Against the backdrop of the Government meeting its own target to reduce inflation below 5 percent in the final three months of 2023, and a more optimistic economic outlook from the Office for Budget Responsibility, last Wednesday Chancellor Jeremy Hunt delivered his second Autumn Statement. With one eye squarely on the General Election expected to take place in 2024, the main focus was on announcing some tax cuts via reductions in national insurance contributions and confirmation that full expensing for companies, which provides 100 relief for new investments in plant and machinery, is being made permanent. Mr Hunt also further reformed the UK’s R&D tax relief regimes which will be merged into one scheme from 1 April 2024. It was also confirmed that, for now, the turnover exemption limit for Making Tax Digital for income tax will not be reduced below £30,000. The need to increase the exemption limit from its original level of £10,000 has been a long-standing recommendation of Chartered Accountants Ireland since 2016.  But will taxpayers be fooled by the tax cuts announced last week? Fiscal drag created in recent years by the freezing of numerous tax allowances and thresholds means that for many taxpayers, the cash benefit of any NICs reduction is likely to have already been outweighed by the additional tax that they are already paying because of frozen allowances/thresholds. However, a cut to income tax in the Spring 2024 Budget has not been ruled out.   After the closure of the Office of Tax Simplification, the Government also provided details of its four main objectives in this area (see page 77 of the main Autumn Statement publication) and will set out progress on these metrics before the end of 2023/24. Several specific announcements were also made which aim to make it easier for small businesses to set up and grow – more detail of these is contained in the business taxes story.  Read the Institute’s Press Release reacting to the Autumn Statement. The analysis herein is based on the publications of HMRC and HM Treasury and various emails and bulletins received by the Institute last week.   Next Monday’s Chartered Accountants Tax News will feature our final stories on the 2023 Autumn Statement and will cover an update on Pillar Two, proposals to tackle the tax gap and a range of other miscellaneous measures, including a number of VAT changes. 

Following publication and debate of Finance (No.2) Bill 2023 Report Stage amendments last week, the Bill has been published, completing the final stage, and now moves to Seanad Éireann for further review and discussion. Report Stage amendments include legislation to address the tax treatment of General Medical Service (GMS) payments of certain medical practitioners (GPs) and removes operating leases from the scope of Section 38, for now.   The Report Stage amendment of the tax treatment of GMS payments of GPs provides that where GMS services are provided in the conduct of a partnership with other individual GPs, that income can be treated for income tax purposes as income of the partnership. The amendment also provides that the relevant partnerships may claim any professional services withholding tax (PSWT) credit attaching to the GMS payments of the partners. A joint election to treat the GMS payments as income of the partnership must be made by the relevant GP and the medical partnership. The contracted GP will provide the HSE with the tax reference number of the medical practice for the purpose of operating PSWT. The Institute welcomes the amendment as it has lobbied extensively on the matter, under the auspices of the CCAB-I.     The taxation of leases in Section 38 of Finance (No.2) Bill 2023 sees the substitution of the term ‘finance lease’ for ‘lease’ and addresses a number of other issues raised by stakeholders, including the CCAB-I, following the initial publication of the Bill. The effect of the amendment is to remove operating leases from the scope of section 38, for now. Operating lessors will continue to be taxed in line with the existing rules.  We will continue to keep readers informed of the progress of the Bill via Tax News. 

