Autumn Budget 2022: Tax aspects

On 17 November 2022 the Chancellor of the Exchequer, Jeremy Hunt, delivered his Autumn Statement to Parliament.

The main points coming out of the Autumn Budget 2022 were:

• there is a further freeze of income tax basic and higher rate thresholds, a reduction in the additional rate income tax threshold and reductions to the dividends allowance and Capital Gains Tax exempt amount (see further below)
• the biggest revenue raisers are windfall taxes which are estimated now to pull in a whopping £40 billion by the end of March 2028
• the tax measures announced in the Autumn Statement fall short of radical tax reform and the reduction in personal tax thresholds and allowances reflects the Government’s intention that the wealthier members of society should bear the greatest burden
• from a business tax perspective, a ‘rebalancing’ of the Research and Development (R&D) rates was announced, with a less generous relief for small and medium-sized enterprises (SMEs) (to discourage abuse) and a more generous relief for large businesses
• the biggest tax cuts were regarding Business Rates, with the Chancellor announcing a package of benefits amounting to savings of £14 billion over the next five years. These include a further freeze on the multiplier for 12 months and an extension of the current relief for Hospitality Leisure and Retail businesses for another year, as well as increasing the relief to 75% (capped at £110,00 relief per business). A Transitional Relief Scheme will apply to support businesses by capping bill increases caused by changes in rateable values, which will support an estimated 700,000 ratepayers.

 

Individuals:

Income Tax thresholds

The income tax additional rate threshold (ART) will be lowered from £150,000 to £125,140 for tax year 2023/24. This figure reflects the fact that the personal allowance decreases for income over £100,000 (by £1 for every £2 over £100,000) with the result that those earning over £125,140 have no personal allowance and the effective tax rate for earnings between £100,000 and £125,140 is 60%. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland, while the ART for savings and dividend income will apply UK-wide. Additionally, the basic and higher rate thresholds will remain frozen until 2028, two years longer than previously announced – the resulting so-called ‘fiscal drag’ here will bring many more people into the tax system or into higher rates of tax over the coming years and is expected to raise significant amounts of additional tax.

Dividend Allowance

The dividend allowance will be halved from its current £2,000 to £1,000 from 6 April 2023 and will be halved again to £500 from 6 April 2024. Dividends received above this level will be subject to the higher dividend rates that were introduced for tax year 2022/23 which will continue to apply (8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers).

Capital Gains Tax Annual Exempt Amount

The Capital Gains Tax (CGT) annual exempt amount will be reduced from £12,300 to £6,000 from 6 April 2023, and to £3,000 from 6 April 2024. This, combined with the reduction in dividend allowance, will mean that a larger amount of investment income and gains will become subject to tax, and such changes should be seen as part of the increasing focus on ‘unearned income’ and the perception that it receives favourable tax treatment compared to ‘earned income’.

National Insurance contribution rates and thresholds

The Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) will be fixed at the 2022/23 tax year levels in tax year 2023/24, meaning that the LEL will remain at £6,396 per annum (£123 per week) and the SPT will remain at £6,725 per annum. The Government announced that it will use the September 2022 CPI figure of 10.1% to uprate the Class 2 and Class 3 NICs rates for tax year 2023/24. Accordingly, the Class 2 rate will be £3.45 per week and the Class 3 rate will be £17.45 per week.

Married Couples’ Allowance and Blind Persons Allowance

Married Couples’ Allowance and Blind Person’s Allowance will be uprated by the September CPI figure of 10.1% for tax year 2023/24 tax year. The Married Couples’ Allowance will be valued at between £4,010 and £10,375 and the Blind Person’s Allowance will be valued at £2,870. 

Companies

Corporation Tax rate increases

As already legislated for, the Corporation Tax rate from 1 April 2023 will increase to 25% from 19% for Companies with over £250,000 in profits. This is estimated to raise around £18 billion per year. The previously announced small profits rate of Corporation Tax will be maintained: smaller businesses (with profits between £50,000 and £250,000) will receive marginal relief from the full 25% rate, and companies with less than £50,000 of profit (the large majority) will not see any increase at all, continuing to pay Corporation Tax at 19%.

Diverted Profits Tax (DPT)

It was confirmed that the rate of DPT will increase by 6% to 31% with effect from April 2023 as originally announced at Spring Budget 2021. This confirmation follows the measure’s proposed cancellation in the Growth Plan 2022 and the uncertainty created when it was not expressly referred to in the Chancellor’s emergency statement on 17 October 2022.

Bank Corporation Tax Surcharge

From April 2023, banks will be charged an additional 3% rate on their profits above £100 million.

National Insurance contributions Secondary Threshold

The level at which employers start to pay Class 1 Secondary NICs for their employees (the Secondary Threshold) will be fixed at £9,100 from April 2023 until April 2028. The Employment Allowance means that 40% of businesses do not pay NICs and will be unaffected by this change, and the largest employers will contribute the most.

Company Share Option Plans

The reforms to company share option plans (CSOPs) announced in the September 2022 mini budget were confirmed.

OECD Pillar 2

Following consultation, the Government will legislate to implement the G20-OECD Inclusive Framework Pillar 2 framework, which will raise revenue of an estimated £2.3 billion per annum from 2027/28. For accounting periods beginning on or after 31 December 2023 the Government will:

• Introduce an Income Inclusion Rule (IIR) 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
• Introduce a supplementary Qualified Domestic Minimum Top-up (QDMTT) tax rule - large groups, including those operating exclusively in the UK, will be required to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.

