UK Autumn Statement 2022 - Just don't say tax rise

However stable and dull it may have appeared, with all the big tax rises carefully leaked in advance, it still contained tax increases of £25bn over five years. Jeremy Hunt only used the words “tax rise” twice in his whole speech, which is quite impressive given the scale and quantity of the rises announced.

Innovation

Dividends and Capital Gains Tax

The government announced that it will be reducing the Dividend Allowance (£2,000) and CGT Annual Exempt Amount (£12,300) in stages over the next two years. The Dividend Allowance will go down to £1,000 from April 2023 and then to £500 from April 2024, while the Annual Exempt Amount will reduce to £6,000 from April 2023 and to £3,000 from April 2024.
As a new anti-avoidance measure, shares and securities issued by non-UK companies in exchange for securities in a UK close company will be deemed to be located in the UK where the selling shareholder is an individual who had a material interest (more than 5%) in the UK company and gains a material interest in the non-UK company following the exchange. The measure will take effect immediately. This will only affect UK resident non-domiciled shareholders, who will now be taxed the same as UK domiciled shareholders. 

R&D

Although described as a step towards a simplified, single R&D tax relief scheme, the government has reduced the benefits available under the R&D schemes (saving £1bn over five years). For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%. In contrast, the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. The government will consult on the design of a single scheme.

Creative Reliefs

The government has announced a consultation to review the audio-visual tax reliefs, with proposals to simplify the film and TV reliefs by merging them into one tax credit scheme. The consultation will also consider bringing video games tax relief into the scope of a single scheme. The consultation runs to 9 February 2023 with the expectation that the reforms will be implemented in Spring 2024.

Business Tax

Fixing thresholds is a key tool used to raise tax revenues without raising headline rates. For example, the VAT registration and deregistration thresholds will remain at £85,000 until April 2026. And the level at which employers will have to pay national insurance contributions for their employees will remain at £9,100 until April 2028. This is expected to raise £5bn over the period.

As previously announced, the rate of corporation tax will increase to 25% on 1 April 2023. When Jeremy Hunt announced this when he took over as Chancellor, there was some confusion as to some of the consequential tax changes which may be required. The government has now confirmed that:

• The changes to the bank corporation tax surcharge which were legislated to take effect on 1 April 2023 will go ahead. This means that banks will pay an additional 3% on their profits over £100m.
• The rate of diverted profits tax will also increase by 6% to 31% to retain its status as a punitive tax and to discourage businesses from artificially diverting profits from the UK.
• The changes announced to the super deduction in the Mini Budget are no longer required, and therefore this will be available to encourage investment in capital assets.

Following the theme of stability, the government confirmed it would legislate to implement the OECD’s Pillar Two Framework in the UK for accounting periods beginning on or after 31 December 2023. This has already been consulted on and is in line with the UK’s globally agreed commitments, but announcing it today seemed to be another signal to the rest of the world that normal service had resumed.

Along similar lines, changes to transfer pricing documentation requirements were also announced. From April 2023, large multinational businesses operating in the UK will be required to maintain transfer pricing documentation in a prescribed format consistent with the OECD’s guidelines. This should reduce duplication for businesses, and should enable tax authorities to conduct investigations more efficiently.

Energy

Windfall taxes

The Energy Profits Levy, which seeks to tax windfall profits generated by oil and gas companies, will be raised from 25% to 35% with effect from 1 January 2023 and extended until the end of March 2028. The levy is in addition to the permanent 40% tax rate paid by such companies, meaning that the combined headline tax rate will now be 75%. The investment allowance that was introduced alongside the levy will be reduced to 29%, with the effect that its existing cash value will be maintained given the rate increase. Upstream investment in carbon emissions reducing technology will continue to qualify for the current investment allowance rate of 80%.

