We explore the main tax changes in the Autumn Statement 2023 and their potential impact on recruitment businesses and families alike.
The Autumn Statement, against a backdrop of economic uncertainty, brought a surprising twist with talk of tax cuts. Not long after the repercussions of last year’s tax cuts led to a weaker sterling and higher interest rates, it seemed that inflation had inadvertently fattened the Chancellor’s purse. As higher incomes and prices swelled tax revenues, the buzz was about how the Chancellor would use this unexpected ‘fiscal headroom’. Jeremy Hunt’s statement claimed he was bringing forward 110 growth measures, he did not list them all but released a trove of details online. Some measures were immediate; others, mere blueprints for the future. Let’s sift through the main tax changes that Mr. Hunt announced and their potential impact on businesses and families alike.
The IR35 off-payroll working rules aim to level the playing field, ensuring workers providing services via an intermediary company are taxed similarly to direct employees. These rules, while complex and varying by the end-client’s entity size, have been updated to address over-collection of tax. Now, when HMRC recoups underpaid PAYE from a deemed employer, they’ll factor in taxes already paid by the worker’s intermediary, preventing excess tax payment. This change is designed to streamline compliance and mitigate undue taxation.
The increase to £11.44 per hour from April 2024, expanding to include those aged 21 and over, will likely increase the cost base for recruitment agencies, particularly those who supply workers in lower-wage sectors. This could pressure margins or drive changes in billing rates.
Come January 6, 2024, employees will see their Class 1 National Insurance contributions cut from 12% to 10%. For the self-employed, a double dose of good news as Class 2 NICs will be scrapped entirely from April 6, 2024, without sacrificing entitlements like the State Pension. Plus, Class 4 NICs will take a dip from 9% to 8%. These changes mark a significant shift in the tax landscape for workers across the board.
To foster innovation, the Research and Development (R&D) tax incentive programs are undergoing a transformation. Currently, there are two schemes: a ‘super-deduction’ for SMEs that enhances R&D expenses by 86% for tax purposes, and the Research and Development Expenditure Credit (RDEC) scheme that offers a 20% credit for qualifying expenditures to larger companies. The government plans to unify these regimes from April 1, 2024, eliminating the complexity of operating under different systems. This merger will streamline the process, potentially making it more efficient for businesses of all sizes to claim their R&D tax credits under a singular, cohesive framework. Under the consolidated scheme, the credit rate will be standardised at the existing RDEC rate of 20%. For companies that are not profitable, the applicable notional tax rate will be adjusted to 19%, aligning with the small profits rate, as opposed to the current main rate of 25% under the RDEC scheme.
The Spring Budget introduced ‘full expensing’ for company investments in new plant and machinery, initially for three years. The Chancellor has extended this provision indefinitely, allowing companies to claim 100% tax relief on such expenditures. Special rate assets, like integral features in buildings, are eligible for a 50% first-year allowance. However, full expensing comes with caveats, especially upon asset disposal, where proceeds can be subject to tax. For most businesses, the Annual Investment Allowance, capped at £1 million and applicable to new and second-hand assets, remains a simpler option. Notably, new zero-emission cars also benefit from a 100% first-year allowance until March 2025.
The Construction Industry Scheme (CIS) mandates tax deductions at source for construction-related payments, with rates at 20% or 30%, unless subcontractors have Gross Payment Status (GPS). Starting April 6, 2024, VAT compliance will factor into both obtaining and retaining GPS. Additionally, HMRC will have broader authority to revoke GPS for various tax discrepancies, including VAT and other tax assessments. Reforms effective from the same date will digitalise CIS registration and alter the timing of compliance reviews, easing the administrative load for subcontractors and improving the scheme’s efficiency.
From the 2024/25 tax year, individuals whose income tax is fully settled through PAYE and have no other tax liabilities to report will no longer be required to file a self-assessment tax return. This is worth noting with top-billers within your recruitment firm often only earning PAYE income.
Chancellor Jeremy Hunt’s Autumn Statement offers a nuanced outlook for the recruitment sector. While the extension of the super-deduction for capital allowances signals support for business investment, it may have limited direct impact on recruitment firms, which typically have fewer tangible assets. The sector faces a challenging economic climate, underscored by the OBR’s projection of modest GDP growth averaging 1.5% between 2024 and 2027. In this environment, recruitment agencies must engage in smart, long-term planning to navigate potential headwinds and figure out the best way to grow.
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