Editors notes

It’s been another whirlwind few weeks in politics with Prime Minister Rishi Sunak reshuffling his cabinet last week, just before the much-anticipated Autumn Statement. And of course, this Autumn Statement comes ahead of a general election, so they’re looking to please!

Chancellor Jeremy Hunt announced there were 110 measures to “help the economy grow” and this was an autumn statement to “reduce debt, cut taxes and reward work.”

But it felt like it was an Autumn Statement for the people, not owner-managers. If you have employees on National Living Wage the announcements made are likely to have a significant impact on your business. The Hospitality, Retail and Leisure sector received an extension to relief in the form of business rate cuts, but will this really be enough to outweigh the 12.4% increase in wage bills?

The key headlines for business owners are:

  • National Living Wage increases to £11.44 per hour and applies to 21+ year-olds (a 12.4% increase for 21 year olds!) increasing your wage costs
  • 75% business rate discount for Retail, Hospitality and Leisure is extended for another year, saving the average independent shop over £20,000 and the average independent pub over £12,800 next year
  • Small business rates multiplier frozen until 2025
  • Self-Employed taxes to reduce – Class 2 National Insurance is abolished and Class 4 National insurance cut to 8%. This will see an expected average saving for a sole trader to be around £350 per year from April 2024
  • The merger of R&D tax relief schemes is going ahead
  • The Full Expensing Capital Allowances are to be made permanent – this will really only benefit bigger business spending in excess of £1million on plant and machinery in a year
  • Employees to get an in-year National Insurance tax cut from 12% to 10%, meaning someone earning an average salary of £35,000 will save over £450 a year

Other announcements made:

  • Consultation to be stared on giving a legal right for employees to elect for employer payments to be made into an existing scheme so they have one pension pot for life
  • An increase to the full state pension amount by 8.5% to £221.20 a week, worth up to £900 more a year
  • Increase to universal credit and other benefits by 6.7% in line with September’s inflation figure
  • Freezing of alcohol duty until 1st August

We have put together a short article below with analysis on the headlines so you know what it means for you as an owner-manager. We will provide a more in-depth analysis over the coming days.

Minimum wage rises to £11.44 per hour from April 2024 

The Chancellor, Jeremy Hunt, announced the minimum wage will increase by more than a pound, to £11.44 per hour from April 2024.

The minimum wage, known officially as the National Living Wage, is currently £10.42 an hour for workers over 23. Hunt has decided the rate should also apply to 21 and 22 year-olds.

For 23 year olds on minimum wage, this means a £1,800 rise annually. A 21 year old would see a £2,300 rise. This is potentially a huge cost for business owners employing 21+ year olds. This rise represents a 9.8% increase for over-23s on last year and a 12.4% jump for workers aged 21 and 22.

This big rise in the minimum wage comes as the Bank of England warns that the current pace of wage growth in the broader economy – which reached around 8% earlier this year – would make it hard to return inflation to its 2% target.

But as a business owner with employees, especially those within the retail, hospitality, leisure, care or manufacturing sectors, this could have a significant impact on your bottom line.

Here you can see how the costs will change for those being paid the National Living Wage :

Age bracketRates from 20242023 rates % increase
Previous national living wage (23+)£11.44£10.429.8%
New national living wage (21+)£11.44£10.1812.4%
18-20£8.60£7.4914.80%
16-17£6.40£5.2821.20%
Apprentice£6.40£5.2821.20%

How this reflects into gross salary:

 Full time salary (40 hours a week)
Age bracket2024 rates  2023 ratesDifference
Previous national living wage (23+)£23,795.00£21,674.00£2,121.00
New national living wage (21+)£23,795.00£21,174.00£2,621.00
18-20£17,888.00£15,579.00£2,309.00
16-17£13,312.00£10,982.00£2,330.00
Apprentice£13,312.00£10,982.00£2,330.00

If you employ people who are on National Living Wage, you need to start planning now to mitigate the impacts.

We’d recommend you:

  1. Review your business forecasts
  2. Use our 5-minute cash flow tool to help you make informed decisions
  3. Consider increasing your prices in the new year
  4. Get some regular management accounts – these not only tell you your up-to-date financial data but they can help you see which areas of your business are loss-making and which are more profitable
  5. Read our strategies for managing cash flow

We will provide some detailed advice next week on how you can reduce the impact of this increase.

