Introduction
The Chancellor has delivered what amounts to a full Budget. There are huge tax increases (many by so-called stealth means) and some cuts or delays to public expenditure (but probably not as many as had been expected). In many ways it’s not unlike George Osborne’s austerity budget of 2010.
Yesterday, the Office for National Statistics published the latest figures for inflation for October. They show that prices rose by 11.1% in the year to October, driven by rising food and energy prices.
At the same time, the Bank of England has warned that the UK is facing its longest recession since records began. Some experts believe the public finances have a so-called “black hole” of around £55 bn, which needs to be filled through tax rises and spending cuts.
The Autumn Statement was accompanied by a report from the independent Office for Budget Responsibility (OBR) which has sharply downgraded its economic growth forecast.
In summary
The Autumn Statement reduces the income tax additional rate threshold from £150,000 to £125,140. Income tax, National Insurance and Inheritance Tax thresholds will be maintained at their current levels for a further two years, to April 2028. There are reductions in the dividend allowance and capital gains tax annual exempt amount.
The Autumn Statement fixes the National Insurance Secondary Threshold at £9,100 until April 2028. The government will implement the OECD Pillar 2 rules, to deliver a global minimum corporate tax rate of 15%.
R&D tax credits will be drastically reformed to ensure public money is spent effectively and best supports innovation.
The Autumn Statement sets out reforms to ensure businesses in the energy sector which are making extraordinary profits contribute more. The Energy Profits Levy will be increased by 10 percentage points to 35% and extended to the end of March 2028, and a new, temporary 45% Electricity Generator Levy will be applied on the extraordinary returns being made by electricity generators
The detail
Business taxes
Corporation tax rate: as previously confirmed, the planned increase in the corporation tax rate to 25% for companies with over £250,000 in profits will go ahead. This will still be the lowest rate in the G7 ensuring the UK remains strongly competitive internationally. The increase in April 2023 will only affect the most profitable companies because of the small profits rate.
NICs Secondary Threshold for employers: will remain at £9,100 until April 2028.
VAT threshold: VAT registration threshold will remain at £85,000 for two years from April 2024.
R&D tax reliefs: As part of the ongoing review of R&D tax reliefs, the government is reforming the reliefs. The government says that there is significant error and fraud in the small and medium-sized enterprises (SME) scheme, with the generosity of the relief making it a target for fraud. By contrast, the separate R&D expenditure credit (RDEC) is better value but has a rate that is less internationally competitive.
For expenditure on or after 1 April 2023:
- the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%;
- 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 says that this reform ensures that taxpayer support is as effective as possible, improves the competitiveness of the RDEC scheme, and is a step towards a simplified, single RDEC-like scheme for all.
The government will consult on the design of a single scheme, and ahead of Budget 2023 work with industry to understand whether further support is necessary for R&D intensive SMEs, without significant change to the overall cost envelope for supporting R&D.
Venture capital schemes: As previously announced, the government is increasing the generosity and availability of the Seed Enterprise Investment Scheme and Company Share Option Plan. The government remains supportive of the Enterprise Investment Scheme and Venture Capital Trusts and sees the value of extending them in the future.
Capital expenditure: To support businesses to invest and grow, the government is setting the Annual Investment Allowance (AIA) at its highest ever permanent level of £1 million from 1 April 2023. This amounts to full expensing for an estimated 99% of UK businesses, which means that those businesses can write off the cost of qualifying plant machinery investment in one go.
Increasing the rate of diverted profits tax: from April 2023, the rate of diverted profits tax will increase from 25% to 31%, in order to retain a 6 percentage points differential above the main rate of corporation tax, and therefore ensure that it remains an effective deterrent against diverting profits out of the UK.
Transfer pricing documentation: Master File / Local File – from April 2023, large multinational businesses operating in the UK will be required to keep and retain transfer pricing documentation in a prescribed and standardised format, set out in the OECD’s Transfer Pricing Guidelines (Master File and Local File). This will give businesses certainty on the appropriate documentation they need to keep and enable HM Revenue and Customs (HMRC) to effectively identify risks and conduct transfer pricing investigations more efficiently. HMRC will continue to consult on a Summary Audit Trail which is a questionnaire that businesses would be required to complete that covers the main steps undertaken in preparing the Local File
Personal taxes
Income tax additional rate threshold: There will be a decrease in the additional rate threshold from £150,000 to £125,140 from 6 April 2023. The government is also fixing other personal tax thresholds within income tax, NICs and inheritance tax for an additional 2 years, until April 2028.
Dividend allowance: The dividend allowance will be reduced from £2,000 to £1,000 from April 2023, and to £500 from April 2024.
Capital gains tax annual exempt amount: reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
Preventing capital gains tax avoidance – To address tax avoidance, the government will legislate in Spring Finance Bill 2023 so that shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK. This will have effect where an individual has a material interest in both the UK and the non-UK company and where the share exchange is carried out on or after 17 November 2022.
Stamp Duty Land Tax (SDLT): On 23 September 2022, the government increased the nil-rate threshold of Stamp Duty Land Tax (SDLT) from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by 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. This will now be a temporary SDLT reduction. The SDLT cut will remain in place until 31 March 2025.
Tax compliance
The government’s action to repair the public finances will be supported by a package of measures to tackle tax avoidance, evasion, and wider non-compliance. This will raise an estimated £1.7 billion over the next 5 years.
Additional compliance resource for HMRC – The government is investing a further £79 million over the next 5 years to enable HMRC to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers. This investment is forecast to bring in £725 million of additional tax revenues over the next 5 years. The government remains committed to ensuring HMRC has sufficient funding to enable it to maintain its compliance performance over time, while continuing to make efficiencies, both in this and future Spending Review periods.
The changes announced will be legislated for either in Finance Bill 2022 or following further consultation. We will be closely following the Finance Bill’s passage through Parliament and will update as required on any significant changes or amendments.