Reductions in employee and self-employed national insurance contributions ("NICs") and the abolition of Class 2 NIC were the key announcements. And from 2024/25, the Government will no longer require individuals earning more than £150,000 whose only source of income is income taxed through PAYE to file a Self-Assessment return.   Employee NICs  Class 1 employee NICs are to be reduced by 2 percent from 12 percent to 10 percent from 6 January 2024. In a meeting with HMRC last week, Chartered Accountants Ireland flagged the short time period that software providers and payroll teams have to implement this 2 percent reduction which has come at an already very busy point in the tax year.  Self-employed NICs  From 6 April 2024, the main rate of Class 4 NIC, which is applied to trading profits between £12,570 and £50,270, is being reduced by 1 percent from 9 percent to 8 percent. And Class 2 NIC is being abolished from 6 April 2024.   From the same date, self-employed taxpayers with profits above £12,570 who will no longer be required to pay Class 2 NICs, will continue to receive access to contributory benefits, including the State Pension. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, again including the State Pension, through a National Insurance credit without paying NICs as they do currently. Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits will continue to be able to do so.    According to the main Autumn Statement publication, the cuts to Class 4 and Class 2 NIC taken together amount to a tax saving of £350 a year for the average self-employed person on £28,200 with some two million self-employed individuals expected to benefit.   The Government will also set out next steps on Class 2 reform next year. As part of this, the intention will be to protect the interests of the lower paid self-employed who currently pay Class 2 NICs voluntarily to build entitlement to certain contributory benefits.  2024/25 allowances  The blind person’s and married couple’s allowances are being increased in 2024/25 to £3,070 and between £4,280 and £11,080, respectively. All other allowances remain frozen as announced at the Autumn Statement in 2022.  NICs rates and thresholds   The Government is freezing the lower earnings limit (“LEL”) and the small profits threshold (“SPT”) at 2023/24 levels in 2024/25. For those paying voluntarily, the Government is also freezing Class 2 and Class 3 NICs rates at their 2023/24 levels in 2024/25.   The LEL will remain at £6,396 per annum (£123 per week) and the SPT will remain at £6,725 per annum in 2024/25. The main Class 2 rate will remain at £3.45 per week, and the Class 3 rate will remain at £17.45 per week in 2024/25. This does not affect existing arrangements for payments of voluntary Class 2 or Class 3 NICs connected with previous tax years.   Employer NICs relief for employment of veterans  The Government is extending the NICs relief for employers of eligible veterans for one year into 2024/25. The relief means businesses pay no employer NICs on annual earnings up to £50,270 for the first year of a qualifying veteran’s employment in a civilian role.  

The Minister for Finance, Michael McGrath TD, has welcomed the commencement of four amendments to the Key Employee Engagement Programme (KEEP) as introduced in Finance Act 2022, following receipt of approval of State aid from the European Commission. KEEP was introduced in 2018 to enable unquoted companies to attract and retain key employees, using share based remuneration.   KEEP is an exemption from income taxes on any gain realised on the exercise of a qualifying share option. Instead, the gain will be subject to Capital Gains Tax (CGT) on a subsequent disposal of the shares. The amendments commenced reflect stakeholder feedback and provide for the following:  The extension of the scheme to the end of 2025.   Capital gains tax treatment can apply to a company buyback of shares acquired under KEEP.  The limit for the total market value of issued but unexercised qualifying share options for qualifying companies and qualifying holding companies is increased from €3 million to €6 million.  KEEP now applies to ordinary fully paid-up shares, not just to new ordinary fully paid up shares, so that existing shares a company holds can qualify.  Commenting on the commencement, Minister McGrath stated:  “I am delighted to announce that I have commenced the four outstanding KEEP amendments contained in Finance Act 2022, following receipt of State aid approval from the European Commission.  KEEP is a focused scheme aimed at improving the attractiveness of the Irish SME employment offering. It recognises that the improved competitiveness of Irish SMEs supports the creation and maintenance of employment, which in turn supports economic growth.  These amendments extend and expand the current KEEP scheme, and are based on my Department’s continued engagement with stakeholders to ensure that the scheme is working to support Irish SMEs.” 

