On 22 November 2023, Chancellor Jeremy Hunt delivered his Autumn Statement, potentially the last such statement to precede the next UK general election.
Despite mounting speculation over the past few days, there were no rabbits in the Chancellor’s hat, and today’s announcements were broadly in keeping with expectations. The headline items included the announcement that the current full expensing policy for businesses will be made permanent – a move which the Chancellor heralded as “the biggest business tax cut in modern British history” – and various changes to National Insurance contributions (NICs), including a reduction of the main rate and the abolition of Class 2 NICs for self-employed individuals.
We will need to wait for a Spring Budget to see if the Chancellor has anything else up his sleeve, particularly as regards some of the more notable omissions from today’s statement, including predicted cuts to Inheritance Tax and Stamp Duty Land Tax.
Below is a summary of the key measures relevant to our clients. Please contact a member of the Weil London Tax team if you would like to discuss anything in further detail.
Business and International Tax
Tax rates: The headline rate of corporation tax will remain at 25%.
Full expensing: The full expensing policy announced at Spring Budget 2023, permitting a 100% capital allowance for qualifying expenditure on the provision of new plant and machinery for the period from 1 April 2023 to 31 March 2026, will be made permanent. The Government will also launch a consultation on further simplifications of the UK’s capital allowances regime.
UK implementation of Pillar 2: UK legislation implementing the OECD’s global minimum “Pillar 2” tax initiative will take effect, as planned, for accounting periods beginning on or after 31 December 2023. The Government will include legislation in Autumn Finance Bill 2023 to amend the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) introduced in Spring Finance Bill 2023 for consistency with the relevant international guidance and to clarify certain areas identified by a stakeholder consultation, such as the treatment of securitisation vehicles. The Government has also confirmed its commitment to introduce the Undertaxed Profits Rule, the final piece in the Pillar 2 puzzle, for accounting periods beginning on or after 31 December 2024.
Stamp duty: The exemption from UK stamp duty and stamp duty reserve tax (SDRT) for trades made on a ‘recognised growth market’ (the Growth Market Exemption) will be extended in two respects. Firstly, Financial Conduct Authority regulated multilateral trading facilities, run by investment firms, that are approved as ‘recognised growth markets’ by HMRC, will be allowed to access the Growth Market Exemption. Secondly, the condition that a majority of companies trading on the ‘recognised growth market’ must be companies with a market capitalisation of less than £170 million will be relaxed by increasing the capitalisation cap to £450 million. These changes will take effect from 1 January 2024.
Separately, as announced on 14 September 2023, the 1.5% charge to UK stamp duty and SDRT on the issuance of UK securities into a clearance service or depositary receipt service will be removed with effect from 1 January 2024, with legislation to be included in the Autumn Finance Bill 2023, although it is helpful that resolutions have been passed addressing concerns around a period of uncertainty prior to the Bill being enacted.
Measures relating to Research & Development (R&D) tax reliefs: The existing Research and Development Expenditure and SME schemes will be merged into an aligned set of qualifying rules which will be included in the Autumn Finance Bill 2023. From 1 April 2023, additional tax relief will be available for R&D intensive loss-making SMEs. In addition, for accounting periods beginning on or after 1 April 2024 the qualifying intensity threshold will be reduced from 40% to 30%, and a one-year grace period will be introduced to enable companies that fall below the 30% qualifying R&D expenditure threshold to continue to receive relief for one year.
Further amendments to the UK Real Estate Investment Trusts (REIT) regime: Following the publication of draft legislation in July 2023, the UK government has announced additional amendments and clarifications to the tax rules applying to REITs, including some of the qualifying conditions. These amendments are intended to enhance the attractiveness of the UK REIT regime for investment in UK real estate, and bring the administrative elements of the REIT regime in line with commercial practice.
The key changes which will take effect from Royal Assent of the Autumn Finance Bill include amendments to the definition of “institutional investor” to require certain collective investment schemes and persons acting in the course of a long-term insurance business to meet either (1) a genuine diversity of ownership condition or (2) a non-close condition, in the context of the 70% ordinary share capital ownership requirement if the shares in a UK REIT are not admitted to trading on a recognised stock exchange, and amendments to enable insurance companies to hold an interest of 75% or more in a UK REIT group.
