On March 6, 2024, the UK Chancellor of the Exchequer, Mr. Jeremy Hunt, presented the Spring Statement before the UK Parliament and announced that the UK economy grew at 0.8% during the year 2023-24 and is expected to grow at 1.9% in the following year. The inflation rate is expected to fall to the target rate of 2% in Q2 of 2024 that is, a year earlier than expected.
For individuals and employers
National Insurance Contributions (NICs):
The Autumn statement reduced the Employee’s Class 1 National Insurance Contributions (NICs): main rate from 12% to 10%. From January 6, 2024. The Spring Budget further reduces it from 10% to 8%. No reduction is proposed in the employer’s NI contribution. The Chancellor announced that this brings average personal taxes to the lowest level since 1975.
Self-employed individuals are required to pay Class 2 and Class 4 NIC. The Spring Statement announces a cut in Class 4 NIC rates for self-employed from 8% to 6% effective from April 6, 2024. There is also a proposal to abolish the tax rules for non-UK domiciled individuals, (known as “non-doms”) which will be replaced with a residence-based regime from April 6, 2025. Under the new regime, individuals will not pay tax on their foreign income for the first 4 years of their residence in the UK provided they have been non-tax residents for the earlier 10 years. However, once they are tax-resident in the UK for more than 4 years, they will pay UK tax on their foreign income and gains, similar to other UK residents. A transitional arrangement for the existing non-doms is also being proposed.
In the UK, there is a child benefit provided to support families for the cost associated with having children. The High-Income Child Benefit Charge (HICBC) is payable if one of the parents has an income above GBP 50,000. It is also proposed that HICBC will be administered on a household rather than an individual basis by April 2026 and the threshold for its applicability will be increased from GBP 50,000 to GBP 60,000 from April 2024. Therefore, HICBC will apply a 1% of the full Child Benefit award for each GBP 200 of adjusted net income between GBP 60,000 and GBP 80,000, halving the rate at which HICBC is charged. The charge on taxpayers with income above GBP 80,000 will be equal to the full amount of Child Benefit paid.
The higher rate of capital gains tax for residential property disposals will be cut from 28% to 24% from April 2024. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band.
For businesses and others
To support small and medium enterprises, there is a proposal to increase the VAT registration threshold from GBP 85,000 to GBP 90,000 from April 1, 2024. In addition, the deregistration threshold will increase from GBP 83,000 to GBP 88,000.
The Energy Profits Levy was introduced in 2022 whereby the oil and gas producers in the UK were required to pay tax on their extraordinary profits. Gas prices are forecast to remain abnormally high until at least 2028-29. Therefore, a proposed extension to extend the Energy Profits Levy by an additional year to 2028-29 is being discussed.
In summary, employers in the UK should take note of revisions in NIC rates and adjust their payroll procedure accordingly. Businesses proposing to start operations in the UK should take note of the revised VAT registration thresholds. Individuals relocating to the UK should evaluate the impact of the new residence-based regime which is being introduced in place of tax rules for non-UK domiciled individuals.