Craig Simpson, Tax Partner at Bates Weston, considers the announcement that full expensing will be permanent, made in the Chancellor’s Autumn statement. He is concerned with the definition of “permanent”.
I listened with interest as the Chancellor of the Exchequer delivered his Autumn Statement. There seemed to be a bit of something for everyone. As ever though the detail emerges as the dust settles…..
The main headline has to be the 2% reduction to the main rate of National Insurance from 12% to 10% for employed individuals. A rather confusing system of Income Tax and National Insurance rates means many will not have a full appreciation of the marginal rates of tax on earned income. Combined Income Tax and National Insurance rates are currently 32% if tax is paid at basic rate, 42% at higher rates and 47% as the additional rate for very high earners. So the leap between basic and higher rate tax is never quite as high as most will envisage (20% to 40% if income tax rates are viewed in isolation. I am not quite sure why they persist with Income Tax and National Insurance and don’t just call it all Income Tax.
Knocking 2% off the main rate of employees National Insurance is estimated to cost the exchequer £8.7bn. But the Chancellor has seen National Insurance revenues increase by £34bn in the last three tax years. Overall National Insurance revenues are £177bn according to the latest government statistics.
Strong tax revenues are enabling some give-a-ways and this change will be welcome for employees. The self employed also get in on the act too with class 2 being abolished altogether and class 4 being reduced to by 1% to 8% from April 2024.
So, turning to the headline of this blog, when is permanent not permanent? The Corporation Tax announcement bothered me. The “full expensing” relief was due to expire in 2026. This relief allow companies investing in plant and machinery to write this off against their Corporation Tax profits. i.e. spend £1m and get £250,000 of tax relief (provided you have £1m of profits in the first place of course). This has now been made permanent. I was left wondering if this would not be cast in a tablet of stone at the treasury, never to be withdrawn or tweaked. Whilst tax reliefs are very valuable and I am a big believer in the tax system being used to influence behaviour, we mustn’t forget that seven months ago the main rate of Corporation Tax went up from 19% to 25%. A huge increase by all accounts.
Also a tax change can never be said to be permanent. The current government cannot bind a future government and so it seems the Chancellor is making promises for a period when he may not be in power. So it is not permanent within the normal meaning of the word as it can be changed. Overall I am happy that it’s a positive for businesses.
And no change to Inheritance Tax. Watch this space for the pre-election Budget 2024.
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