On 17 November 2022, the Chancellor presented the Autumn Statement. We have summarised a number of the main tax changes below and comment on the Scottish perspective.
1. Income Tax, National Insurance Contribution (NICs) and Inheritance Tax (IHT) Thresholds
The additional rate threshold (ART) above which taxpayers pay income tax at the rate of 45% is to be reduced from £150,000 to £125,140, with effect from 6 April 2023.
The ART for savings and dividend income applies UK-wide. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland.
Scottish taxpayers will continue to pay 46% on taxable income subject to Scottish rates and bands, including earnings, pensions and property income (i.e. non-savings and non-dividend income) over a threshold of £150,000. There is already speculation that a similar amendment to reduce this threshold will be announced in the Scottish budget (15 December 2022).
In the Mini-Budget in September, it was announced that the basic rate of income tax would reduce from 20% to 19%. However, it was confirmed in the Autumn Statement that the basic rate of tax will remain 20%. This generally affects non-Scottish taxpayers only.
The Chancellor also announced that the personal allowance (PA) threshold across the UK will be frozen at £12,570 until April 2028. Furthermore, NIC thresholds will also remain frozen until April 2028. As the PA threshold and NICs are reserved matters, these changes will apply equally to all taxpayers in the UK.
Plans to freeze the IHT thresholds for an additional two years until April 2028 were also announced. The current threshold for the residence nil rate band stands at £175,000 whilst the basic IHT threshold is £325,000. These thresholds were already frozen until April 2026 but will now continue to be frozen until April 2028. This will likely result in more estates becoming liable to IHT due to rising house prices and inflation.
On 17 October 2022, the Chancellor reversed dividend tax cuts announced in the Mini-Budget. Dividend rates therefore remain: 8.75% for basic rate taxpayers; 33.75% for higher rate taxpayers; and 39.35% for additional rate taxpayers. No changes were announced to these rates in the Autumn Statement.
The annual allowance for dividends will reduce from £2,000 to £1,000 from April 2023, and then to £500 from April 2024.
As dividend taxes are a reserved matter, these changes will impact taxpayers across the UK equally.
3. Capital Gains Tax (CGT)
The CGT annual allowance for all UK taxpayers is to be reduced from £12,300 to £6,000 from April 2023, and then to £3,000 from April 2024. No changes were made to the CGT tax rates.
A new anti-avoidance rule will be introduced in the Finance Bill 2023 so that holdings of material interests (more than 5%) in shares and securities in non-UK companies which were acquired on or after 17 November 2022 via an exchange for shares in a UK close company will be deemed to be located in the UK. This rule will prevent non-UK-domiciled individuals from claiming the remittance basis to avoid UK tax on such gains and distributions received in respect of the non-UK shares.
4. Corporation Tax
The proposed increase in the main corporation tax rate from 19% to 25% from April 2023 for companies with profits exceeding £250,000 has been confirmed by the Chancellor. This applies equally in Scotland.
5. Diverted Profits Tax (DPT)
The current DPT rate is 25% and is applied on the amount of taxable diverted profits. From April 2023, the rate of DPT will increase from 25% to 31% in order to retain a six percentage points differential above the main rate of corporation tax. The change in the DPT rate highlights the UK government's intention to ensure that DPT remains an effective deterrent against aggressive tax planning techniques to divert profits from the UK, thereby reducing the UK corporation tax liability.
6. Stamp Duty Land Tax (SDLT)
SDLT only applies to land transactions in England and Northern Ireland. The cuts to SDLT introduced from 23 September 2022, which increased the residential nil rate band from £125,000 to £250,000 and first-time buyers' relief to £425,000, will be abolished on 31 March 2025.
7. Research and Development (R&D) Tax Reliefs
R&D reliefs support companies in the UK that work on innovative projects in the science and technology sectors.
Reforms were announced to R&D reliefs claimed under both the SME and R&D Expenditure Credit (RDEC) schemes for R&D expenditure incurred on or after 1 April 2023. The RDEC rate will increase from 13% to 20%. However, cuts were made to reliefs under the SME scheme: the additional deduction will decrease from 130% to 86%; and the SME credit rate will decrease from 14.5% to 10%.
Whilst the increase in RDEC will be welcomed by larger companies in the science and technology sector, the cuts to the SME regime will be disappointing to many small and medium-sized companies claiming credits under the SME regime.
The UK government is also consulting more widely on additional reforms to R&D reliefs that will be announced at a later date.
R&D reliefs apply equally in Scotland.
8. Off-payroll working rules (IR35 reforms)
The tax treatment of workers engaged via intermediaries (such as personal services companies (PSCs)) in the public sector was reformed in 2017 to pass the obligation of assessing whether the off-payroll working rules applied, and operating PAYE on the deemed employment income, from the PSC to the end client. These reforms were extended to the private sector from 2021 (with certain exemptions for "small" entities). These reforms were aimed at preventing tax avoidance.
It was announced in the Mini-Budget that the above reforms would be reversed from 6 April 2023. However, it has been confirmed in the Autumn Statement that these reversals will no longer go ahead, and the above reforms will remain.
This applies equally in Scotland.
9. The Energy Profits and Electricity Generator Levy
The Energy Profits Levy (otherwise known as the Windfall Tax) will be increased to 35% from 1 January 2023 and extended to the end of March 2028.
A temporary 45% Electricity Generator Levy will be levied on extraordinary returns from low-carbon UK electricity generation arising from 1 January 2023 and exceeding £10 million.
This applies equally in Scotland.
The VAT registration threshold of £85,000 turnover and deregistration threshold of £83,000 turnover for UK businesses will be frozen until 1 April 2026.
As the cost of goods and services increases in the UK, this will likely result in a greater number of businesses needing to register for VAT. Failing to register for VAT can result in the business (and potentially individuals running businesses) facing penalties from HMRC.
In addition to this, the VAT-free shopping scheme for visitors to Great Britain (which was announced in the Mini-Budget) has been cancelled.
11. National Living Wage (NLW)
The NLW will increase for individuals aged 23 and over to £10.42 an hour from 1 April 2023. Lower rates apply to people aged below 23, and those classified as apprentices. The NLW applies equally across the UK.
12. Annual Tax on Enveloped Dwellings (ATED)
ATED is an annual charge levied where certain UK residential properties (worth £500,000 or more) are owned by corporates.
The annual chargeable amounts for the ATED will be uplifted by 10.1% (in line with the September CPI) for the 2023-24 ATED charging period.
13. Vehicle Excise Duty (VED) on Electric Vehicles (EVs)
VED is a tax levied on vehicles using UK roads and the rate of VED depends on the vehicle.
At present, EVs are exempt from VED. However, from April 2025, EVs will pay VED in the same way as petrol and diesel vehicles. EVs registered on or after 1 April 2025 will pay the lowest rate of £10 in the first year, before moving to the standard rate which is currently £165. The standard rate will also apply to all EVs registered after April 2017.
In addition to the introduction of VED, the Expensive Car Supplement exemption for EVs will also end in 2025. The Expensive Car Supplement which is currently £335 applies to cars with a list price exceeding £40,000 and is paid in each year from the second to sixth year of registration (a period of five years). New EVs registered on or after 1 April 2025 will therefore also be potentially liable for the Expensive Car Supplement.
14. Online Sales Tax (OST)
Following consultation, the UK government has decided not to introduce an OST. This was an idea put forward in the context of business rates reform. The decision had been taken because of concerns raised about an OST's complexity and the risk of unintended distortion between different business models. A number of businesses will be relieved that this decision has been made.