000 per business) has also been extended for 2024-25.
Hunt said these plans hope to “recognise the roles of pubs and high street shops in our communities”.
Three key updates for small businesses. Image credit: Simply Business
3. Living wage increase
The government has already confirmed that the country’s national living wage will increase in April 2024.
Today Hunt confirmed it will increase to £11.44 an hour for workers over 23, and be extended to include 21 and 22 year olds for the first time.
Small businesses with employees will need to make sure they’re complying with the latest rates of pay for staff.
4. Late payment reforms
The government has promised to do more to crack down on companies paying SME invoices late.
The Cash Flow and Prompt Payment Review has already been published. And the Procurement Act means 30-day payment terms are extended to all subcontractor invoices within the supply chain for public sector contracts.
Additionally, any company bidding for large government contracts must demonstrate that they pay their own invoices within an average of 55 days. This will tighten to 40 days in April 2025 and 30 days in the years beyond that.
Read more: How to write a late payment letter – free template
5. Business tax changes
A business tax break known as ‘full capital expensing’ has been made permanent.
This investment allowance reduces the corporation tax liabilities for businesses investing in the UK.
For every £1 that a business invests in IT, machinery and equipment, they can claim back 25p in corporation tax.
In practice, this means businesses can deduct costs of these items from their profits to reduce the corporation tax they need to pay.
This tax break has been in place since April 2023, following the Spring Budget, and was set to end in 2026. It’s now been made permanent, and Hunt said it’s “one of the most generous tax reliefs anywhere in the world.”
This comes as 31 per cent of SMEs cite high taxes as one of their key concerns for running their business in 2023, according to the latest Simply Business SME Insights Report.
Read more: What is corporation tax and when is it due?
Ahead of today’s announcement, UK manufacturers were pushing for reforms to the business tax and regulatory system, according to a report in the Guardian. The industry says it wants changes to improve competitiveness and encourage research and innovation.
6. Alcohol duty frozen
A temporary freeze on alcohol duty has been extended until 1 August 2024.
They’ll announce the new alcohol duty rates in the Spring Budget next year.
7. Simplified R&D relief
R&D relief is a way for small businesses to reduce their tax liabilities by investing in research and development.
The government has confirmed that the current R&D Expenditure Credit and the SME schemes will be merged from April 2024 in a hope to simplify the process for businesses.
Read more about how the self-employed can access R&D relief.
8. Making Tax Digital update
It was previously announced that Making Tax Digital (MTD) would come in later for the self-employed on lower incomes.
However, the full Autumn Statement document included a tweak to these plans. The entry threshold of £30,000 will be maintained – so small businesses with a gross total self-employment income of less than this a year won’t be required to use MTD.
The roll-out will continue from April 2026 for those with an income of more than £50,000 a year.
Can the reforms fortify this over-stretched sector?
Simply Business UK CEO Alan Thomas commented on the Autumn Statement: “The chancellor’s rush of reforms for small businesses and self-employed people will be well received by many, but concerns remain around whether they can fortify this over-stretched sector.
“Our research revealed that an eye-watering £32bn in late payments is owed to small businesses, and the chancellor’s introduction of rules for firms bidding for government contracts do very little in the way of helping to recoup the thousands of payments still outstanding. The government itself has said that paying small businesses on time could boost the economy by £2.5 billion annually – yet decisive action has not been taken.”
‘A welcome update’
“The business rates support package, particularly the extension of the business rate relief and freeze in the small business multiplier is a welcome update. But a rise in the standard rate multiplier has been described as ‘disappointing’ by industry leaders, who have pointed to the fact that hospitality businesses broadly operate out of larger premises.
“The chancellor also failed to commit to increasing energy support for small businesses. Over a quarter of SMEs are spending up to 40 per cent more on energy each month compared to last year. Many were forced to renew long-term contracts at the peak of the market, which has pushed their energy expenditure to levels unheard-of. With the rates now stabilising, the chancellor should review the assistance available to non-domestic users, with a clear focus on assisting smaller businesses in covering essential bills.”
‘Small businesses are being held back’
“Thousands of small businesses are being held back – not because of apathy or lack of ambition, but because of a set of circumstances which are stretching them to the limit. Nonetheless, in a show of determination which is so characteristic of this sector, our research found that three quarters of SMEs remain confident about the prospects for their business. The chancellor’s aspiration to ‘supercharge’ the growth of the UK’s SMEs has, for many, missed the mark.”
Other announcements
- uprating the State Pension by 8.5 per cent in April 2024
- boosting apprenticeships (particularly in engineering sectors)
- simplying pension pots for employees
- increasing Universal Credit by 6.7 per cent in April 2024, in line with September 2023 inflation rate
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