Tariff Suspensions

Following applications from business stakeholders, the Government has put forward a measure to remove tariffs on over 100 goods for two years to help put downward pressure on costs for UK producers. 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.

Transfer Pricing Documentation

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).

Windfall Taxes

There are two elements to the measures confirmed for changes to the existing windfall tax on oil and gas companies (the Energy Profits Levy or EPL), which are expected to raise over £40 billion over the next six years:

• EPL rate: From 1 January 2023, the EPL rate will rise from 25% to 35%. The investment allowance will be reduced to 29% for all investment expenditure (other than decarbonisation expenditure) broadly maintaining its existing cash value. Decarbonisation expenditure will continue to qualify for the current investment allowance rate of 80%; and
• Electricity Generator Levy: For extraordinary returns arising from 1 January 2023, a new Electricity Generator Levy – a temporary 45% tax that will be levied on extraordinary returns from low-carbon UK electricity generation – will be introduced. For the purposes of the tax, extraordinary returns will be defined as the aggregate revenue that generators make in a period from in-scope generation at an average output price above £75/MWh. The tax will be limited to generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10 million.

Business RatesThe Chancellor’s main announcements were:

• Multiplier Freeze: The business rates multipliers will be frozen in 2023/24 at 49.9 pence and 51.2 pence, preventing the planned increase to 52.9 pence and 54.2 pence. This tax cut is worth £9.3 billion over the next five years and will support all ratepayers, meaning bills will be 6% lower than without the freeze before any reliefs are applied
• Transitional Relief Scheme: Transitional relief on property revaluations in 2023 will no longer be revenue neutral (which would have been achieved by limiting business rates reductions). The Chancellor announced that upward caps in 2023/24 will be 5%, 15% and 30% for small, medium-sized and large properties, respectively. This £1.6 billion of support will be funded by the Exchequer rather than by limiting bill decreases, as at previous revaluations
• Retail, Hospitality and Leisure Relief: Relief for retail, hospitality and leisure industries will be increased from 50% to 75% (worth up to £110,000 per business) and extended to 2023-24
• Supporting Small Business Scheme (SSBS): From 1 April 2023, businesses losing eligibility or seeing reductions in small business rates relief or rural rates relief will see increases capped at £600 per year. This support is estimated to be worth over £500 million over the next three years and means that no small business losing eligibility for SBRR or RRR will see a bill increase of more than £50 per month in tax year 2023/24
• Improvement Relief: The new improvement relief introduced in the Autumn Budget 2021 – ensuring that ratepayers do not see an increase in their rates for 12 months as a result of making qualifying improvements to a property they occupy – will now be introduced for tax year 2024/25

Super-deduction rules

Since the main rate of Corporation Tax will increase to 25% from April 2023, previously proposed technical changes to the related capital allowance super-deduction rules (for expenditure incurred prior to 1 April 2023 and which were announced in The Growth Plan 2022) are no longer required.

R&D Tax Reliefs

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, the SME additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. These changes are aimed at raising revenue and taking a step towards a simplified, RDEC-like scheme for all:

• RDEC scheme: The Government will consult on the design of a single RDEC scheme and ahead of the Budget work with industry, to understand whether further support is necessary for R&D intensive SMEs without significant change to the overall cost for supporting R&D
• R&D tax credits: Plans already announced in the Autumn Budget 2021 to extend the scope of qualifying expenditure for R&D tax credits to include expenditure on data and cloud computing, refocusing support towards innovation in the UK and targeting abuse and improving compliance will be legislated for in Spring Finance Bill 2023

Audio-visual creative reliefs

The Government will consult on a series of proposals that will aim to further incentivise the production of culturally British content and support the growth of the audio-visual sectors. These proposals will seek to build upon the success of the audio-visual subset of the creative industry tax reliefs, covering film, animation, high-end TV, children’s TV and video games.The investment zone programme announced in the September 2022 mini-budget will be refocused to catalyse a limited number of the highest potential knowledge-intensive growth clusters. The Department for Levelling Up, Housing and Communities will work closely with local administrations to consider how to identify these clusters.

Preventing Capital Gains Tax Avoidance

The Chancellor announced that the Government will legislate in the 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.

Additional Compliance Resource for HMRC

The Chancellor announced that the Government will invest a further £79 million over the next five 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 forecasted to bring in £725 million of additional tax revenues over the next five years. 

Other

Council Tax

Local authorities in England will have additional flexibility in setting council tax by increasing the referendum limit for increases in council tax to 3% per year from April 2023. Local authorities with social care responsibilities will be able to increase the adult social care precept by up to 2% per year.

Van Benefit Charge and Car & Van Fuel Benefit Charges

From 6 April 2023, Car and Van Fuel Benefit Charges and van benefit charge will increase in line with Consumer Price Index (CPI).

Tax Conditionality: Licensing in Scotland and Northern Ireland

The requirement to make the renewal of certain licenses in Scotland and Northern Ireland conditional on applicants completing checks to confirm they are appropriately registered for tax will now come into force for license renewals from October 2023 rather than April 2023.

SDLT

The increased residential nil-rate threshold of Stamp Duty Land Tax (SDLT) and First Time Buyer’s Relief which took effect on 23 September 2022 will now be a temporary SDLT reduction and will remain in place until 31 March 2025.

Enveloped Dwellings (ATED)

The annual chargeable amounts for the ATED will be uplifted by the September CPI figure of 10.1% for the 2023/24 ATED charging period. This uplift is a routine change as set out in existing primary legislation.

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If you have any queries on the article, get in touch with Bob Neal.