2022 Autumn Statement:
an attempt to balance the books

Published: 18 November 2022

A summary of tax measures announced or confirmed at the 2022 Autumn Statement

 

 

Unlike the ‘Mini Budget’ in September, the 2022 Autumn Statement (see here for the full document) contained few surprises with regard to new tax measures, most of which had been pre-announced.  We all knew that plugging the black hole in public finances would have to be Chancellor Jeremy Hunt’s priority, in order to preserve market stability.

Still, the Chancellor tried hard to focus on the positives and, energy windfall taxes aside, avoid references to ‘tax increases’.  Freezing and reducing thresholds will of course result in de facto tax increases.  And taking the measures announced at the Autumn Statement together with the previous U-turns on the ‘Mini Budget’, the increase to the nation’s tax burden is eye-watering and has been reported to result in the highest total tax burden for the last 70 years.  As confirmed by the Treasury, the tax rises announced today will amount to £25 billion by 2027/28.

While the changes to income tax thresholds had been expected, the drastic reductions to the annual exempt amount for capital gains tax came as a surprise.  This measure is meant to raise £440 million by 2027/28, but will surely also result in significant administrative costs from processing the additional tax returns that will need to be filed.  Raising the relatively low rates of capital gains tax to be more in line with income tax rates would have been a more obvious choice for increasing the tax take from capital gains.

The Autumn Statement made no reference to crypto, despite the consultation on the taxation of decentralised finance (involving the lending and staking of cryptoassets) having concluded on 31 August 2022.  As reforming that area of taxation is very much needed, we must hope that this will resume at the 2023 Spring Budget at the latest – and that the recent upheaval around FTX will not dampen the Government’s previous enthusiasm to make the UK an attractive place for crypto.

Large corporations and multi-national groups will take note of the Government’s commitment to implement the globally agreed G20-OECD Pillar 2 framework in the UK (for accounting periods starting on or after 31 December 2023), following a technical consultation of the draft legislation previously published.  The implementation of Pillar 2 in the UK and elsewhere will be an impressive piece of international cooperation on taxation, which will force multi-national groups to coordinate compliance across all relevant jurisdictions.

Set out below is a summary of tax measures announced or confirmed yesterday that we believe will matter most to our clients.

This summary was compiled by Annette Beresford, Sanya Bhambhani, Jamie Crocker and Natalya Vilyavina with the assistance of Jasmine Akouiradjemou.

2022 Autumn Statement

an attempt to balance the books

Headline tax measures

Personal taxes - thresholds and allowances

Income tax thresholds

Following the U-turn from the 2022 September ‘Mini Budget’ removing the 45% additional rate of income tax, the Chancellor has now gone the other way and decreased the threshold for the additional rate of income tax from £150,000 to £125,140, with effect from 6 April 2023.  This measure will not apply to taxpayers in Scotland with regard to non-dividend and non-savings income (to which Scottish income tax rates and thresholds apply instead).

The income tax personal allowance, which had previously been fixed at its current level (£12,570) until April 2026 will be frozen for a further two years, until April 2028.  The same applies to the National Insurance primary threshold which was harmonised with the income tax personal allowance with effect from July 2022.  This measure will apply across the UK.

The Government will legislate for these income tax measures in the Autumn Finance Bill 2022.  Set out below are the tax bands for non-dividend and non-savings income, as applicable to individual taxpayers in England, Wales and Northern Ireland from 6 April 2023.

Band Taxable income Tax rate
Personal allowance £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £125,140 40%
Additional rate Over £125,140 45%

Income tax – dividend allowance

The dividend allowance will be reduced from its current level of £2,000 to £1,000 from April 2023, and then be further reduced to £500 from April 2024.

Capital gains tax – annual exempt amount

The annual exempt amount for capital gains tax will be reduced from its current level of £12,300 to £6,000 from April 2023, and then be further reduced to £3,000 from April 2024.  This will result in an increased compliance burden for many taxpayers as large numbers of small disposals which would previously have been below the threshold will now be caught once the measure takes effect.

 

Inheritance tax threshold

The inheritance tax nil-rate bands, which had already been frozen until April 2026, will now remain at their current levels until April 2028. The nil-rate band will continue to be £325,000 and the residence nil-rate band will continue to be £175,000, meaning that qualifying estates can continue to pass on up to a total of £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without incurring an inheritance tax liability.  The residence nil-rate band taper will continue to start at £2 million.