The merger of the SME and large company research and development (“R&D”) tax relief schemes, and the making permanent of full expensing for businesses were the main changes to business taxes. Merger of R&D tax relief schemes  Continuing with the theme of reform to the UK’s R&D tax relief regimes which began in the 2022 Autumn Statement, the SME and large company regimes are to be merged, as planned, from 1 April 2024. However, the Chancellor did not specify the rate(s) of relief which will be available under the merged scheme, which is likely to be announced in the 2024 Spring Budget.  The merged scheme will offer a taxable R&D expenditure credit, based on a percentage of R&D expenditure, that will be able to be offset against a company’s tax liability or, subject to some adjustments, be paid in cash to the business via a payable tax credit.   In our submission to the House of Lords Finance Bill Sub-Committee inquiry into draft Finance Bill 2023/24, Chartered Accountants Ireland recommended that the commencement date for the introduction of a single unified scheme be deferred beyond 2024 to allow for a longer period of consultation to be undertaken on the potential options available.  It was also announced by the Chancellor last week that under the merged R&D scheme, payments of the merged scheme payable tax credit to loss making companies will be reduced via a notional tax. The aim of this is to ensure that the overall tax benefit is similar to that available to profit making companies.   This will be done by calculating the net amount at Step 2 using the rate applicable to the taxpayer (either the small profits rate (“SPR”), currently 19 percent, or the main rate (25 percent)), by applying the SPR to loss making companies. Companies will also be able to off-set the amount withheld against tax in future years.   According to the publications, this change in the rules for the merged scheme is designed to ensure that loss making companies receive more cash benefit upfront, compared to the position set out in the July policy paper.  R&D intensive scheme  The intensity threshold in the R&D intensives scheme is to be reduced from 40 percent to 30 percent for accounting periods that commence on or after 1 April 2024. A one-year grace period will also be introduced which will allow companies who dip under the 30 percent threshold to continue to receive relief as an R&D intensive company for a further year.  More details of the changes to R&D tax relief are available in a HM Treasury policy paper with confirmation that all changes come into effect in respect of accounting periods beginning on or after 1 April 2024.  R&D tax reliefs - removing nominations and voiding assignments   From 1 April 2024, R&D claimants will no longer be able to nominate a third-party payee for R&D tax credit payments, subject to limited exceptions. In addition, from 22 November 2023. no new assignments of R&D tax credits are possible. This means that in most circumstances payments of R&D tax credit claims will be paid directly to the company in order to ensure that they “have full oversight of the claim and receive payment more quickly”. This will be legislated for in the Autumn Finance Bill 2023.   Closure of the R&D review   At Spring Budget 2021, the Government launched a review of R&D tax reliefs. The Government is now concluding that review with the announcement of the merged scheme.   The Autumn Statement publications do refer to the potential that further action may be needed to tackle high levels of non-compliance in R&D tax reliefs, hence it is expected that HMRC will be publishing a compliance action plan in due course.   The Government will also continue working with industry to develop the enhanced support for R&D intensive SMEs and will also consider if further simplifications can be implemented.  Full expensing for companies  Full expensing was announced in the 2023 Spring Budget and replaced the 130 percent super deduction which came to an end on 31 March 2023. The relief is only available to companies incurring expenditure on new plant and machinery (with some exclusions) and was originally scheduled to last for a three-year period until 31 March 2026. The Chancellor announced last week that full expensing is being made permanent.  Although this was badged as the biggest tax cut in modern British history, in reality it is only of real benefit to larger companies who have the capacity to invest in more than their annual investment allowance limit, which already provides 100 percent relief for such assets, up to a maximum of £1 million. The Office for Budget Responsibility expects this to increase business investment by £3 billion per year.   At present, assets for leasing remain excluded from full expensing. However, the Government is to continue to consider whether there is a case to extend full expensing to leasing hence a technical consultation will be published in due course to seek input on draft legislation which will also consider whether error and abuse risks can be appropriately mitigated.  A technical consultation is also expected to be launched on wider changes to simplify the UK’s capital allowances legislation.  Tax relief for training costs  HMRC is also to rewrite guidance around the tax deductibility of training costs for sole traders and the self-employed. This aims to ensure that taxpayers can be confident that updating existing skills or maintaining pace with technological advances or changes in industry practices, are allowable costs for tax purposes.  Creative sector tax reliefs  The Government expects further growth and a rise in employment as creative industries embrace new technologies. To maximise the benefits of this, the Government will further boost the international competitiveness of tax incentives for the UK’s world-leading visual effects sector by increasing the generosity of the audio-visual expenditure credit for visual effects expenditure. Work will begin with industry on how best to design this with the intention of implementing changes to the tax relief from April 2025.  As part of this, the Government has published a call for evidence on recent trends in the visual effects industry. This aims to inform the design of additional tax relief for expenditure on visual effects, which the Government intends to deliver via the audio-visual expenditure credit. The Government intends to consult on the detailed policy design of further support and intends to implement changes to this expenditure credit from April 2025.   As previously announced, animated feature film will be eligible for a 5 percent uplift in relief under the audio-visual expenditure credit.   The Government has also amended the proposed definition of a documentary. The new definition is designed to align with the guidance used by the British Film Institute and will apply to the audio-visual expenditure credit, which will be legislated for in the Autumn Finance Bill 2023.   The proposal to cap the relief that companies can receive on connected party transactions is also being amended. Companies will now be required to disclose connected party transactions and charge connected parties at an arm’s length price. This will also be legislated in the Autumn Finance Bill 2023.   Simplification for smaller businesses  As announced in Spring 2023, the Government is undertaking a systematic review of guidance and key forms for small business and has already begun to implement some improvements including enhanced guidance when checking if you need to submit a self-assessment tax return, new interactive guidance to help businesses register for self-assessment, and improved guidance designed to make it easier to report VAT errors.   Expanding the cash basis  Following a consultation at Spring Budget 2023, the Government is expanding the cash basis for unincorporated businesses. These changes will take effect from 6 April 2024, for 2024/25 and will be included in the Autumn Finance Bill 2023. More details are set out in a policy paper which confirms that the cash basis will be the default method of calculating the tax adjusted trading result, meaning an election will no longer be required. Hence all unincorporated businesses will use the cash basis unless they make an election to use the accruals basis instead.  Currently, businesses are only able to join the cash basis if their turnover is less than £150,000, and they are forced to leave in certain circumstances, including where turnover exceeds £300,000. The turnover restriction will be removed entirely from 6 April 2024.  Chartered Accountants Ireland responded earlier this year to this consultation and supported the expansion of the cash basis but recommended that business should have a choice and be able to choose which basis best suits them hence it is pleasing to see that the Government have taken this on board and will allow businesses to opt out of the default cash basis.   Oil and gas fiscal regime   Alongside confirming that the Energy Profits Levy (“EPL”) will end no later than 31 March 2028, the Government published the conclusion to the review of the oil and gas fiscal regime in a collection of documents which sets out an oil and gas fiscal regime package covering the short, medium, and longer term.  This includes setting out principles for the tax treatment of future oil and gas price shocks after the end of EPL and targeted support for the energy transition through allowing relief for payments made by oil and gas companies into decommissioning funds in relation to oil and gas assets that are repurposed for certain uses. Legislation will also remove the receipts from the sale of these assets from the EPL.   

