Autumn Statement 2023 – Tax cut, complexity and uncertainty

It’s a tax cut, Jim, but not as we know it

Having been told by successive Chancellors for as long as one can care to remember that ‘national insurance is not a tax’, it feels so wrong to claim that there has been a tax cut today – that said, to the ‘man on the Clapham Omnibus’ it is and will always be a tax!

But enough splitting hairs, let’s take it for what it is – with effect from 6 January 2024 the main rate of Class 1 national insurance (primary contributions) will be reduced from 12% to 10%, which is a welcome announcement either way.

There is no change to the rate of secondary contributions payable by employers though, and these will remain at 13.8%.

But what about owner managers?

These days it is common for ‘owner managers’ (i.e. shareholders of private companies who work in the business) to pay themselves a nominal salary and to extract profits from the company by way of a dividend.

In many cases, this is done by the use of different classes of share (AKA ‘alphabet shares’) and although one has always felt that these could be attacked, and HMRC manuals set out how this could be done, they never really have been.

That said, the benefit of these arrangements was somewhat limited by the increase in the dividend rates back in 2016 and the health and social care levy ‘hokey-cokey’ debacle last year which, in short, simply increased the dividend tax rates by another 1.25%.

So what, I hear you say – what does this have to do with what the Chancellor said? Well, that’s the point – this is one of those things hidden away in an inconspicuously named document “Changes to HMRC data collection”.

The key things brought out by this document is the intention to require employers to provide details of hours worked by their employees under their RTI returns (maybe as a check on national minimum wage compliance?) and, somewhat more concerning, for shareholders in owner managed businesses to provide additional information in their self-assessment tax return – the amount of dividend they receive from their own companies; to separately disclose this from other dividend income they receive; and to state their percentage shareholding in the company.

It was confirmed that this will not apply before 6 April 2025, but that just leaves more time for speculation as to what this will really be used for. Even with the convergence of the effective tax rates on employment income and dividend income, there can still be a tax saving to be had, and so is that the motive behind this change?

One may think that there is more benefit in considering how those shares were acquired and for what value; or potentially challenging these from a company law perspective (where the documentation does not support the reality). Who knows… only time will tell.

Pensions – the complexities of simplification

The Spring Budget 2023 brought about a sweeping change to the pension landscape with a simple promise that “no one will be liable to a new lifetime allowance charge from 6 April 2023”.

As good as this was, the consequences need to be dealt with and further legislation will be introduced with effect from 6 April 2024 to deal with things such as how lump sums will be taxed and the implications on other benefit crystallisation events. This is no easy task given the current potential for charges under these provisions and the seven levels of protection that taxpayers could have claimed in the 20 years since A-Day.

Clearly, this legislation will need a careful review once introduced and, although it should go without saying, advice should be sought from a suitably qualified financial advisor before any action is taken, and this needs to be timely given the potential for an election to retain certain limits relating to the pension pot prior to 5 April 2025.

In a passing comment, the Chancellor also announced a proposal for a ‘pension pot for life’ – this being the ability for an employee to have a single pension pot which they can require their employer (at that time) to contribute to. As good as this sounds, the practical implications of this upon employers are potentially enormous, so we will have to see what comes of this (if anything).

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