Windfall taxes on energy companies

In order to ensure that energy companies, which are currently seeing extraordinary profits, pay their fair share of taxes, the Chancellor has announced an increase to the energy profits levy as well as the introduction of a new electricity generator levy.

Energy profits levy

The energy profits levy, which was introduced on 26 May 2022 by the then Chancellor, Rishi Sunak, places a 25% charge on the profits of oil and gas producers operating in the UK and the UK Continental Shelf. This took the headline rate of tax for oil and gas producers to 65%, with 40% being the permanent tax rate already in place. The energy profits levy includes a ‘super-deduction’ relief and allowance of 80% which aims to increase reinvestment in the oil and gas sector.

From 1 January 2023, the energy profits levy will be increased from 25% to 35%, bringing the headline rate of tax for the sector to 75%. It has also been confirmed that the levy will remain in place until 31 March 2028 allowing companies to have an element of certainty to plan and take decisions going forward.

Also as of 1 January 2023, the current investment allowance will be reduced from 80% to 29% which should broadly maintain its existing cash value due to the higher rate of the levy. The only exception to this is decarbonisation expenditure, which will continue to qualify for the existing investment allowance rate of 80% in an attempt to help the Government reach its net zero targets.

Electricity generator levy

The Chancellor also announced the introduction of a new electricity generator levy, a 45% temporary tax to take effect from 1 January 2023. This will be levied on extraordinary returns from low-carbon electricity generation in the UK. For the purposes of this new 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 electricity generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10 million.

This temporary tax will join the approach taken by various other countries such as France and Italy to reduce extraordinary returns that are being created by low-carbon generators who have benefitted from spiralling gas prices.

Stamp duty Land Tax (SDLT)

At the 2022 September ‘Mini Budget’, the then Chancellor, Kwasi Kwarteng, increased the nil-rate band of SDLT from £125,000 to £250,000 for purchasers of residential property and from £300,000 to £425,000 for first-time buyers.  The threshold from which this relief is available to first-time buyers was also increased, moving from properties worth up to £500,000 to properties worth up to £625,000. A detailed summary of the SDLT changes announced at the Mini Budget can be found here.

The Autumn Statement has now confirmed these changes will stand, but only as a temporary measure with a sunset on 31 March 2025, following which the Government will reassess the position and decide whether or not to extend the relief further. The Chancellor explained that the Office for Budget Responsibility’s expectation is for housing activity to slow over the next two years, thereby justifying the SDLT cuts to have been made temporary.

Commitment to implement OECD Pillar 2

The Chancellor confirmed the Government’s commitment to implement the globally agreed G20-OECD Pillar 2 framework in the UK.  This forms part of the OECD’s long-running BEPS project (with the aim of preventing ‘base erosion and profit shifting’).  Pillar 2 aims to achieve a global minimum corporate tax rate of 15%.

Draft legislation implementing Pillar 2 was published and consulted on over the summer.  Once finalised, it will be included in the Spring Finance Bill 2023 and apply for accounting periods beginning on or after 31 December 2023. The legislation will introduce:

  • an Income Inclusion Rule (IIR) which will require large multinational groups headquartered in the UK to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%; and
  • a supplementary Qualified Domestic Minimum Top-up Tax (QDMTT) rule which will require large groups, including groups that operate exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.

The Undertaxed Profits Rule (UPR), which is also included in the Pillar 2 proposal as a backstop to the IRR will not be implemented in the UK to start with.  The UPR is envisaged to apply in cases where the effective tax rate in a country is below the minimum rate of 15%, but the IIR has not been fully applied.  It would provide for a top-up tax being allocated to countries which have adopted the UPR based on a formula, with such tax being collected either by denial of a deduction for payments or by making an equivalent adjustment.  The Government intends to implement the UPR in the UK in the future, but no earlier than for accounting periods beginning on or after 31 December 2024.

Other business tax measures

Corporation tax rates - increase and consequential measures

As previously confirmed, the main rate of corporation tax will increase from 19% to 25% for companies with profits exceeding £250,000, and there will also be an incremental increase for companies with profits between £50,000 and £250,000, in each case with effect from April 2023.

