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This year the Autumn statement was a bit of a mixed bag for business and individuals. National insurance giveaways and minimum wage rises dominated the news but, looking at the bigger picture, is it a win or a loss for business?
There is a lot to unpack in the Chancellor’s autumn statement and, most importantly, it needs to be unpacked in relation to the current and potential future economic landscape.
Before we go any further though, just a quick reminder that we can’t cover everything in an article this size and these are first thoughts and speculative assessment. Things change and your circumstances are the most important factor, as always you should take professional advice on financial matters.
The bottom line that cannot be ignored is that the underlying economic trend is not looking rosy. We saw what can only be described as a stagnant economy in the third quarter of 2023 and the final quarter is not looking particularly strong. That said, at least some growth is expected this year. Worryingly for UK business though is that the Office of Budget Responsibility has slashed its expectations of growth for 2024 to 0.7% from the previous 1.8%. So, to some extent, there is something to celebrate in that the economy this year proved more resilient than expected and avoided falling into recession, but the rise in interest rates and continued inflation are still having a dragline effect on growth.
The headline news from the Chancellors statement was undoubtedly the change to national insurance. While this is good news for workers, it really isn’t an earth shaking event for businesses. The cut to NI will certainly be very welcome for families struggling with rising inflation and scrapping Class 2 NI is a boost for the self employed, but there has been no change for the employer contribution which remains at 13.8%. However, there is a hidden cost here potentially because any change to payroll obligations also means an administrative change that will carry a financial burden, albeit a relatively small one. Overall, National Insurance is good for the worker but doesn’t really do much for businesses.
Another big announcement was the increase in living wage. This will increase by 9.7% next year. Again, good news for the lowest paid in the workplace but potentially very bad news for employers. In industries where living wage level pay is common, this is a very real increase of almost 10% on the monthly wages. For the already beleaguered hospitality, logistics, and manufacturing sectors, that is unlikely to be a welcome change. We have also seen that this increase often leads to pay increases for other staff as well in order to keep all employees on board. The cost of salaries will certainly be passed on to consumer and business customers and with a slow growth economy expected, well, it’s not encouraging news.
Full expensing of qualifying plant machinery being deductible from taxable profits is promising. However, many businesses were already benefiting from annual investment allowance, so how much this actually impacts their bottom line may be questionable. There were other changes to R&D Relief and specific AV creative industries tax reliefs that could well prove beneficial. Finally, if you are a small SME you are only likely to replace equipment on a ‘it’s broken and so I need a new one’ basis rather than invest in new equipment.
From an Insolvency Practitioner's point of view, one of the most interesting aspects of the Chancellors statement is that there were no changes to Business Asset Disposal Relief. That means if you are thinking of closing your solvent business via a members’ voluntary liquidation (MVL) so you can retire or move on, now may well be the time to consider your options. Business Asset Disposal Relief (what everyone used to call the Entrepreneurs relief) seems to have been living a charmed life for the last few years but, the question is how long will it continue to do so? If you are thinking of an MVL, it would be worth talking to us. Closing a company to retire and distributing the assets can take some time, so while Business Asset Disposal Relief is safe for the moment, that could change and if it does, it could affect your final payout.
As far as dividend and capital gains tax goes, the tax-free allowances for both will be cut in the next two years. The dividend tax-free allowance will be reduced from £2,000 to £1,000 next year and then to £500 the year after. The capital gains tax annual exempt amount has already been cut from £12,300 to £6,000 and will be reduced again next year to £3,000.
If you are seriously considering closing your business voluntarily, we will need to explore the ins and outs of capital gains tax and asset relief amongst other considerations. The best option is to arrange a free initial consultation.
The last big change was to income tax where there are several adjustments, including the reduction of the threshold for the 45p additional rate of tax from £150,000 to £125,140, and the freezing of income tax personal allowance and higher rate thresholds until April 2028.
So, what does it all mean for next year? Well, while there are some areas of relief that will be very welcome, and the lower NI and higher living wage will certainly help some, the overall picture still isn’t very positive for employers and business in general. The spectre of a struggling economy, the increase in the cost of wages, the continued rise in the price of utilities, and still rising inflation (albeit at a slower rate), are not an inspiring financial landscape. Some thinktanks and many pundits in the media are already predicting that families will be facing a £1,900+ annual actual increase in the cost of living. For the businesses that are already struggling in an adverse economic climate, that cost of living rise will most likely lead to a need for higher wages across the board. Coupled with a continuation of higher interest rates, the labour market woes, and the low growth prediction, it is very likely that 2024 is going to be tough for many businesses.
Our advice is to budget carefully, be realistic about where you stand, take control of your cash flow, forecast accurately, and above all else, if things are not looking good for your business, take action and contact us so we can find the right solution.
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