UK Chancellor delivers Autumn Statement

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November 17, 2022
2022-1727

In his Autumn Statement, the UK Chancellor has set out steps on taxation and spending, with a view that each should contribute in a broadly balanced way to repairing the UK's public finances.
From a business tax perspective, the Chancellor announced a new Electricity Generator Levy, changes to the Energy Profits Levy and a rebalancing of innovation tax reliefs while reaffirming the commitment to implementing the OECD's BEPS Pillar Two.
Tax rises for individuals and employers came in the form of a lower threshold at which the UK's 45% additional rate starts to apply and further freezing of other tax thresholds until April 2028.

Executive summary

On 17 November, the United Kingdom (UK) Chancellor, Jeremy Hunt, delivered his Autumn Statement. In opening his Statement, he said that in order to deal with unprecedented global headwinds, his focus would be on stability, growth and public services.

As far as tax is concerned, the Autumn Statement suggests that going forward, the fairest way to restore the public finances is to ask everyone to contribute a little, with those with the highest incomes and those making the highest profits paying a larger share. In his accompanying speech, the Chancellor added a second principle that the Government should avoid the tax rises that most damage growth.

Details of the key changes are set out below. We will add more information and comment on the proposals to our Budget website as supporting papers are published.

It does seem that we can look forward to an Autumn Finance Bill 2022 and a Spring Finance Bill 2023.

Our webcast on 18 November will look at the implications of the announcements in more detail. It will also be available on demand.

Detailed discussion

Business taxes

The Energy Profits Levy on Oil and Gas companies will increase to 35% (from 25%) and the levy (which was scheduled to end on 31 December 2025) will now remain in place until 31 March 2028. The rate of the investment allowance will reduce from 80% to 29% for all investment expenditure, except for decarbonization expenditure. The allowance will remain at 80% for decarbonization expenditure such as installing bespoke wind turbines to power the production installation. The Government states that this will bring the headline tax rate for the sector to 75%. The measures will be included in an Autumn Finance Bill 2022, except for the changes related to decarbonization expenditure which will be legislated for in a Spring Finance Bill 2023.

The Government will consult 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 ceases.

There will also be a levy on low-carbon electricity generators of 45% from 1 January 2023 on exceptional generation receipts, defined as: Generation Receipts — (Electricity Generation x £75MWh) — Group Allowance (£10m)

The measure will exclude generation that falls under the Contracts for Difference (CfD) regime. The levy will be limited, through a de minimis threshold, to those groups generating more than 100 Gigawatt-hours (GWh) per annum of electricity from in scope generation assets in a qualifying period. The legislation will be included in the Autumn Finance Bill and is understood to be a temporary measure until March 2028. This will replace the Cost-Plus Revenue Limit announced in October.

HM Treasury and HM Revenue & Customs (HMRC) have indicated that they will reach out to relevant generators to discuss how the proposed model set will be implemented in legislation. Draft legislation is expected to be published mid-December and included in the Autumn Finance Bill.

The Chancellor confirmed that he will implement the Base Erosion and Profit Shifting (BEPS) Pillar Two rules put forward by the Organisation for Economic Co-operation and Development (OECD). The rules will be implemented for accounting periods beginning on or after 31 December 2023. This will involve:

An Income Inclusion Rule (IIR) which will require large UK headquartered multinational groups to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%
A supplementary Qualified Domestic Minimum Top-up (QDMTT) tax rule which will require large groups to pay a top-up tax where their UK operations have an effective tax rate of less than 15%

Both the IIR and QDMTT will incorporate the substance-based income exclusion that formed part of the G20-OECD agreement. The rules will apply to large businesses operating in the UK with global revenues over €750m.

The Government intends to implement the backstop Undertaxed Profits Rule (UTPR) in the UK, but with effect no earlier than accounting periods beginning on or after 31 December 2024. HMRC had previously indicated that if a QDMTT rule were introduced it would come in alongside the UTPR, however, the Autumn Statement announcements make it clear it will come in with the IIR from 1 January 2024.

From April 2023, the tax relief for businesses for research and development (R&D) expenditure will be rebalanced between the R&D expenditure credit (RDEC) and the R&D tax relief for small and medium-sized enterprises (SMEs). The new rates will be 20% for RDEC, 86% additional deduction for SMEs, and 10% for SME payable credit. R&D tax reliefs will be subject to reform, as previously indicated by the Government, as part of its plans to encourage and support innovation. These changes will be in the Spring Finance Bill 2023. A new consultation has also been launched on reforms to audio-visual tax reliefs, which is open until 9 February 2023.

Following the decision to proceed with the corporation tax rate increase to 25% from April 2023, the changes to the "bank corporation tax surcharge" which are legislated to take effect from the same point are also now confirmed as going ahead. This means that from April 2023, banks will be charged an additional 3% rate on their profits above £100 million.

As already confirmed, from April 2023, the rate of diverted profits tax will increase from 25% to 31%, in order to retain a 6% differential rate above the main rate of corporation tax.

The annual investment allowance remains at its "permanent" level of £1m per year.

In relation to UK transfer pricing documentation requirements, the Autumn Statement confirms that the new rules will be legislated for in Spring Finance Bill 2023 and HMRC will continue to consult on the Summary Audit Trail.

