On Wednesday (22nd November 2023) the Chancellor of the Exchequer Jeremy Hunt delivered what could very well be the final budget ahead of the next General Election—but what does it mean for UK citizens and businesses? Let’s take a look at six key measures announced by the chancellor.
Cuts to National Insurance Contributions (NICs)
Starting in respect of paydays that are on or after 6th January 2024, the main class 1 NICs are set to be cut from 12% to 10%. There are also changes to class 2 and class 4 NICs for the self-employed.
What it means for employees—the reduction in class 1 NICs only applies to earnings between £12,570 and £50,270, with the maximum tax saving available £754 per year. The average worker earning £35,400 per annum will be £450 better off.
What it means for employers—changes to tax rates are typically implemented at the beginning of the new tax year, but this reduction is effective from January. Employers will have to make changes to their payroll systems, but for those businesses unable to make the change in time, they will have to do so at the earliest opportunity, and make appropriate adjustments for employees who have overpaid.
What it means for those self-employed—class 2 NICs will be abolished from 5th April 2024, offering the self-employed a saving of £3.45 per week—although those with profits of less than £6,725 will still be able to make voluntary contributions in order to qualify for contributory benefits.
From 6th April 2024, Class 4 NICs for the self-employed will fall from 9% to 8%. These two measures combined will offer the average self-employed worker a saving of £350 per year, while the maximum saving will be £569.
There were two key announcements in regards to pension provision, one for those currently in receipt of the State Pension, and one for workers.
State pension increase
The ‘triple lock’ guarantee on pensions will see the state pension rise by 8.5% from April 2024—a weekly increase of up to £17,35. Pension Credit, the state top-up for those over State Pension age on a low income, will also increase by 8.5%.
Single pension pot for workers
Following a consultation, the Government confirmed it would be introducing a ‘multiple default consolidator’ model for workplace pensions. This would enable a small number of authorised schemes to consolidate eligible pension pots that fall below £1,000.
There was also a ‘call for evidence’ launched on a lifetime provider model’, which would allow the individual to choose their workplace pension scheme, rather than having to use the one chosen by their employer. This would reduce the number of small pots created when employees change jobs.
Although there will be no changes to the ISA subscription limits—£20,000 for adult ISAs and £9,000 for Junior ISAs—the Chancellor did announce the ‘one ISA of each type per tax year’ restriction would be removed from April 2024. This means people will be able to subscribe to multiple cash or stocks and shares ISAs in a single year.
National Living Wage increase and expansion
There will be an increase and expansion of the ‘National Living Wage’ in April, with those aged 21 and 22 being eligible to receive it for the first time.
The original rate of £10.42 per hour for over-23s will rise to £11.44, while 21 and 22-year olds will see their minimum hourly rate increase from £10.18 to £11.44.
The National Minimum Wage will rise from £7.49 to £8.60 for 18 to 20-year olds, while under-18s will see their pay increase from £5.28 to £6.40 per hour.
Inflation expected to continue to fall
Inflation has been falling in recent months, with the core CPIH annual inflation rate hitting 5.6% in October—the lowest rate since January 2023.
The Office for Budget Responsibility has predicted that inflation will continue to fall during 2024, dropping to 2.8% by the end of next year, although this is still higher than the Government’s original target of 2%.
Low earning self-employed workers to remain exempt from Making Tax Digital
Making Tax Digital (MTD), the Government’s strategy for ‘closing the tax gap’ and making it easier for individuals and businesses to pay the correct tax, is set to come into effect for those with income over £50,000 per year from April 2026, and those with earnings between £30,000 and £50,000 from April 2027
However, it has been confirmed that those with a self-employed income under £30,000 will not be brought into MTD for now, although the decision will be ‘kept under review’.
We’re going to be covering these topics in more depth in the coming weeks, but in the meantime if you’d like to discuss what the changes announced in the autumn statement mean for you or your business, please don’t hesitate to get in touch. Alternatively, book a free, no obligation consultation with one of our expert accountants.