Although not featured in the Chancellor’s speech, buried in the Autumn Statement 2023 publications is the outcome of HMRC’s recent small business review. This comprises what is referred to as a “package of changes to simplify the design of Making Tax Digital” (“MTD”). A separate corporate report with more detail was also published which provides details of further work and next steps. More information is also available in an email from HMRC. The package of changes announced includes maintaining the current MTD turnover threshold at £30,000 and design changes which aim “to simplify and improve the system”. These changes will take effect from April 2026 when MTD for income is initially scheduled to commence for self-employed business and landlords with turnover of more than £50,000. Earlier this year, Chartered Accountants Ireland met with HMRC to discuss the review and highlighted several concerns, including the need for HMRC to increase the exemption threshold. We are pleased to see that HMRC has decided, at present, to maintain the turnover limit at which MTD will be mandated to £30,000, effectively increasing this from the original exemption limit of £10,000. Taxpayers with turnover from £30,000 to £50,000 are still mandated to join MTD from April 2027. However, the Government will keep under review the turnover less than £30,000 population.  The MTD changes announced last week specifically:- aim to simplify the requirements for all taxpayers providing quarterly updates, and for taxpayers with more complex affairs, such as landlords with jointly owned property; remove the requirement to provide an End of Period Statement;  exempt some taxpayers, including those without a National Insurance number, from MTD; and  enable taxpayers using MTD to be represented by more than one tax agent. 

This Wednesday, the Global Forum will be meeting to discuss developments in the fight against offshore tax evasion. The annual plenary meeting is taking place in Lisbon, Portugal and will be live on OECD WebTV from 9.00am Irish time.

New data from the OECD suggests that 37.1 percent of global net profits are taxed at effective tax rates (ETRs) below 15 percent. Their research shows that 56.8 percent of all global profits taxed below 15 percent arise in high-tax jurisdictions. It is suspected that this is achieved through tax incentives and targeted concessions.

The Government has agreed a series of incremental increases in the rate of Pay-Related Social Insurance (PRSI) contributions for all employers, employees and the self-employed. The stated purpose of the increases is to replenish the Social Insurance Fund and to support the retention of the State pension age at 66 years. The rate of PRSI for all classes will increase by 0.1 percent from October 2024, followed by a further increase of 0.1 percent in 2025. There will be further increases of 0.15 percent in both 2026 and 2027 followed by an increase of 0.2 percent in 2028. 

Azerbaijan has become the latest country to join the BEPS Convention. The BEPS Convention is the key instrument for updating double tax agreements and reducing tax avoidance by multinational enterprises. The Convention also enhances dispute resolution between countries.