The Autumn Statement sets out a package of targeted support to help with business rates costs worth £13.6 billion over the next five years. The business rates multipliers will be frozen in 2023-24, and upward transitional relief caps will provide support to ratepayers facing large bill increases following the revaluation from 1 April 2023. The relief for retail, hospitality and leisure sectors will be extended and increased, and there will be additional support provided for small businesses.

Personal taxes

From 6 April 2023, there will be a cut in the threshold at which the 45% additional rate of income tax applies from £150,000 per year to £125,140. The new lower threshold is the point at which the recapture of the personal tax allowances comes to an end. The personal allowance and the threshold for the basic rate of income tax, as well as the thresholds for National Insurance contributions (NIC), inheritance tax and pension tax allowances will now be frozen for an extra two years to April 2028. The Government will legislate for the income tax measures in Autumn Finance Bill 2022, and the NIC changes in affirmative secondary legislation in early 2023.

There are also cuts in the dividend allowance (from £2,000 per year to £1,000 per year from April 2023 and £500 from April 2024) and in the annual capital gains tax (CGT) allowance (from £12,300 per year to £6,000 from April 2023 and £3,000 from April 2024). The CGT proceeds reporting limit will also be fixed at £50,000 from April 2023.

There were no changes announced to the rates of income tax, the rates of CGT or the rate at which relief is given for pension contributions.

A new anti-avoidance measure deems securities in a non-UK company acquired in exchange for securities in a UK company to be located in the UK for the purpose of CGT. It applies 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. Individuals will pay tax on gains or dividend and distribution income received in respect of those securities deemed to be located in the UK in the same way as they would if the securities were in a UK company.?Draft legislation has been published alongside the Autumn Statement and will be included in the Spring Finance Bill 2023.

Employment taxes

The threshold for employers Secondary NICs is also frozen for the next five years. The Chancellor confirmed that the employment allowance will remain unchanged at £5,000 until March 2026.

Company Car Tax (CCT) percentages will increase by one percentage point for Electric Vehicles (EVs) and the <75g CO2 Ultra Low Emissions Vehicles (ULEV) band in 2025-26. Rates will increase a further one percentage point in 2026-27 and a further one percentage point in 2027-28, with rates for all other bands increased by +1% up to a maximum Appropriate percentage (AP) of 37%.

From 6 April 2023, car and van fuel benefit charges and the van benefit charge will increase in line with CPI. The Government will legislate for this by way of Regulations in December 2022.

The national living wage will increase to £10.42 from April 2023, and national minimum wage rates will also increase.

Having previously announced changes to the Seed Enterprise Investment Scheme and Company Share Option Plan to support innovation, the Government also sees the benefit in extending both the Enterprise Investment Scheme and Venture Capital Trusts in the future.

Outside the Autumn Statement documents, HMRC's agent update, published on 16 November 2022, moves to address the situation where employees are able to access their earned or accrued pay before payday. HMRC has taken the view that under current legislation, these advance payments are treated as a payment on account of earnings. This means that employers must submit additional real time information (RTI) reports to record these advance payments. However, it recognizes that the statutory position, if applied to salary advances, creates extra administrative burdens and to address these issues, HMRC will amend secondary legislation, so that salary advances can be reported on or before the employee's contractual pay day. This means each payment of salary only needs to be included on an RTI report once.

Other taxes

The stamp duty land tax threshold changes introduced in September will now become temporary, remaining in place only until 31 March 2025, when they will sunset. The annual chargeable amounts for the annual tax on enveloped dwellings (ATED) will be uplifted by the September CPI figure of 10.1% for the 2023-24 ATED charging period.

The Government will also refocus the Investment Zones program and aim to use this program to identify and support a limited number of the highest potential knowledge-intensive growth clusters. The existing expressions of interest will therefore not be taken forward.

The Chancellor has confirmed that the current value added tax registration (£85,000) and deregistration thresholds (£83,000) will be maintained for an additional two years from 1 April 2024.

The Government has decided not to introduce an Online Sales Tax (OST) due to the complexities of such a tax as well as the risk of creating unintended distortion or unfair outcomes between different business models. A response to the OST consultation will be published shortly.

To ease pressure on the costs for UK producers the Government will remove tariffs on over 100 goods for two years. The measure will remove tariffs as high as 18% on goods ranging from aluminum frames used by UK bicycle manufacturers to ingredients used by UK food producers.

Electric vehicles will become subject to vehicle excise duty from 2025. The Government will also legislate in Spring Finance Bill 2023 to extend the 100% First Year Allowance for electric vehicle chargepoints to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

The Government will legislate in Spring Finance Bill 2023 to raise the climate change levy (CCL) main rate on gas to £0.00775/kWh while freezing the CCL main rate on electricity at £0.00775/kWh in 2024-25. The CCL main rate on solid fuels will rise in line with the increase in the CCL main rate on gas to £0.06064/Kg in 2024-25. To help ensure the tax system treats fuels that are used off the gas grid equitably, the Government will maintain the CCL main rate on LPG at £0.02175 in 2024-25.

The percentage discount on the CCL main rates available through the Climate Change Agreement scheme will be fixed at 92% for electricity and 77% for LPG. The discounts for gas and solid fuels will be adjusted to 89% to produce an RPI increase from 2023-24 into 2024-25.

The Government will maintain Carbon Price Support rates at a level equivalent to £18 per ton of carbon dioxide in 2024-25. The Government will engage with industry and conduct a review of the CPS beyond the announced rates.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United Kingdom), London