Autumn Statement 2022
After the former Chancellor Kwasi Kwarteng’s Growth Plan on 23 September 2022, Jeremy Hunt’s appointment on 14 October, the reversal of many of the Growth Plan measures on 17 October and a new Prime Minister on 25 October, many were hoping for a relatively low-key Autumn Statement. This wish was largely granted as, while the statement was full of detail and the announcement of new measures, it was not a flashy affair.
Chancellor Jeremy Hunt’s three priorities for this statement were stability, growth and public services. Much of the speech focused on public spending and dealing with long-term challenges relating to energy, infrastructure and innovation.
As far as tax measures were concerned, most had been trailed in advance, and there was nothing that could particularly be likened to pulling a rabbit out of a hat. Cumulatively, however, they will have a significant impact on the nation’s finances. For individuals, various allowances and exemptions were cut, and certain thresholds were announced as being frozen until 2028. Depending on their sector and activities, businesses will be affected in different ways over the coming years by the announcements.
Personal tax
Additional rate of income tax
The threshold at which tax becomes payable at the highest “additional” rate in England, Wales and Northern Ireland will be cut from £150,000 to £125,140 from 6 April 2023.
This is a stark change in policy to that of removing the additional rate entirely, which was announced as part of the Growth Plan 2022. More taxpayers will now be brought into paying income tax of 45% on earned and savings income, and 39.35% on dividend income. The tax-free personal savings allowance of £500 is not available for those subject to tax at the additional rate, so correspondingly more taxpayers will lose the benefit of this.
Moore Kingston Smith comment:
When the additional rate was first introduced in 2010/11, it affected fewer than 250,000 individuals. With the reduction in this threshold, along with (currently very high) inflation, more than one million taxpayers will soon be paying tax at this rate. When this measure is considered alongside the loss of the personal savings allowance, and other measures announced in the Autumn Statement, it is clear that high earners are going to be bearing a material share of the tax rises announced by the Chancellor.
Dividend allowance
Individuals currently pay no tax on the first £2,000 of dividend income that they receive during a tax year. This allowance will be reduced to £1,000 from 6 April 2023 and then to £500 from 6 April 2024.
Moore Kingston Smith comment:
When it was first introduced in 2016, this allowance was worth £5,000 a tax year, so its generosity will have been significantly curtailed by 2024. The proposed reductions in the allowance will increase the number of people who could need to register with HMRC and submit tax returns, and increase the risk of penalties for those that fail to identify any new obligations. Individual Savings Accounts (ISAs) continue to offer a tax exemption for dividend income, so some taxpayers may need to consider holding their shares through ISAs if they are not already making full use of their annual investment allowance.
Capital gains tax annual exempt amount
No changes were announced to the rates of capital gains tax but the annual exempt amount will be reduced from the current £12,300 to £6,000 from 6 April 2023 and then to £3,000 from 6 April 2024.
Moore Kingston Smith comment:
Many will be relieved that capital gains tax rates are not set to increase. However, the reduction in the annual allowance will naturally have some effect on tax liabilities and the number of people who need to report disposals to HMRC.
Freezing of personal allowances and thresholds
The income tax personal allowance was already due to be frozen at £12,570 until April 2026, and the Chancellor announced that it will remain frozen for a further two years until April 2028.
The following amounts were also announced as being frozen until April 2028: the £12,570 threshold at which workers start to pay national insurance contributions (NICs), the higher rate income tax threshold, the NICs upper earnings limit and upper profits limit, and the inheritance tax nil-rate bands (comprising the standard nil-rate band of £325,000 and the residence nil-rate band of £175,000).
For 2023/24, the Class 2 NICs rate will be uprated to £3.45 per week and the Class 3 NICs rate will be £17.45 per week.
Moore Kingston Smith comment:
The freezing of the income tax and NICs thresholds will see many more people being brought either into the tax net or into paying tax at higher rates. Those entering the 40% tax bracket, however, should not forget that pension contributions and Gift Aid payments will extend their basic-rate tax band.
The freezing of the inheritance tax nil-rate bands will mean that more estates will become liable to inheritance tax due to rising property prices. Lifetime planning, such as gifting and setting up trusts, could be considered to help mitigate the tax burden.
Stamp duty land tax (SDLT)
As part of the Growth Plan announced by the then Chancellor Kwasi Kwarteng in September 2022, the threshold above which SDLT first becomes payable on standard residential property transactions was increased from £125,000 to £250,000. The maximum property value on which first-time buyer’s relief is available increased from £500,000 to £625,000 and, where this relief is available, the threshold above which SDLT first becomes payable increased from £300,000 to £425,000. This reduction in SDLT remained effective despite the various reversals that Jeremy Hunt made when he became Chancellor of the Exchequer. However, Mr Hunt announced today that it will become a temporary measure only, coming to an end on 31 March 2025.