From next year, individual taxpayers will see more in their pockets as a result of the planned reductions in national insurance contributions However, today’s Autumn Statement featured little in the way of immediate tax cuts and supports for small and medium sized businesses As a region, Northern Ireland continues to be left behind on key issues and supports   22 November 2023 – Today’s Autumn Statement was a missed opportunity to provide struggling businesses with tax incentives and supports which would allow them to grow and thrive, according to Chartered Accountants Ireland. The Institute, which represents almost 5,000 members in Northern Ireland, more than two thirds of whom work in business, made these remarks as Chancellor Jeremy Hunt delivered his Autumn Statement in Westminster earlier today. Commenting, Janette Burns, Chair of the Northern Ireland Tax Committee of Chartered Accountants Ireland said:  “Today’s Autumn Statement was clearly delivered with one eye on a general election next year. More cash in people’s pockets after the cuts in national insurance take effect from January and April next year are positive and will also help reduce the cost of employment. But today the Chancellor did not deliver the same level of tax supports that we know many small businesses urgently need and want as they continue to grapple with high inflation. Confirmation that companies will be able to fully expense the cost of capital investment in new plant and machinery against profits permanently, and beyond the original end date of 31 March 2026, is a bold move and will provide the certainty needed for major investment plans, which in turn will bolster the economy and productivity. But this is only of real benefit to larger companies".  What’s needed is targeted incentives and supports for small and medium businesses. For example, Northern Ireland’s hospitality sector could have benefited from a reduction in the 20% VAT rate. Just a few miles down the road in Ireland, the rate is 13.5% and many other European countries have much lower rates than the UK. When coupled with high food prices, this makes it very difficult for Northern Ireland hospitality businesses to compete.   Paul Millar, Chairman of Chartered Accountants Ulster Society added:  “The relief available to SME companies which incentivises R&D activity was reduced by almost 34% from April this year. We urge the Chancellor not to further reduce relief this for genuine innovation activity as part of the plans announced today to merge the two current schemes. This is just another example of where the Chancellor could have taken the opportunity to set out a detailed roadmap for this relief which would have provided certainty to those investing in R&D.  In recent years Northern Ireland businesses have shown how adaptive and resilient they are. This was highlighted at the recent investment conference which showcased the brightest and the best we have to offer. But more needs to be done. The Government needs to recognise and reward this by establishing a pipeline of tax supports and incentives to enable businesses to truly grasp the entrepreneurial mindset which we know would help Northern Ireland crystallise all the opportunities that are there for the taking. Let us not forget that Northern Ireland also has legislation potentially within its grasp to reduce its corporation tax rate to match that in the Republic. Innovation, creativity, and a more entrepreneurial approach will benefit all here by driving economic growth, and job creation.  The time is ripe to help Northern Ireland level up. But this cannot begin until we have our politicians back in Government. Once again, we urge them to look at the bigger picture. We echo the recent sentiment that political decisions should not affect operational decisions. But this equally applies to the business of doing what is needed to help grow our economy, and ultimately benefit all of our citizens.” Other information:- The main tax announcements by the Chancellor today were as follows:- National insurance contributions for the self-employed will reduce by 1% from 6 April 2024; Employee national insurance contributions will reduce by 2% to 10% from 6 January 2024; The 100% deduction available to companies for investments in new plant and machinery is being made permanent and will not end on 31 March 2026; and The UK’s SME and large company R&D tax relief regimes are being merged into one scheme which will commence from 1 April 2024.

Against the backdrop of the Government meeting its own target to reduce inflation below 5 percent in the final three months of 2023, and a more optimistic economic outlook from the Office for Budget Responsibility, Chancellor Jeremy Hunt today delivered his second Autumn Statement. With one eye squarely on the General Election expected to take place in 2024, the main focus was on announcing some tax cuts via reductions in national insurance contributions (“NICs”) and confirmation that full expensing for companies, which provides 100 relief for new investments in plant and machinery, is being made permanent. Mr Hunt also further reformed the UK’s R&D tax relief regimes which will be merged into one scheme from 1 April 2024. But will taxpayers be fooled? Fiscal drag created in recent years by the freezing of numerous tax allowances and thresholds means that for many taxpayers, the cash benefit of any NIC reduction is likely to have already been outweighed by the additional tax that they are already paying because of frozen allowances/thresholds. However, a cut to income tax in the Spring 2024 Budget has not been ruled out. Read the Institute’s Press Release reacting to the Autumn Statement. The analysis herein is based on the publications of HMRC and HM Treasury. A more detailed analysis of the tax announcements will feature in Monday’s edition of Chartered Accountants Tax News.