Given the desire for stability in light of recent tumultuous times, Chancellor Jeremy Hunt's Autumn Statement unsurprisingly lacked any real tax shocks. With a few minor exceptions, the bulk of the announcements confirmed previously trailed measures and leaks, with threshold changes and windfall taxes both featuring. But with an Autumn Finance Bill and Spring Budget both promised, further tax changes must surely be on the horizon.
We've set out below a summary of the key tax measures from the Autumn Statement. If you would like to discuss the impact of any of the changes, please get in touch with a member of the tax team or your usual Taylor Wessing contact.
New measures
Audio-visual tax reliefs
The government is consulting on a package of reforms to simplify and modernise reliefs which support and incentivise the production of culturally British film, animation, high-end TV, children’s TV and video games.
Share exchanges
A targeted anti-avoidance rule is to be introduced for share exchanges carried out on or after 17 November 2022, to ensure that non-domiciled individuals pay tax on the value built up on UK company shares in the UK, even when they are exchanged for shares in an offshore holding company.
This is an interesting comment in the budget. It implies that, even where there are very clear bona fide commercial reasons for flipping into a non-UK company (for example to enable fundraising in the US) advanced clearance on the share for share exchange should always be obtained first, which will cause difficulties for some companies seeking to raise funding urgently in difficult times.
Measures previously announced or leaked
The Autumn Statement confirmed numerous rumours that have been circulating over the past few weeks, as well as clarifying the status of various measures following the unwinding of Kwasi Kwarteng's Growth Plan.
Business tax
Online Sales Tax (OST)
Earlier this year a consultation explored proposals to introduce an OST as a means to rebalance the taxation of the retail sector between online and in-store. In light of the responses received, the government has decided not to proceed, citing complexity and risks of distortion. This will be most welcomed by a number of our clients who were grappling with these proposals.
Global minimum tax rate
The government has confirmed that it will legislate for the OECD's 'Pillar Two' rules in Spring Finance Bill 2023, requiring:
- large UK-headquartered multinational groups to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%, and
- large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.
A backstop rule, which will allocate any remaining top-up tax among jurisdictions in which the group has operations, will be implemented at a later date.
The introduction of these rules was anticipated. A number of commentators suggested that in the current climate the UK would be unlikely to be a first adopter of the proposals along with the Euro 5 (the EU having failed to achieve a consensus because Hungary exercised its veto rights). However, consistent with a number of recent international tax developments, the UK continues to want to be seen to be at the vanguard of fiscal reform.
Research and Development (R&D) tax relief reform
Autumn Finance Bill 2022 will contain legislation for various rate changes for expenditure incurred from April 2023:
- Research and Development Expenditure Credit (RDEC) will increase from 13% to 20%.
- Small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%.
- SME credit rate will decrease from 14.5% to 10%.
These changes are a step towards a single RDEC-like scheme (the design of which the government will consult on) and supplement previously announced reforms to R&D tax relief in particular focusing support on innovation in the UK
Bank surcharge and diverted profits tax (DPT)
As the rate of corporation tax rises to 25% from April 2023, associated increases have been confirmed from the same date:
- Bank surcharge - banks will be charged an additional 3% rate on their profits above £100 million.
- DPT - increases from 25% to 31% to retain the 6% differential above the main rate of corporation tax.
VAT thresholds
The VAT registration and deregistration thresholds will remain at £85,000 and £83,000 respectively until April 2026.
Incentivising innovation
The government has confirmed the previous Chancellor's commitment to increase the generosity and availability of the Company Share Option Plan (CSOP) and Seed Enterprise Investment Scheme (SEIS), as well as extending Venture Capital Trusts (VCT) and the Enterprise Investment Scheme (EIS).
Windfall taxes
As widely rumoured, the energy industry will bear some of the burden of the Chancellor's income-raising measures:
- Energy Profits Levy (EPL) will increase to 35% from January 2023, while the investment allowance will reduce to 29% (other than for decarbonisation expenditure which will remain at 80%). The EPL will end in March 2028.
- Electricity Generator Levy from January 2023, a temporary 45% tax will be levied on extraordinary returns from low-carbon UK electricity generation.
Investment zones
The Chancellor has proposed a new approach which will focus on knowledge-intensive growth 'clusters', the first of which will be announced in the coming months.
Personal tax
Thresholds and allowances
As expected, the Chancellor focused on adjusting thresholds and reducing allowances, rather than increasing taxes, as a means of generating revenue:
Income tax
- 45% additional rate threshold reduces from £150,000 to £125,140 from April 2023
- 40% higher rate threshold frozen at £50,270 for an additional two years (until April 2028)
- personal allowance is frozen at £12,570 for an additional two years (until April 2028)
- dividend allowance reduces from £2,000 to £1,000 in April 2023, then to £500 in April 2024.
National Insurance Contributions (NICs)
- NICs thresholds will remain at their current levels for an additional two years, until April 2028
- employment allowance to be maintained at higher level of £5,000 until March 2026.
Capital Gains Tax (CGT)
Annual exempt amount will reduce from £12,300 to £6,000 from April 2023, then to £3,000 from April 2024.
Inheritance tax (IHT)
The IHT nil-rate band (NRB) will be frozen at £325,000 for a further two years until April 2028.
Stamp duty land tax (SDLT)
The SDLT changes announced as part of Kwasi Kwarteng's Growth Plan will come to an end in March 2025, namely:
- the doubling of the NRB for purchasers of residential property in England and Northern Ireland from £125,000 to £250,000, and the increase in the NRB for first-time buyers from £300,000 to £425,000
- the increase in the maximum purchase price for which First Time Buyers Relief can be claimed from £500,000 to £625,000.
The Chancellor has made it clear that the sunset clause to these measures is very deliberately aimed at encouraging the housing market to take advantage of the lower SDLT costs before the rules revert back in March 2025.
Vehicle excise duty (VED)
From April 2025, electric cars will no longer be exempt from VED.
