The Autumn Budget 2023 – National Insurance cuts and further growth to the national living wage.

On Wednesday November 22 Jeremy Hunt presented the Autumn budget. He set out his priorities as to avoid major spending, but to cut taxes and ‘reward hard work’ with numerous changes to business tax and allowances.

Mr Hunt announced that the UK economy is set to grow by 0.6% in the current year, according to forecasts from the Office for Budget Responsibility. It then expects the economy to grow by 0.7% next year. GDP is forecast to rise by 1.4% in 2025, 1.9% in 2026 and 2.0% in 2027.

Below, we explore the announcements from the Budget that will affect small businesses.

Inflation expected to fall

Inflation is expected to fall to 2.8% by the end of 2024 according to the spending watchdog, down from 11.1% last year when Hunt and Rishi Sunak took office.

National living wage up by more than £1 an hour

The national living wage will increase from April to £11.44, and will be extended to 21-year-olds.

Benefits will be increased by 6.7%, although there will be tougher requirements for unemployed people to look for work. The state pension will be increased by 8.5%.

Cuts to National Insurance

“High taxes discourage work”, said Mr Hunt, and that the combination of national insurance plus income tax means people pay a 32% marginal tax rate.

The main rate for employee national insurance will be cut from 12% to 10%, potentially benefiting 27 million people to the tune of c.£450 a year on average earnings.

This change will be brought in from 6 January 2024.

Class 2 National Insurance abolished

Class 2 national insurance, which is paid by the self-employed, will be stopped. This will save almost two million individuals £192 per year.

The self-employed also pay class 4 national insurance at 9%, which will reduce to 8%. Taken together, these measures will save self-employed workers £350.

Small business support

Mr Hunt said that as a one-time small business owner, he wants to support this sector.

Recognising that SMEs want bills paid on time, he said that firms bidding for government contracts can expect bills to be paid within 55 days at first, and then within 30 days.

The 75% business rates discount for hospitality, retail and leisure is being extended for another year, at a cost of £4.3bn.

Investment in strategic manufacturing

Hunt also announced plans to make available £4.5bn over five years to attract investment into certain manufacturing sectors. This will include money for electric cars and life sciences.

The investments are aimed at keeping the UK competitive in sectors where it leads, and drive innovation in others.

Full expensing made permanent

Hailing full expensing a success, Mr Hunt announced that it would be made permanent. Companies that invest in the UK will reduce their tax by up to 25p for every £1 spent on plants and machinery.

12 investment zones for the UK

Tax reliefs for freeports and investment zones are being extended from five years to 10 years. New investment zones will be created in the West Midlands, East Midlands and Greater Manchester. These could bring in private investment of £3bn and 65,000 jobs.

Want to explore in more detail what the latest rules will mean for you or your business? As leading small business accountants in the Lune Valley we’re happy to advise. Get in touch with us today.

Capital Gains Tax: asset transfers for couples – here’s how it works

There are some helpful tax breaks for couples – both those who are married and those in a civil partnership. An important one can be the ability to transfer assets between them without any impact to capital gains tax. Sometimes this can be useful for tax planning.

Capital gains – no gain, no loss

Married couples and civil partners can transfers assets from one to the other during the course of the marriage without having to pay Capital Gains Tax (CGT). This applies to all assets including second homes, business interests, shares and capital. It’s known as the ‘no gain, no loss’ relief.

The effect of this rule is that any gain that has accrued while the transferor has owned the asset is passed to the receiver, and there’s no charge at the point of transfer.

Gains do not crystallise until the asset is disposed of outside the marriage or civil partnership.

An example of how this works

Mark purchases a piece of art for £2,000. Five years later he transfers it to his wife Amy. By then, the art is worth £4,000. Amy sells the piece a decade later for £7,000.

When Mark passes the art to Amy, it is transferred at a value of £2,000 – which is Mark’s base cost with neither a gain nor a loss. There is no capital gains tax to pay on the increase in value from £2,000 to £4,000 while Mark owned the art.

When Amy sells the art, the full gain of £5,000 – from £2,000 to £7,000 – becomes chargeable. Amy is liable for the full gain – not just the increase in value since she acquired the art.

There are no other gains in Amy’s tax year, so the gain sits within her annual exempt amount of £6,000. If the painting had fallen in value, Amy owns the overall loss in a similar way.

How the spouse tax break this helps with tax planning

This ‘no gain, no loss’ rule opens up a number of tax planning opportunities:

  1. Make use of annual exempt amounts

Transferring an asset – or a share in one – can make best use of unused annual exempt amounts.

The annual exempt amount for 2023/24 is £6,000. Using this strategy can save the couple up to £1,200 in tax. Note that the annual exempt amount falls to £3,000 from April 2024.

  • Make use of a lower tax band

If a gain can’t be fully sheltered by the annual exempt amount, but the spouses/civil partners have different rates of tax, the taxable gain can be shared and taxed at the lowest rate of tax.

  • Change income allocation

Income from an asset owned jointly by spouses and civil partners is taxed 50:50, irrespective of who specifically owns what share.

But to make sure income is taxed at the lowest possible marginal rates, you can transfer a set share of the ownership under the CGT rules.

For example, asset shares could be transferred to be 80:20 in favour of the lower-earning partner. A Form 17 needs to be completed to confirm this transfer.

  • Business asset disposal relief

You may be able to qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) if you are a sole trader or business partner, and you’ve owned the business for at least two years.

The relief reduces the rate of CGT on selling certain business assets from 20% to 10%. Each spouse or civil partner has their own limit. Assets or shares can be transferred from one spouse to the other, before selling.

However, the business needs to be in that ownership structure for two years before disposal for this relief to apply. It’s important to plan ahead if you want to take advantage of this option.

Make sure you and your partner don’t pay more tax than you need to. As Lune Valley tax specialists and accountants we can help you assess the most tax-efficient way to manage your affairs. For more information, contact us today.