Moore Kingston Smith comment:
31 March 2025 is a long way away, and a lot might happen to the housing market, the economy generally and the UK political situation before then. The current thinking must however be that, by 2025, this SDLT cut will have played its part in supporting home-buyers and the housing market, and it will then be the time to start increasing revenues once more (accepting that a cliff edge change in SDLT rates will temporarily distort the market).
Corporate and business tax
Research and development tax relief
The Chancellor has announced sweeping changes to the rates of R&D tax relief.
The rate that applies under the “large company” scheme – the R&D expenditure credit or RDEC scheme – will increase from 13% to 20% from 1 April 2023. This means companies that claim under this scheme will get a higher above-the-line credit in respect of their qualifying expenditure.
The position is different for those companies that claim under the SME scheme, where the tax benefit of undertaking R&D is being significantly reduced. Where an SME can currently gain an additional tax deduction of 130% of qualifying R&D spend, this will be reduced from 1 April 2023 to 86%. In addition, losses surrendered for a tax credit will, in the future, generate a repayment of 10% of the amount surrendered, as opposed to 14.5%. Given all this, the net value of an R&D claim by an SME reduces from 24.7% to 21.5% for a profit-making SME, and from 33.35% to 18.6% for those making significant losses.
Moore Kingston Smith comment:
The announcements are good news, not only for large companies but also for those innovative SMEs making claims under the RDEC regime as a result of receiving innovation grants. For SMEs, however, the announcements represent a significant blow. Coupled with the previously announced restriction relating to expenditure on non-UK expenditure, these could be particularly disappointing for many on the UK’s tech start-up scene who have historically been large recipients of the R&D tax regime. However, with the Chancellor’s stated aim of supporting innovation more broadly, there is always the possibility that any reduction in tax relief could be made up by focused grant funding.
Audio-visual tax reliefs
The Chancellor announced a consultation on proposed reforms to the audio-visual tax reliefs, which aim to support and incentivise the production of culturally British content. The proposals are intended to simplify and modernise the reliefs, boost growth in the relevant sectors and ensure the reliefs remain sustainable.
Moore Kingston Smith comment:
A film tax credit scheme was originally introduced in 2007. Since then, support through the tax system for the creative sector has increased to encompass eight creative industry tax reliefs. Within those, five are the subject of the new consultation: film; animation; high-end TV; children’s TV; and video games. The consultation proposes a merger of the four of these reliefs, some technical changes to definitions, adjustments relating to certain EU legacy conditions, and the reform of all reliefs to above-the-line, repayable, tax credits.
Many of the changes are likely to be welcomed by the industry. However, there is concern that some of the changes might limit the reliefs for some companies, including particularly those in the video games sector, given the proposal to exclude European expenditure; and the TV sector, given a proposed increase in minimum expenditure thresholds.
We will study the proposals and feedback to the government accordingly.
Corporate tax
No changes were announced to the rates of corporate tax previously announced, so the following rates remain set to apply with effect from 1 April 2023:
- Corporation tax: This will increase from 19% to 25% for companies with profits in excess of £250,000. Companies with profits below £50,000 will continue to pay at 19% with a tapered rate being applicable to profits between £50,000 and £250,000.
- Bank corporation tax surcharge: This will reduce to 3%, resulting in a tax rate of 28% for banks with profits in excess of £100 million.
- Diverted profits tax: This will increase from 25% to 31% to maintain the intended surcharge of 6% over the headline rate of corporation tax
The capital allowances super-deduction will end on 31 March 2023 but, as previously announced, the annual investment allowance will be permanently set at £1 million from 1 April 2023, thereby providing 100% relief for annual qualifying expenditure on plant and machinery up to this limit.
Moore Kingston Smith comment:
The lack of further changes to the taxation of corporate profits will doubtless be a relief for businesses who now have the certainty required to forward-plan with confidence for the significant increase in tax. The ability to claim 100% relief on up to £1 million of qualifying annual expenditure on a recurring basis will be valuable for many businesses. It is hoped that this will play some part in encouraging investment and growth.
Employer’s national insurance contributions (NICs)
The level at which employers start to pay employer’s NICs on employee earnings (the ‘secondary threshold’) will be frozen at £9,100 from April 2023 until April 2028. The employment allowance – which provides many smaller businesses with a reduction in their employer’s NIC bill – will remain at £5,000.
Moore Kingston Smith comment:
Given some of the other measures announced in the Autumn Statement, it is to be welcomed that the employment allowance remains unchanged – which means 40% of businesses do not pay any employer’s NICs. The freezing of employer’s NIC thresholds will, however, ultimately result in both large and not-so-large employers paying more NICs as wages increase.