This will also result in the following consequential measures (which have been tied to the corporation tax rate increase from the outset and will also take effect from April 2023):

  • Bank Corporation Tax Surcharge: the rate of this will decrease from 8% to 3% in order to counterbalance the corporation tax rise for financial institutions. The Surcharge will apply to profits above £100 million (with the Surcharge allowance being increased to that amount from £25 million).
  • Diverted Profits Tax: the rate of this will increase from 25% to 31% to maintain a 6% differential with the main rate of corporation tax.

National Insurance contributions (NICs) - Secondary Threshold frozen

The level at which employers start to pay Class 1 secondary NICs for their employees (the Secondary Threshold) will be frozen for the period from April 2023 to April 2028 at the current level of £9,100. The Chancellor noted that the employment allowance (£5,000 from April 2022), which eligible businesses can set against their liabilities for Class 1 secondary NICs should still keep approximately 40% of businesses out of paying Class 1 secondary NICs.

VAT

VAT registration threshold

The VAT registration threshold will remain at £85,000 for a further period of two years from April 2024.

No VAT on school fees

The Chancellor has specifically confirmed that there is no current intention to remove the exemption from VAT for private school fees.

Capital allowances - Annual Investment Allowance (AIA)

As announced at the 2022 September ‘Mini Budget’, the AIA will be increased permanently to £1 million from 1 April 2023, its highest ever level.  This is one of the few measures announced at the ‘Mini Budget’ that have not since been reversed. The Government has estimated that the increase in allowance means that 99% of UK businesses can write off the cost of qualifying plant machinery investment in one go.

Research & Development (R&D)

The Government’s quest to reform R&D reliefs continues.  As announced at the 2021 Autumn Budget, the Government intends to expand qualifying expenditure to include data and cloud costs, refocus support towards UK innovation and at the same time tackle abuse. The stated objective is to rebalance rates and support fiscal sustainability by increasing revenue and reducing fraud and error.  This will be legislated for in the Spring Finance Bill 2023.

The reforms also include some changes to R&D rates: for expenditure incurred 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 (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.  These rate changes will be legislated for in the Autumn Finance Bill 2022.

Before the 2023 Spring Budget, the Government will consult on the design of a single scheme and 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 reliefs and Company Share Option Plans (CSOPs)

As confirmed in the documentation published with the 2022 Autumn Statement, the extensions to the Seed Enterprise Investment Scheme (SEIS) and CSOPs, which had been previously announced at the 2022 September ‘Mini Budget’, will take effect from April 2023 as planned.

Investment zones

The investment zones programme, which had previously been announced at the 2022 September ‘Mini Budget’ as one of the ‘Growth Plan’s’ flagship measures, will be “refocused” to “catalyse a limited number of the highest potential knowledge-intensive growth clusters”.  While further information has yet to be provided, this suggests that the investment zones programme has been largely scrapped.

 

North Sea consultation

The Government continues to regard the North Sea as the foundation of the UK’s energy security and for that reason intends to consult with stakeholders over the coming months as part of a review of the UK’s long-term tax treatment of the North Sea after the energy profits levy (on which see ‘Headline tax measures’ above) has ended. The Government aims to deliver predictability and certainty as well as supporting investment and jobs, with the review intended to help achieve this. The review is expected to be completed by the end of 2023.

Business rates

The Government is in the process of reforming business rates through a revaluation of business properties.  Such revaluation will come into effect on 1 April 2023, based on property values from 1 April 2021.  The last revaluation was April 20217 (based on a valuation date of April 2015).

While the revaluation will result in business rates going up, the Government has also put in place a package of targeted support worth £13.6 billion over the next five years to support businesses in transitioning to new business rates and protect them from the full impact of inflation and other challenges. The support will be provided in a number of ways, including the following

  • Freezing business rate multipliers, a tax break expected to be worth £9.3 billion over the next five years.
  • Providing £1.6 billion of support through the Transitional Relief Scheme, which will cap bill increases caused by changes in rateable values at the 2023 revaluation.
  • Providing targeted relief to certain types of businesses, such as retail, hospitality and leisure relief (with the existing relief being extended and increased), the ‘Supporting Small Business Scheme’ (SSBS) (which caps bills for small businesses which are losing eligibility or seeing reductions in small business rate relief (SBRR) or rural rate relief (RRR)), as well as improvement relief (which will apply, from April 2024 to April 2028, where a taxpayer has made qualifying improvements to a property they occupy).