The government will also now be looking to low carbon electricity generators, who it says are benefitting from the overall rise in energy prices but whose marginal costs have not been inflated in the same way, to pay their fair share. This will not be by the introduction of a revenue cap, as had been anticipated, but by imposing a new temporary Electricity Generator Levy of 45% from 1 January 2023. The levy will (i) be charged on extraordinary revenues above a pre-crisis price baseline of £75/MWh, (ii) be limited to generators whose in-scope generation output exceeds 100GWh across a qualifying period and (iii) only apply to extraordinary returns exceeding £10m. The Electricity Generator Levy will be legislated to end by 31 March 2028.

Electric Vehicles

From April 2025, drivers of electric cars, vans and motorcycles will be required to pay Vehicle Excise Duty alongside drivers of petrol and diesel vehicles. To incentivise investment in charging infrastructure, the government also plans to extend the 100% First Year Allowance for electric vehicle chargepoints to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

Real Estate

SDLT

In the Mini Budget, the government increased the threshold at which Stamp Duty Land Tax (SDLT) must be paid on the purchase of residential properties in England and Northern Ireland from £125,000 to £250,000, together with increasing the threshold at which first-time buyers begin paying SDLT from £300,000 to £425,000, with the maximum value of a property on which first-time buyers’ relief can be claimed increasing from £500,000 to £625,000. It has now been announced that this measure will be temporary and will end on 31 March 2025.

ATED

The annual chargeable amounts, payable mainly by companies that own UK residential property valued at more than £500,000, for the Annual Tax on Enveloped Dwellings (ATED) will be uplifted by the September CPI figure of 10.1% for the 2023-24 ATED charging period. This is a routine change as set out in existing legislation.

Business Rates

With business rate bills in England due to be updated from 1 April 2023 to reflect changes in property values since the last revaluation in 2017, a number of business rates measures were announced to support businesses as they transition, which include: (1) the business rates multipliers will be frozen in 2023-24 at 49.9 pence and 51.2 pence, preventing them from increasing to 52.9 pence and 54.2 pence; (2) support for eligible retail, hospitality, and leisure businesses is being extended and increased from 50% to 75% business rates relief up to £110,000 per business in 2023-24; and (3) bill increases for the smallest businesses losing eligibility or seeing reductions in the Supporting Small Business Scheme or Rural Rate Relief will be capped at £600 per year from 1 April 2023.

Retail & Consumer

A proposed online sales tax (OST) will not be introduced due to its complexity and the risk of creating unfair outcomes between different business models in UK retail. Given the rapid growth in consumer trend to shop online, accelerated by the pandemic, the government opened a consultation on the OST earlier in the year in response to a call from some well-known high street businesses with a view that in-store retail may be overburdened by business rates relative to online competitors. The OST was therefore proposed to help address a potential UK tax system imbalance between in-store retailers and online retailers, by funding business rates relief in the context of business rates reform. The government’s consultation response will be published shortly.

Following applications from business stakeholders, the government has announced an important measure given the current cost of living crisis, to remove customs tariffs on over 100 goods for two years to help support business supply chains and put downward pressure on costs for UK producers. It is reported the measure will remove tariffs as high as 18% on goods ranging from aluminium frames used by UK bicycle manufacturers to ingredients used by UK food producers. Further details are expected.

Personal Tax

After u-turning on the personal tax cuts announced in the recent Mini-Budget, today’s statement saw a move in the opposite direction. From 6 April 2023, the additional rate threshold (“ART”) will be lowered from £150,000 to £125,140 and, for non-savings and non-dividend income, will apply to taxpayers in England, Wales, and Northern Ireland. The ART for savings and dividend income will apply UK-wide.

Already fixed at their current levels until 2026, the (i) income tax personal allowance, (ii) higher rate threshold, (iii) National Insurance Contributions (NICs) upper earnings limit and upper profits limit, (iv) inheritance tax nil-rate band and (v) residence nil-rate band, will all be fixed for an additional two years until 2028.

The current NICs lower earnings limit and small profits threshold will be maintained in 2023-2024.

And finally...

Despite what wasn’t said, the Autumn Statement leaves the UK with its highest tax burden since the second world war…