Company cars
A number of announcements were made regarding company provided vehicles:
- The appropriate percentages (used to determine the benefit-in-kind rate) for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1% per year for each of the three years from April 2025 up to maximum of 5% for electric cars and 21% for ultra-low emission cars in 2027/28.
- Benefit-in-kind rates for all other vehicle bands will be increased by 1% for 2025-26, up to a maximum appropriate percentage of 37%, and will then be fixed in 2026-27 and 2027-28.
- From 6 April 2023, car and van fuel benefit charges (the value of the benefit on fuel provided by an employer to an employee for private mileage) will increase in line with the consumer price index.
Moore Kingston Smith comment:
The tax cost of electric company cars will increase for both employees and employers from April 2025, although it will remain low in comparison to petrol and diesel alternatives. This means electric vehicles are likely to remain an attractive employment benefit, particularly when provided under a salary sacrifice arrangement.
VAT registration threshold
The Chancellor announced that the VAT registration and deregistration thresholds will remain unchanged – at £85,000 and £83,000 respectively – until at least 31 March 2026.
Moore Kingston Smith comment:
The current thresholds have been in place since 2017 and, by 2026, there will have been a significant real-terms reduction in their value. The government is at pains to point out, however, that the registration threshold is more than twice the EU and OECD averages, so for now at least they remain comparatively generous.
Online sales tax
Following a consultation exercise earlier this year, the government has taken a decision not to introduce an online sales tax. A summary of the responses to the consultation exercise, and the government’s responses to these, will be published shortly.
Moore Kingston Smith comment:
The government was never committed to introducing an online sales tax but considered this as a way of addressing concerns that retailers with physical premises face unfair tax burdens – compared to online sellers – because of the level of business rates they pay. The consultation document raised questions on a vast number of areas, indicating the level of difficulty that would be involved in introducing such a tax. Ultimately it appears the government has decided that concerns about complexity, and the risk of distortions and unfair outcomes, outweigh any possible benefits of going down this route.
Capital gains tax – share exchanges
Legislation will be included in the Finance Bill 2023 to mean that, where shares or securities in a non-UK company are acquired in exchange for shares in a closely held UK company, those new shares or securities will be treated as if they were UK assets for the purposes of capital gains tax. These provisions will mean that individual shareholders of affected shares will pay tax on dividends or capital gains from those non-UK securities as if they were UK-sourced income or gains.
Moore Kingston Smith comment:
The new legislation will apply to individuals who hold more than 5% in each of the companies, who carry out a share exchange transaction on or after 17 November 2022. The implications will be most significant for individuals who are resident but not domiciled in the UK. They will no longer be able to keep income and gains associated with these shareholdings outside the UK tax net by claiming to be taxed on the remittance basis. The government’s aim here is to keep value built up in a UK business within the UK tax net, so as to reduce the tax planning opportunities available to the 68,000 taxpayers who claimed non-domicile taxpayer status on their 2021 tax returns.
Windfall taxes
The energy profits levy (EPL) was introduced in Spring 2022, placing a new 25% charge on the profits of oil and gas producers (in addition to the 40% permanent tax rate that these companies already pay). As part of the Autumn Statement, it was announced that, from 1 January 2023, the levy will increase to 35%, meaning that the effective tax rate for this sector will be 75%. It will also be extended to 31 March 2028. The levy’s investment allowance, which provides some relief against the EPL for businesses investing in capital expenditure, will be adjusted to ensure that the overall cash benefit from this allowance remains broadly the same.
From 1 January 2023, a new electricity generator levy (EGL) will be introduced to apply a 45% additional tax charge on the “extraordinary profits” of electricity generators. The EGL will apply to electricity sold at above £75 per MWh and will result in an effective tax rate of 70% on these profits. It will only apply to businesses generating more than 100 GWh of electricity per year and is subject to a yearly allowance of £10 million. As with the EPL, the EGL is intended to be a temporary measure, expiring on 31 March 2028.
Moore Kingston Smith comment:
The EPL is now expected to raise £40 billion, around double the expectation from when it was first introduced, and the EGL is expected to raise £14 billion over its lifetime. These are significant sums and, while these are intended to be temporary windfall taxes, there is some concern that the EGL might stifle investment in low-carbon UK electricity generation.
Global minimum tax
The Chancellor confirmed that the UK will be introducing legislation to implement the OECD’s so-called “Pillar 2” framework.
Where consolidated global revenues are in excess of €750 million per year, UK-headquartered multinationals will be required to pay a top-up tax where any of their foreign operations have an effective tax rate of less than 15%. Additionally, a domestic top-up tax will be introduced to ensure that those same-in-scope businesses pay a minimum 15% rate on all their UK operations.
Moore Kingston Smith comment:
These measures – both of which will apply for accounting periods starting on or after 31 December 2023 – were expected to be introduced and were negotiated by Prime Minister Rishi Sunak when he himself was Chancellor of the Exchequer.