Today’s Autumn Statement was aimed at tackling the cost of living crisis and rebuilding the economy, in the context of an acknowledgment by the Chancellor that the UK is in recession.
Clearly, the tax policies announced stand in stark contrast to September’s tax cutting mini budget – the majority of which (as explained below) has now been abandoned. Although the Chancellor reiterated that he was behind his predecessor’s commitment to growth, this was only one among three key pillars of equal importance: growth, stability and innovation.
The tax policies announced today appear largely aimed at the ‘stability’ pillar, and, in line with this sentiment of a return to certainty, there were no large surprises in today’s statements.
We set out the key announcements below.
The events of the past few weeks explained
Given the pace of change in tax policy in the past few weeks, it’s worth pausing at this point to consider the position immediately prior to today’s announcements, and how we got here.
- 23 September 2022, mini budget and Growth Plan 2022
The previous Chancellor, Kwasi Kwarteng, presented his mini budget to Parliament on 23 September 2022, shortly after the new Prime Minister, Liz Truss, took office. On that date he also launched the “Growth Plan 2022”. His proposals included a broad range of tax cuts and policy changes, most notably:
- the abandonment of the planned increase in the main rate of corporation tax to 25% from 6 April 2023;
the abolition of the additional rate (45%) of income tax;
a decrease in the basic rate of income tax (from 20% to 19%);
a reversal of the 2017 and 2021 changes to the off-payroll working rules;
a reversal of the 1.25% increase in NICs (by virtue of the Health and Social Care Levy) with effect from 6 November this year, and a plan to reverse the 1.25% increase in the dividend rate from 6 April next year.
Financial markets reacted negatively to the mini budget; sterling fell and yields from government bonds rose.
3 October 2022, the plan to scrap the additional rate of income tax was abandoned
14 October 2022, Jeremy Hunt replaced Kwasi Kwarteng as Chancellor
On the same day it was announced that the corporation tax main rate would rise to 25% in April 2023, rather than remaining at 19% as had been proposed in the mini budget
Growth Plan 2022 is further dismantled by the new Chancellor’s 17 October 2022 statement
The new Chancellor abandoned many more of his predecessor’s plans, including:
- confirming that the basic rate of income tax will remain at 20% indefinitely;
abandoning any amendments to the off-payroll working regime;
abandoning any cuts to the dividend tax rates.
As a result, the only surviving policies from the Growth Plan 2022 were as follows:
the changes to residential SDLT rate bands;
the removal of the Health and Social Care Levy and the 1.25% increase in NICs;
the permanent increase of the Annual Investment Allowance to £1 million, and amendments to make the SEIS and CSOP regimes more generous.
Liz Truss resigned on 20 October 2022 and Rishi Sunak was appointed as Prime Minister on Tuesday 25 October 2022. In a bid to restore stability, Rishi Sunak and Jeremy Hunt announced that the next fiscal event would be a full Autumn Statement on 17 November 2022.
What follows is an overview of the principal proposals announced today.
Income tax and NIC thresholds
As anticipated, steps were taken to freeze income tax and national insurance contribution thresholds. It was announced that the income tax personal allowance and higher rate threshold and the NIC upper earnings limit and upper profits limited will be fixed at their current level until April 2028, as will the NICs primary threshold and lower profits limit and the Class 2 lower profits threshold.
However the income tax additional rate threshold will be reduced from £150,000 to £125,140 from 6 April 2023.
The inheritance tax nil rate band will remain fixed at its current level until April 2028. The nil rate band will continue at £325,000, the residence nil rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
The dividend allowance will reduce from £2,000 to £1,000 from April 2023 and to £500 from April 2024.
Capital Gains Tax – Annual Exempt Amount
There had been some speculation around possible increases to capital gains tax rates ahead of today, however current rates have been maintained.
The capital gains tax annual exempt amount will reduce from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
A new rule has been introduced with immediate effect today, relating to share exchanges involving non-UK incorporated close companies. The rule relates to the situation in which an individual with a degree of control in a UK close company exchanges their securities for securities in a new non-UK holding company which is also close. For a non-domiciled taxpayer, the previous rules had meant that the remittance basis could be claimed on any chargeable gain on the disposal of the non-UK securities or on any income received in respect of them. The new rule deems the consideration shares to be located in the UK for the purposes of the CGT rules, so that CGT will be due on an arising basis as regards any gain on a subsequent disposal of the shares in the non-UK holding company. Income tax will also be due on an arising basis as regards any income from such securities.
Real Estate Taxation
Stamp Duty Land Tax (“SDLT”)
On 23 September 2022, the government increased the nil rate threshold of SDLT from £125,000 to £250,000 for purchasers of residential property and increased the nil-rate threshold for first-time buyers from £300,000 to £425,000. The maximum purchase price for which first-time buyers’ relief can be claimed was increased from £500,000 to £625,000. It was announced today that this will be a temporary reduction, remaining in place until 31 March 2025.