Online sales tax (OST)

Following consultation, the Government has decided not to introduce an OST.  The proposal of introducing an OST had been put forward in the context of the reforms to business rates, to level the playing field between businesses that have premises and businesses that operate only online.  However, following concerns being raised about the complexity of an OST and the risk of unintended distortions, the proposal has been dropped.

Other anti-avoidance measures

CGT - share exchanges

Draft legislation has been published to counter tax avoidance in circumstances where an individual who is UK resident, but not domiciled, exchanges shares in a UK company for shares in a non-UK company.  The share exchange rules will normally prevent a taxable disposal (subject to applicable anti-avoidance rules).  Further, distributions from a non-UK company and gains from the disposal of a non-UK company can be kept outside the UK tax net by a taxpayer claiming the remittance basis of taxation.

The new measure will deem the new holding acquired in the non-UK company to have a ‘UK situs’ where the companies involved are ‘close’ (or would be ‘close’ in the case of a non-UK company) and the relevant individual holds at least 5% of the securities in the UK company before exchange and in the non-UK company after exchange.  Very broadly, a company is ‘close’ if it is controlled by five or fewer participators or any number of participators who are also directors.

Where this measure applies, the remittance basis can no longer be claimed on distributions from the non-UK company or on gains from its disposal.  The measure takes effect immediately and thus applies to any relevant share exchange (or scheme of reconstruction) carried out on or after 17 November 2022.

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). This measure is intended to give businesses certainty on the appropriate documentation they need to keep (which is currently lacking), and also to enable HM Revenue and Customs (HMRC) to identify risks and conduct transfer pricing investigations more efficiently. This measure will be legislated for in Spring Finance Bill 2023.

 

HMRC investment in compliance

Over the next five years, HMRC will receive £79 million on top of the £292 million received following the Spending Review 2021. This additional funding is intended enable HMRC to:

  • tackle more serious cases of tax fraud; and
  • help address tax compliance risks amongst wealthy taxpayers.

This additional investment will allow HMRC to recruit more staff in HMRC operational teams over the next five years to strengthen their approach to serious tax fraud and increase their capacity to deal with complex tax risks amongst wealthy taxpayers.

The Government have estimated the investment will raise £725 million of additional tax revenue within the same five-year period, ultimately allowing HMRC to “maintain its compliance performance over time while continuing to make efficiencies”.

Duties and miscellaneous measures

Council tax

The Government announced that, with effect from April 2023, the referendum limit for increases in council tax will be increased to 3% per annum, giving local authorities in England more flexibility in setting council tax. Further, those local authorities with social care responsibilities may increase the adult social care precept by up to 2% annually. This is meant to give local authorities greater flexibility to meet the needs of their area.  The flipside of this is that the council tax burden in many areas may rise by as much as 5% annually.

Vehicle excise duty (road tax)

In view of the rise in popularity of electric vehicles and the expectation that petrol and diesel vehicles will eventually be phased out, electric cars, vans and motorcycles will become subject to road tax from April 2025.

Consultation on reforming audio-visual creative reliefs

The Government will consult on reforming creative industry tax reliefs, covering film, animation, high-end TV, children’s TV and video games. While the stated purpose is the support of these sectors, with a view to incentivising the production of culturally British content, a timescale for the consultation has not been set.

Tariff suspensions

To support UK industry, the Government will remove tariffs on over 100 goods ranging from aluminium frames for bicycles to ingredients used by food producers.  These suspensions are intended to be introduced shortly and will remain in force for two years.

If you would like to discuss this piece, or if you think we left anything out of this summary, then do please contact us at enquiries@humphreys.law.

This summary was prepared as a service to clients and other friends of Humphreys Law to report on selected measures announced at the 2022 Autumn Statement that may be of interest to them. The information in it is therefore general and should not be considered or relied on as legal advice.  Any quotes are the personal opinions of the relevant individuals and are not necessarily the view of Humphreys Law as a firm.