On 17 November 2022, Chancellor Jeremy Hunt delivered his Autumn Statement, highlighting the government’s priorities of stability, growth and public services and remarking that the “path to growth” requires difficult decisions. Having already reversed many of the changes introduced by his immediate predecessor, Kwasi Kwarteng, in the short-lived September Mini Budget and Growth Plan 2022, the Chancellor has now announced further steps aimed at “delivering fiscal sustainability” and restoring the public’s confidence “at a time of significant economic challenge for the UK and the global economy”.
On the personal tax front, today’s announcements have certainly been consistent with the Chancellor’s previous messages that sacrifices would need to be made: the threshold at which the additional (45%) rate of income tax “bites” is to be significantly lowered, and both the annual exempt amount for capital gains tax purposes and the dividend allowance are to be reduced. As the Chancellor promised, everyone will indeed be paying “a bit more tax”. Looking on the bright side, however, some may be breathing a sigh of relief that the government has (at least for now) opted against an alignment of income tax and capital gains tax rates or an increase in the tax rates for carried interest, although today’s announcements included promise of a package of as yet unannounced measures to raise further revenue over the next five years.
The energy sector remains subject to continued scrutiny in light of the ongoing surge in energy prices, and the Chancellor has not only increased the existing Energy Profits Levy but additionally announced the introduction of a new Energy Generator Levy.
The Chancellor is also proceeding with a number of previously announced measures, including the UK’s implementation of the OECD Pillar 2 rules. Today’s statement also heralds further measures on the horizon aimed at tackling tax avoidance, evasion and non-compliance, adding to the UK’s already complex web of anti-avoidance legislation.
We have summarised below key tax-related measures that reflect the current state of play following today’s statement. Please contact a member of the Weil London Tax team if you would like to discuss anything in greater detail.
- Corporation tax (CT):
- Main CT rate: The planned increase in the CT rate to 25% for companies with annual profits over £250,000 will go ahead from 1 April 2023. The Small Profits Rate of 19% will apply to companies with profits of £50,000 or less (with the rate being tapered for companies with profits between the two bands).
- Bank corporation tax surcharge: The banking surcharge will fall from 8% to 3%, neutralising much of the impact of the increase in the headline tax rate for banks (the headline rate for banks will now be 28%, rather than 33% had the surcharge remained at 8%).
- Pillar 2: The OECD Pillar 2 rules will be implemented in the UK for accounting periods beginning on or after 31 December 2023, effectively delivering a global minimum corporation tax rate of 15%. The UK is already a leader on this front, having published draft legislation in July 2022.
- Capital allowances: The Annual Investment Allowance (AIA) will be set at £1 million from 1 April 2023, its highest ever permanent level.
- Transfer pricing: From April 2023, large multinational businesses will be required to keep and retain transfer pricing documentation in a prescribed and standardised format (as set out in the OECD’s Transfer Pricing Guidelines).
- VAT: The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2024 and will remain at £85,000.
- Energy Profits Levy (EPL):
- From 1 January 2023, the EPL will increase by 10% to 35% and the investment allowance will be reduced to 29% for all investment expenditure (other than decarbonisation expenditure). Decarbonisation expenditure will continue to qualify for the current investment allowance rate of 80%.
- The EPL will end on 31 March 2028.
- The government will consult stakeholders as part of a review of the UK’s long-term tax treatment of the North Sea after the EPL ceases.
- Energy Generator Levy (EGL):
- The government is introducing a new EGL, a temporary 45% tax that will be levied on extraordinary returns from low-carbon electricity generation arising from 1 January 2023.
- The tax will be limited to generators whose in-scope generation output exceeds 100GWh across a set period and will only apply to extraordinary returns exceeding £10 million.
- Income tax:
- Following widespread speculation, the Chancellor confirmed that the additional (45%) rate threshold will indeed be lowered, falling to £125,140 (from the existing £150,000) from 6 April 2023.
- Other income tax thresholds, including those for the basic (20%) and higher (40%) rates, will remain fixed until April 2028.
- Capital gains tax (CGT): The Annual Exempt Amount (i.e. the amount of an individual’s net gains that are exempt from CGT in a given tax year), will be reduced from £12,300 to £6,000 from April 2023 and further reduced to £3,000 from April 2024.
- Dividend allowance: The allowance, which exempts dividend income below a certain threshold from income tax, will fall to £1,000 (from the current £2,000) from April 2023, and then to £500 from April 2024.
- National Insurance Contributions (NI / NICs):
- Following a reversal of changes to the NI threshold earlier this Autumn, and the abolition of the previously announced Health and Social Care Levy, existing NI thresholds will now be maintained at their current levels until April 2028.
- In particular, the Class 1 secondary / employer’s NICs threshold will be fixed at £9,100 from April 2023 until April 2028.
- Inheritance Tax (IHT): The current IHT thresholds will also be maintained until April 2028.
- Seed Enterprise Investment Scheme (SEIS) and Company Share Option Plans (CSOPs): As previously announced at Mini Budget 2022, the government will increase the generosity and availability of the SEIS and CSOPs. Previously, companies seeking to benefit from SEIS were required to have gross assets of no more than £200,000 – this has been increased to £350,000. The annual investor limit will also be doubled to £200,000. For CSOPs, the current limit on the value of shares (at the time of grant) under option will be increased from £30,000 to £60,000, and certain restrictions on classes of shares under option will also be removed.
- Vehicle excise duty (VED): From April 2025, VED will apply to electric vehicles as well as petrol and diesel vehicles.
- Stamp Duty Land Tax: In September, the nil-rate threshold increased from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland, and the nil-rate threshold for first-time buyers increased from £300,000 to £425,000. The cap on the purchase price for which First Time Buyers’ Relief could be claimed was also increased from £500,000 to £625,000. Although these changes have not been undone, the government has announced that the measures are temporary and will remain in effect only until 31 March 2025.
- Annual Tax on Enveloped Dwellings (ATED): The ATED is an annual charge on UK residential property held by non-natural persons. The annual chargeable amounts for ATED will be uplifted by the September CPI figure of 10.1% for the 2023-24 ATED charging period, although the government has noted that this uplift is a routine change in accordance with existing legislation.
TAX AVOIDANCE, EVASION AND NON-COMPLIANCE
- As mentioned above, a package of as yet unannounced measures are expected to raise an estimated £1.7 billion over the next five years.
- CGT: To prevent CGT avoidance, 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 i) an individual has a material interest in both the UK and the non-UK company, and ii) the share exchange is carried out on or after 17 November 2022. This will possibly be of most interest to “non-dom” individuals.