Business rate cuts

Whilst the retail, hospitality and leisure sectors are some of the most likely affected by the National Living Wage increase, there is at least some news to help offset those extra costs!

Hunt announced the 75% business rate discount for retail, hospitality and leisure will be extended for another year, saving the average independent shop over £20,000 and the average independent pub over £12,800 next year.

He has also frozen the small business multiplier for a further year, until April 2025. Last November it was frozen at 49.9p for small businesses until April 2024.

However, while this does help, in many cases the National Living Wage increase is likely to outweigh these savings, so planning is vital.

National Insurance cuts

Self-employed

Effective April 2024, as a thank you to the self-employed for keeping the economy going during covid, Hunt announced a reduction in self-employed National Insurance charges.

Class 2 National Insurance will be abolished. This is the £3.45 flat rate paid weekly by self-employed people earning over 12,570. Entitlements to state benefits will not be affected and credits for State Pension entitlements will still be given.

Class 4 national insurance will be cut from 9% to 8%.

These combined changes will see an expected average saving for a sole trader to be around £350 per year from April 2024.

Employees

As part of Hunt’s mission to ‘reward worker’s, employees will receive an in-year 2% national insurance tax cut. The main 12% National Insurance rate for employees will fall to 10% from 6 January – saving those on an average salary of £35,000 over £450 a year.

Delivering his autumn statement in the Commons, the chancellor said: “If we want people to get up early in the morning, if we want people to work nights, if we want an economy where people go the extra mile and work hard then we need to recognise that their hard work benefits all of us.”

Introduction of the change before the new tax year creates a bit of complexity and marks yet another mid tax year change payroll operators have had to deal with in recent years!

Full Expensing Capital Expenditure

This was a new capital allowance relief, designed to replace the “Super Deduction” that ended on 31 March 2023. This relief applies only to limited companies and allows a 100% deduction of costs incurred on assets subject to capital allowances, such as plant and machinery, in the year of acquisition.

In reality this allowance will only be useful to businesses that have already utilised the full £1,000,000 “Annual Investment Allowance” in a financial year. Most small businesses will therefore not see any difference from current rules that allow up £1,000,000 of capital expenditure to be offset against Corporation Tax (or income tax for unincorporated businesses) in the year the cost is incurred.

It is important to note that both Annual Investment Allowance and the Fully Expensing schemes do not apply to company cars.

Merging R&D tax relief schemes

With the aim to simplify and improve R&D tax reliefs and help to drive innovation, the proposed merger of the existing Research and Development Expenditure (RDEC) and SME schemes is going ahead. Expenditure incurred in accounting periods beginning on or after 1 April 2024 intend to be included under the new rules.

Full details will be included in the ‘Autumn Finance Bill 2023’ when it is published later this year. Some of the proposed changes include:

  • Where payments are to be made, they are reduced via a notional tax as per the current RDEC scheme. The notional rate applied to loss-makers under the merged scheme will be lowered from 25% to 19%.
  • The threshold for R&D intensive loss-making SMEs will be reduced from 40% to 30%, with a one year grace period. This means dipping under the 30% qualifying R&D expenditure threshold in that period will not immediately affect a claim.
  • The decision maker may be allowed to claim for all contracted out R&D.
  • From 1st April 2024, R&D claimants will no longer be able to nominate a third-party payee to receive the tax credit payments, subject to limited exceptions. From 22 November 2023 no new 3rd party assignments will be possible.

Whilst some of the proposals, such as preventing third party nominations, are intended to deter firms that encourage fraudulent claims, an update issued by the Chartered Institute of Taxation (CIOT) at the start of November identified their concerns that the changes proposed have been rushed, they lack proper engagement and are not ready for implementation by April 2024.  The professional body identified their support for a simplified scheme, but stated that in its present proposed form this was not being achieved.

There may be further adjustments made, or a delay in the start date for the new scheme,  we will keep you posted as things develop.

If you would like any advice or further information on the above, please get in contact with your Principal Adviser or one of our team by calling 01474 853 856 or emailing enquiries@a4g-llp.co.uk.
As we feel it’s our duty to helpsupport owner managers through the non-stop challenges you’ve faced the past few years, and spot opportunities to pivot and grow, we will continue to provide free insights and advice via our emails. We will be going into more depth on everything announced today over the coming days so keep an eye out for our emails. If you’re not already signed up, sign up below.