Tax and trade changes - what to expect in 2024

As we look ahead to a year that will probably include two fiscal events and a General Election, we already know there’s a whole list of tax and trade policy changes businesses and individual taxpayers will need to implement, regardless of what the Chancellor announces next.   We’ve summarised the already known changes in this handy table and provided further commentary below:

Encouraging investment

As a result of full expensing for qualifying plant and machinery being made permanent at the Autumn Statement 2023, the UK has one of the most generous cost recovery regimes among large industrial nations. The merging of the two R&D regimes, the SME and the RDEC schemes, aims to modernise and simplify the relief system. For accounting periods beginning on or after 1 April 2024, all claimants under the new merged regime will receive relief via an above-the line, taxable credit. The ‘R&D intensity ratio’ for the additional relief for R&D intensive loss-making SMEs, will fall to 30% (previously 40%) and a grace period will be introduced to provide more certainty for companies who fall under the ratio threshold, allowing them to maintain their status for two consecutive periods. These extensive changes to the R&D tax relief rules will affect the vast majority of R&D claimants. There is also a new above the line tax credit system for film, TV and video game production companies, available from 1 January 2024, in the latest drive by the government to support British creative industries.

Freeports and investment zones form part of the government’s levelling up plan, designed to boost productivity and growth in the areas in which they are located. Both offer tax incentives within specified ‘tax sites’. The Freeports located in Scotland (Inverness and Cromarty Firth Green Freeport and Forth Green Freeport) and Wales (Celtic Freeport and Anglesey Freeport) are expected to become operational in 2024. So far, the government has confirmed details of seven of 13 new Investment Zones, and is aiming to confirm details of the remaining zones by summer 2024.

Following announcements in 2023, the government is reforming the UK’s tonnage tax regime to ensure that the UK shipping industry remains competitive in the global market, allowing qualifying shipping companies that had previously left the regime to re-elect into it until 30 November 2024, extending the regime to ship managers and increasing the limit on capital allowances for lessors of ships in the regime. These changes provide greater flexibility and should provide an additional incentive for lessors. Ship managers may find the regime attractive with a lower effective tax rate under tonnage tax compared to normal corporation tax.

A new business rates relief will be introduced from April 2024. Where certain “qualifying improvements” are made, improvement rate relief will be available, and the occupier will not see an increase to their rates for 12 months. The effect, however, may be somewhat dampened by the increased standard business rate multiplier - whilst the government has confirmed the continued freezing of the small business multiplier, the standard multiplier is set to increase based on September’s 2023 CPI rate of 6.7% with effect from 1 April 2024.

Increased compliance and transparency requirements

Pillar Two is being implemented in the UK, representing a huge change to the international tax system and the number one hot topic for large multinational groups with annual consolidated group revenue of at least €750 million.  Rules are now in effect for a minimum 15% tax in the UK and a number of other countries. The OECD Inclusive Framework will continue to release further guidance on the rules on an ongoing basis, so whilst we already know the rules are changing and have extensive legislation and guidance there will be further clarifications to come this year.

Reporting rules for digital platforms entered into force in the UK at the start 2024, triggering (perhaps appropriately) a significant online debate about whether selling unwanted Christmas presents results in a tax liability (it doesn’t). Equivalent rules have applied in the EU since the start of 2023 and therefore UK platforms with EU sellers should already be collecting the required information. UK platforms with UK sellers or facilitating rental of UK immoveable property will be required to report for the first time.

HMRC consulted on a number of areas in 2023, including on reforms related to transfer pricing, permanent establishment and diverted profits tax. The broad aim of the consultation was to simplify the rules where possible, and to align them with internationally agreed principles in the OECD Model Tax Treaty and the OECD Transfer Pricing Guidelines. The government has published a summary of responses to this consultation and will hold technical consultations on draft legislation which we expect to be published later this year.