The annual chargeable amounts for ATED will be uplifted by the September API figure of 10.1% for the 2023-24 ATED charging period.
The level at which employers will start to pay Class 1 Secondary NICs for their employees will be fixed at £9,100 until April 2028.
Bank Corporation Tax Surcharge
From April 2023, banks will pay an additional 3% on their profits above £100 million.
Rate of Diverted Profits Tax
It was confirmed that, from April 2023, the rate of diverted profits tax will increase from 25% to 31% (to maintain the 6% differential as compared with the main rate of corporation tax).
VAT registration thresholds
It was announced that the VAT registration and deregistration thresholds will not change for a two year period from 1 April 2024.
OECD Pillar Two
In a significant update on timing, in circumstances where there had seemed to be a real possibility of implementation delay, it was confirmed today that the UK will, for accounting periods beginning on or after 31 December 2023, introduce an income inclusion rule which will require large UK headquartered multinational groups to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%. At the same time it will introduce a supplementary ‘qualified domestic minimum top-up’ rule which will require large groups, including those operating solely in the UK, to pay a top-up tax where their UK operations have an effective rate of less than 15%. In both cases there will be a substance based income exclusion, in accordance with the G20 / OECD agreement.
The government said today that it also intends to implement the backstop provision, the ‘undertaxed profits rule’ but that this rule will take effect later, for accounting periods beginning on or after 31 December 2024 at the earliest.
Tariffs will be removed on over 100 goods for 2 years, in a move aimed at reducing costs for UK producers.
Transfer Pricing Documentation
From April 2023, large multinationals operating in the UK will be required to prepare and retain transfer pricing documentation in a prescribed and standardised format, as set out in the OECD’s transfer princing guidelines.
Online Sales Tax
It was announced today that there has been a decision not to introduce an online sales tax, given the complexity that would involve and the risk of distortion and unfair outcomes.
The measures for energy companies will be covered in greater detail in a separate Law-Now on this topic. What follows is a brief overview.
Energy Profits Levy
From 1 January 2023, the rate will rise to 35%. The investment allowance will be reduced to 29% for all investment expenditure (other than decarbonisation expenditure, which will continue to qualify for the current investment allowance rate of 80%). The Levy will end on 31 March 2028.
The Electricity Generator Levy is being introduced as a temporary 45% tax that will be levied on ‘extraordinary returns’ (as defined) arising from 1 January 2023 from low-carbon UK electricity generation. ‘Extraordinary returns’ will be defined as the aggregate revenue that generators make in a period from in-scope generation at an average output price above £75/MWh. The tax will be limited to generators whose in-scope generation output exceeds 100GWh across a period and will apply to profits over £10 million.
Other tax announcements
From 1 April 2023, business rates tax bills will be updated to reflect changes in property values since the last revaluation in 2017. An overall package of measures to support businesses in this transition was announced today.
Research and development tax reliefs
There has been significant press speculation about the future of R&D tax reliefs, given reports on widespread fraud within the system. Today, the government announced it would ‘rebalance the generosity’ of the reliefs, rather than immediately implement any wholesale change to the regime.
Today’s announcements were that, for expenditure from 1 April 2023:
the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%;
the additional deduction for SMEs will decrease from 130% to 86%;
the SME credit rate will decrease from 14.5% to 10%.
The government’s commitment to ensuring the reliefs are designed to be efficient, sustainable and reduce fraud and error was reconfirmed today. Industry will be consulted on a move to a single “RDEC-like” scheme for all businesses, with the government in particular keen to understand whether further support would be necessary for R&D intensive SMEs.
Previously announced changes (the expansion of qualifying expenditure to include data and cloud costs, a refocusing of support towards innovation in the UK, and measures to target abuse and improving compliance) will be legislated for in the Spring Finance Bill 2023.
A focus on investigations and compliance
Given commitments not to increase headline tax rates, the government is looking to other methods of increasing tax revenue. One such method is boosting HMRC’s funding, so that it can allocate more resource to serious fraud cases and wealthy taxpayer compliance. To demonstrate their commitment to tax compliance enforcement, the government will invest £79 million for this purpose over the next five years and this is forecast to result in £725 million of additional tax revenues over the same period.
Measures to tackle tax avoidance, evasion and wider non-compliance
Alongside specific increases in funding, the government has also announced a broader commitment to “measures to tackle tax avoidance, evasion and wider non-compliance”.
Consultation on Reforming Audio-Visual Creative Reliefs
It was announced today that the government will consult on a series of proposals to incentivise ‘the production of culturally British content’ and support the growth of the audio-visual sectors.
Company Car Tax Rates
The government is setting rates for company car tax until April 2028 and the rates incentivise the take up of electric vehicles.
First Year Allowance for Electric Vehicle Chargepoints
The 100% first year allowance for electric vehicle chargepoints will be extended to 31 March 2025 for corporation tax purposes and to 5 April 2025 for income tax purposes.