Jeremy Hunt’s November 2023 “Autumn Statement for Growth” aimed to grow the economy and give workers a financial boost.
The statement included National Insurance cuts, increases to the national minimum and living wage, and a 12-month extension for relief on business rates.
If you’d like to know how your clients might be affected by these measures, here’s an overview of the key points and their potential impact.
Your clients might pay less in National Insurance contributions
There was good news for both employed and self-employed workers in the form of cuts to National Insurance contributions (NICs).
The NI rate for employees was cut from 12% to 10% in January 2024. And from April 2024, self-employed workers will no longer have to pay Class 2 NICs, which are currently mandatory for anyone earning over £12,570 a year.
In 2024/25, Class 4 NICs, paid by self-employed workers on earnings between £12,570 and £50,270 will be reduced from 9% to 8%.
While this might result in savings for both you and your clients, the impact may be offset by the freeze on the Personal Allowance and Income Tax thresholds introduced in April 2021 and extended to April 2028 in the 2022 Autumn Statement.
Whereas previously these thresholds typically rose in line with inflation, the freeze could potentially mean that your clients will pay more tax as a share of their total income.
In fact, government figures suggest that this “fiscal drag” could bring 1.3 million people into the tax system and create 1 million higher-rate taxpayers.
A national living wage increase could put pressure on your business-owning clients
The 9.8% rise in the “national living wage” (from April 2024) may be welcome news for low-income employees, but it could put financial pressure on business owners. The rate will rise to £11.44 an hour for workers aged 21 and over.
The Chartered Institute of Personnel and Development (CIPD) has also pointed out that some organisations, such as those in the hospitality sector, may be disproportionally affected by the wage increases.
So, your business-owning clients will need to accommodate this added cost, and consider the impact on their cash flow and profits.
Personnel Today report a CIPD study that suggests, when the living wage has risen previously:
- 30% of respondents accepted lower profits or simply accepted the higher overheads
- 29% raised prices
- 23% improved productivity through actions such as better supply chain management, boosting staff morale and engagement, or asking employees to do more as part of their role.
Your clients will need to think carefully about how to deal with this increase in payroll costs.
“Full expensing” and business rates relief may be good news for your business-owning clients
The chancellor announced a Backing British Business plan that includes 110 measures for promoting business growth.
One of the biggest announcements for businesses was that the “full expensing” capital allowance, which was introduced as a temporary measure in the 2023 Spring Budget, will be made permanent.
This means that any of your clients who have incorporated businesses and pay Corporation Tax will be able to reduce their tax bills by offsetting 100% of their investment in, for example, IT equipment, vans and lorries, chairs and desks, security and telecommunication systems, and machinery against profits in the year of purchase.
In addition, the Annual Investment Allowance (AIA) provides 100% first-year relief for plant and machinery investments up to £1 million for all businesses including unincorporated businesses and most partnerships.
And if you have business-owning clients who operate in the retail, hospitality or leisure sectors, they could also benefit from the 75% business rate relief, which has been extended for another year.
However, in practice, these changes may have minimal impact on your business clients.
“Full expensing” could be seen simply as an acceleration of tax relief because it allows UK companies to deduct 100% of the cost of capital equipment from their profits in the year it is bought, rather than spreading the cost across multiple tax years.
New pension measures could boost your client’s savings and give them more control
Lifetime Allowance abolished
The chancellor confirmed the abolition of the pension Lifetime Allowance (LTA), as of April 2024, which could make pensions more attractive as a means of saving for the future, especially for high-earning clients.
The removal of the LTA means that there is no longer a tax charge when a client comes to draw income or take a lump sum from their accumulated pension savings, even if it exceeds the previous LTA of £1,073,100.
However, the maximum Pension Commencement Lump Sum they can take from a pension without incurring a tax charge has been frozen at £268,275 (unless they previously applied for LTA protection), so they’ll need to be mindful of their tax-free amount when they start drawing from it.
Remember that the Annual Allowance means clients can usually contribute up to £60,000 a year into their pension (or 100% of earnings if lower) without a tax charge. If your client is a higher earner or has already started flexibly drawing from their pension their Annual Allowance may be lower.
“Pot for life” scheme proposed
To combat the problem of people accumulating multiple small pension pots (and potentially losing track of some) throughout their working lives, Hunt has proposed a “pot for life” pension scheme.
This would give your clients the legal right to require a new employer to pay pension contributions into their existing pension if they choose.
The proposal has only just entered the consultation process so it’s unclear how and when this measure may be implemented, but it could potentially give your clients more control over their retirement savings and enable them to save into a single pension.
What was missing from the Autumn Statement
Your clients might have been hoping that the chancellor would announce a cut to Inheritance Tax (IHT) or scrap it altogether, as such changes were widely expected.
But IHT remains unchanged.
As a result, an increasing number of households are facing an IHT bill. According to figures published by MoneyAge, IHT receipts reached a total of £5.2 billion between April and November 2023, which represents a £400 million increase on the same period in 2022.
A financial planner could help your client with IHT planning, enabling them to pass on more of their wealth to loved ones.
They can also provide guidance on understanding and navigating the above changes.
Get in touch
If your clients would like help reviewing and adjusting their financial plans in light of the changes introduced by the Autumn Statement, we can help. Please email hello@sovereign-ifa.co.uk or call 01454 416653.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