The REIT rules will also be amended to make clear that, among other things, it is possible to trace through intermediate holding companies where an institutional investor is the ultimate beneficial owner of the shares in a REIT.
Oil & Gas Energy Transition
There were no changes to the rates for ring fence corporation tax, supplementary charge or energy profits levy (EPL) which apply to UK oil and gas companies. Consistent with the Government’s tone in recent months, some further measures were announced to support the industry:
- It was reconfirmed that EPL, which currently applies at 35% and is widely viewed as a windfall tax, will end in March 2028, or earlier if the “Energy Security Investment Mechanism”, which switches off EPL when prices fall beneath a certain threshold, is triggered. Legislation will be introduced in due course to give effect to this measure.
- A response has been published to the Government’s recent “Call for Evidence” in relation to the Oil and Gas Fiscal Regime. A theme running through this response was a commitment to improving predictability and certainty, with a promise of finding a “new mechanism” to respond to price fluctuations (rather than the sudden introduction of a windfall tax, such as EPL). There was also a commitment to remove barriers to the energy transition in the form of introducing tax relief for payments made into decommissioning funds for assets that are repurposed for use in Carbon Capture Usage and Storage (CCUS). Legislation will also be introduced to remove receipts from the sale of oil and gas assets which are repurposed for use in CCUS from the EPL. The timing of such legislation is unclear.
Personal Tax and Individual Investor Reliefs
Tax rates: There are no changes to the rates of income tax or capital gains tax.
National Insurance contributions (NICs): The main rate of Class 1 employee NICs which applies to earnings between £1,048 and £4,189 a month has been cut from 12% to 10%, effective from 6 January 2024. In relation to the self-employed (which generally includes members of a trading LLP), two changes have been made, effective from 6 April 2024: (i) the main rate of Class 4 self-employed NICs has been cut from 9% to 8%, on all earnings between £12,570 and £50,270;. and (ii) Class 2 self-employed NICs (which applied to self-employed individuals with profits above £12,570) will be abolished (but these individuals will continue to receive access to contributory benefits, including the State Pension).
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs): The Government will introduce legislation in Autumn Finance Bill 2023 to extend existing sunset clauses for these schemes from 6 April 2025 to 6 April 2035, allowing the continuing availability of income tax and capital gains tax reliefs for investors in qualifying companies and VCTs.
Previously Announced Measures
Off-payroll working (IR35): Following responses to a consultation launched in April 2023 in relation to off-payroll working, Autumn Finance Bill 2023 will contain legislation giving HMRC the power to set off amounts of tax and NICs already paid by a worker and their intermediary from engagements under the IR35 rules against a subsequent PAYE liability of their deemed employer. The new measures will apply to income tax and NICs liabilities assessed under PAYE on or after 6 April 2024 which arise as a result of an error in operating the off-payroll working rules in respect of deemed direct payments made from 6 April 2017.
Promoters of tax avoidance: Following a consultation launched at Spring Budget 2023, Autumn Finance Bill 2023 will legislate for two previously announced measures aimed to increase deterrence for promoters of tax avoidance. The legislation will: (i) create a new criminal offence for tax avoidance promoters who fail to comply with a Stop Notice under the Promoters of Tax Avoidance Schemes regime; and (ii) enable HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance, including individuals who control or exercise influence over a company. The measures will take effect where an offence is committed on or after Royal Assent of Autumn Finance Bill 2023.
Enterprise Management Incentives (EMI): Further to an announcement in Spring Budget 2023, Autumn Finance Bill 2023 will extend the deadline for notifying HMRC of the grant of EMI options from 92 days after grant to 6 July following the end of the tax year in which the grant was made. The change will apply to EMI options granted on or after 6 April 2024.
Pensions – abolition of lifetime allowance: The Government confirmed that it will introduce legislation in Autumn Finance Bill 2023 to complete the work needed to abolish the lifetime allowance, which limits the total value of pension benefits which can be accumulated with tax relief. The legislation will also clarify the tax treatment for overseas pensions, transitional arrangements and reporting requirements. The new measures will take effect from 6 April 2024.