UK businesses with significant presence in the EU will be preparing for their first EU public country-by-country reports this year. The Directive requires application, at the latest, from the start date of the first financial year beginning on or after 22 June 2024, however, some Member States already apply the rules, and some are yet to transpose them into domestic law. Businesses will need to track status in the member states relevant to them.

The new EU Corporate Sustainability Reporting Directive (CSRD) is not a tax Directive per se, but it could require reporting certain tax related information if tax is considered a material topic under the rules. UK businesses with securities traded on an EU regulated market, or UK businesses with EU revenue over €150 million in each of the last two years with either an EU subsidiary that is considered “large” or has its securities traded in the EU; or with an EU branch generating EU revenue over €40 million, could be in scope. While first reports are only due in 2025, those affected will be preparing their reporting systems this year.

Tax reductions and freezes

Following a sustained period of UK tax rises, 2024 starts with rate reductions in the Class 1 and Class 4 National Insurance Contributions (NIC) and the complete abolition of Class 2 NICs for the self-employed (the latter eliminates potential errors in tax returns and as such, is also a simplification). While presented as a tax cutting measure for workers, for many it will be outweighed by the effect of frozen personal allowances and income tax thresholds.

Small businesses will benefit from the business rates multiplier being frozen for a fourth consecutive year, and those in retail and hospitality – from extension of the 75% Retail, Hospitality and Leisure relief for 2024/25, both in effect from 1 April 2024 in England.

Tax simplification

In 2023, the government formally committed to provide an annual summary of its progress on tax simplification, with the first one issued last December.  It was relatively short.

For individuals, 2024 brings in a simpler lifetime allowance regime for pensions (although for those moving from the old regime there may be some transitional complexity). Small traders will mostly benefit from the move to cash basis, however, the new basis period reform, badged as simplification, may in many cases instead add complexity, particularly on transition to the new rules.

The IR35 ‘off payroll working rules’ underwent some turmoil in the last year, but the latest changes are positive, allowing a deemed employer to offset taxes already paid by an individual or by their personal service company against PAYE income tax and NIC liability – this should improve the fairness of the outcome in the event of a compliance enquiry and prevent double taxation.

For businesses, 2024 will be the last year of the Offshore Receipts in respect of Intangible Property rules – they will be repealed with effect for income arising from 31 December 2024, as a welcome measure given that the policy objective will be addressed by the Pillar Two rules.

Trade

This year the UK will continue re-negotiations of the existing free trade agreements (FTAs) with Switzerland, Canada, Mexico, Turkey and South Korea. Agreement in principle is expected in 2024 for two new FTAs - with India and the Gulf Cooperation Council. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the UK joined in 2023, is expected to enter into force this year, with implementation phased according to ratification by the other CPTPP member countries. Businesses in the UK will then be able to make use of the new market access and optionality that CPTPP provides.

Importers and exporters need to be aware of a number of upcoming customs changes - the Customs Handling of Import and Export Freight (CHIEF) system will be closed for exports from 30 March 2024, checks on medium risk animal products, plants, plant products and high-risk food (and feed) of non-animal origin from the EU will be implemented in April 2024 and safety and security declarations for EU imports will be implemented in October 2024.

Net zero

The EU Carbon Border Adjustment Mechanism (CBAM) came into effect on 1 October 2023. While the rules are in a transitional (reporting only) stage, they may have an impact on UK businesses operating in and importing into the EU. The first reports are due on 31 January 2024. The UK intends to implement its own CBAM by 2027, targeting imports of carbon intensive products such as iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement. There will be a consultation on its design and delivery in 2024.  

The UK government will be deploying further grants and incentives to implement decarbonisation of manufacturing, as well as its Carbon Capture, Utilisation and Storage (CCUS) and hydrogen strategy with eligible businesses applications due in 2024.

More broadly, as we approach the election, we expect to see discussions on environmental taxes and “green” incentives, but it remains uncertain what, if any, green measures will feature in parties’ manifestos.