Updated on: Feb 19, 2024
From the latest UK annual budget outlined in the Autumn Statement 2023, it is clear that the government is steering the economic ship towards a stable and growth-oriented trajectory post-pandemic and amidst global energy challenges. The overarching theme of this budget is fiscal prudence coupled with calculated measures to stimulate business investment and reduce national debt.
So, let’s see what impacts there are were for our limited company contractor, and sole trader clients.
National Insurance Contributions (NICs) Changes
The main rate of Class 4 self-employed NICs will be reduced from 9% to 8%, which represents a direct savings to the self-employed segment.
The Class 2 self-employed NICs, deemed outdated and complex, will be abolished. For us this is great news because this seemed like one stranger taxes for sole traders.
These cuts will collectively benefit around 2 million self-employed individuals, with an average self-employed person earning £28,200 slated to save £350 in the tax year 2024-25.
Tax Deductibility of Training Costs
The government has announced that HM Revenue and Customs (HMRC) will rewrite the guidance surrounding the tax deductibility of training costs for sole traders and the self-employed.
This initiative ensures that sole traders can deduct costs related to updating existing skills or keeping pace with technological advances and changes in industry practices, thus promoting continuous professional development as an allowable expense for tax purposes.
Simplifying Tax for Small Businesses
Building on reforms from the Spring Budget 2023, the government is expanding the ‘cash basis’ system. This change is designed to simplify the way in which over four million sole traders and partners calculate and pay their Income Tax, thereby easing the administrative burden and fostering conditions conducive to growth for small businesses. The changes are set to come into effect from April 6, 2024, for the tax year 2024-25. Here is a great summary of the cash-basis changes.
There were no updates or changes made to the existing corporation tax rate.
Full Expensing of Asset Purchases
The Chancellor announced the permanent implementation of “full expensing” for business investments. This policy, initially introduced as a temporary measure, enables companies to deduct the full cost of qualifying investments from their taxable profits in the year those investments are made.
You may see this mentioned in other Budget update articles but for all of our clients this announcement makes no difference because all the assets that they purchase qualify for 100% capital allowances anyway.
There were no sweeping changes or overhauls to the VAT system broadly announced in the Autumn Statement that would directly affect the everyday VAT obligations of our sole trader and limited company contractor clients. As VAT rates are often subject to specific rules and scenarios, our clients should remain attentive to niche changes that might impact their particular industries or product offerings. The only niche change here was that VAT zero-rate relief is to include period underwear starting from January 2024 which signifies a broader government effort to alleviate everyday costs for people.
Capital Gains Tax
There were no specific changes to Capital Gains Tax that were highlighted in the Autumn Statement 2023 that would directly affect our sole trader and limited company contractor clients.
The Autumn Statement 2023 introduced financial measures that primarily focused on long-term economic stability and growth, with specific tax adjustments that were relatively targeted and modest in scope for our sole trader and limited company contractor clients. Outside of the notable National Insurance updates—such as the decrease in the main rate of Class 4 NICs from 9% to 8% and the abolition of Class 2 NICs—the notable tax changes for our client base were limited. While the government has enacted promising initiatives to promote business investment, via the permanent adoption of the full expensing measure, there were no sweeping changes to VAT or Capital Gains Tax directly addressed in the statement. As always, we’ll keep an eye out for any further updates that come through that directly impact our clients but for the time being this Autumn update is essentially business as usual.