Autumn Statement 2022 | What tax measures were announced?

The UK chancellor, Jeremy Hunt, has announced a raft of tax measures in his Autumn Statement that aim to create fiscal stability, control inflation and fill the hole in the public finances following Kwasi Kwarteng's emergency fiscal package in September.

The government’s action to repair the public finances will also be supported by a package of measures to tackle tax avoidance, evasion, and wider non-compliance with additional compliance resource for HMRC.

Business tax

Energy Profits Levy

The chancellor confirmed that the Energy Profits Levy, the temporary windfall tax on oil and gas companies – which is currently an additional 25% tax on top of the existing 40% headline rate of tax for those companies – will increase to 35%. He also confirmed that the levy, which was due to end in 2026 will be extended for a further two years (from 1 January 2023 until 31 March 2028).

The investment allowance will be reduced to 29% for all investment expenditure (other than decarbonisation expenditure which will remain at 80%).

Electricity Generator Levy

Alongside the extension of the Energy Profits Levy, the chancellor announced a new temporary 45% tax on extraordinary returns (exceeding £10m) from low-carbon UK electricity generation from 1 January 2023 until 31 March 2028.

The levy will be applied to groups generating electricity from nuclear, renewable and biomass sources but will not apply to electricity that is generated under a Contract for Difference entered into with the Low Carbon Contracts Company Ltd. A technical note containing the detail was produced alongside the autumn statement.

Research and development tax credits

The Growth Plan, published by the previous chancellor in September, highlighted that the government would continue the review of research and development (R&D) tax reliefs (which was launched in 2021). Although, as part of that review, several reforms have since been announced, there had been concern that the system for small and medium-sized enterprises (SMEs) offers poor value for money and is open to fraud.

As a result, the chancellor announced that for expenditure on or after 1 April 2023, the additional deduction for SMEs will decrease from 130% to 86%, and the credit rate will decrease from 14.5% to 10%; however, the research and development expenditure credit rate (applicable for larger companies who undertake R&D) will increase from 13% to 20%.

The government has also launched a consultation to simplify and modernise the audio-visual tax reliefs support which incentivises the production of culturally British film, animation, high-end TV, children’s TV and video games, which is open until 9 February 2023.

Banking surcharge

The government has confirmed that the rate of the banking surcharge will, as already legislated for, reduce to 3% (from 8%) with effect from 1 April 2023 (to coincide with the increase in the main corporation tax rate to 25%).

Many had thought that the government would revisit this cut due to the current economic climate but, despite the reduction, banks will be paying an effective corporation tax rate of 28% which is 1% higher than the current rate levied on banks. 

Diverted Profits Tax

The government confirmed that from April 2023 the rate of Diverted Profits Tax will increase from 25% to 31% (to maintain the 6% differential above the main corporation tax rate which will increase from 19% to 25% from 1 April 2023).

Investment zones

Kwasi Kwarteng announced in his original Growth Plan on 23 September 2022 that investment zones would be established where tax benefits (such as capital allowances, Stamp Duty Land Tax (SDLT) and business rates relief) would be available for ten years.

Following a previously announced review of the investment zones, the government has confirmed that the programme will be refocused on a limited number of the highest potential knowledge-intensive growth clusters, including through leveraging local research strengths. Further detail will be announced in the coming months and the existing expressions of interest will therefore not be taken forward.

Employee share plans

As expected, the chancellor did not make any new announcements specifically in relation to employee share plans.  He confirmed the previously announced reforms to the tax-advantaged Company Share Option Plan (CSOP), namely that the government is increasing the generosity and availability of CSOP.

Business rates

The issue of reforming business rates has been on the government's agenda for some time (following a fundamental review which concluded in 2021). The government announced that as part of that reform it has decided not to introduce an Online Sales Tax (a response to the consultation on this will be published shortly) and from 1 April 2023 business rate bills in England will be updated to reflect changes in property values since the last revaluation in 2017. A new targeted relief worth £13.6bn over five years will be available to ease the burden for retail, hospitality, leisure and small businesses.

Global minimum tax

The chancellor confirmed that the government will continue to implement the Organisation for Economic Co-operation and Development's Pillar 2 – a global minimum corporate tax rate of 15% for multinational enterprises that meet a €750m turnover threshold.

Some draft legislation has already been published as part of "legislation day" on 20 July 2022 and the changes will come into effect in the UK for accounting periods beginning on or after 31 December 2023. The autumn statement confirmed, however, that the backstop undertaxed profits rule will be introduced in the UK not earlier than for accounting periods beginning on or after 31 December 2024.

VAT and indirect taxes

In keeping with the theme of freezing allowances, the chancellor confirmed that the VAT registration threshold (of £85,000) and deregistration threshold (of £83,000) will be maintained for a further two years until 1 April 2026.
The chancellor also confirmed that electric vehicles (cars, vans and motorcycles) will no longer be exempt from vehicle exercise duty from April 2025.

Personal tax

Income tax and National Insurance

As expected, although the chancellor did not raise the rate of income tax, the four-year freeze in the personal tax allowance of £12,570 and higher rate income tax threshold (of £50,270), which was due to end in April 2026, has been extended a further 2 years to April 2028.

Similarly, the National Insurance contributions upper earnings and profits limit, which were aligned to the higher rate income tax threshold £50,270, will also remain frozen until April 2028.

The chancellor has also lowered the £150,000 threshold at which taxpayers start paying the additional rate of income tax (45%) to £125,140.

The result is that millions more people will be brought either into the tax system for the first time or into the higher or additional rate bands.

Dividend tax

The chancellor has also cut the tax-free allowance on dividend income from £2,000 to £1,000 from April 2023 and then further to £500 from April 2024.

Capital Gains Tax

The chancellor did not increase the headline rates of Capital Gains Tax (CGT) but did announce that the annual exemption amount will reduce from £12,300 to £6,000 from April 2023 then to £3,000 from April 2024.

The chancellor also announced a CGT anti-avoidance measure, which aims to prevent UK resident non-domiciled individuals, who exchange securities in a UK company for securities in a non-UK company, from accessing the remittance basis of taxation on gains realised on the disposal of those non-UK securities or distributions received in respect of those securities. A policy paper has been published alongside the draft legislation. 

Inheritance Tax

In keeping with the other extensions of frozen allowances in other taxes, the chancellor has extended a freeze in the Inheritance Tax (IHT) nil-rate band, which was due to end in April 2026, for a further two years until April 2028. The IHT nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million.

Stamp Duty Land Tax

The chancellor confirmed that the SDLT cuts on residential property which were introduced in the September emergency fiscal plan (and were not reversed alongside many of the other measures by the new chancellor in his statement in October) will remain in place but they will be time limited to 31 March 2025. 

Osborne Clarke comment

The chancellor was careful in his plans by not raising headline tax rates and, therefore, arguably not breaking the 2019 Conservative party election manifesto pledge not to raise the rates of income tax, VAT and National Insurance.  However, the effect of freezing allowances and thresholds and cutting exemptions across a raft of taxes for another two years with inflation so high, is that "fiscal drag" will bring millions more people into the tax system and making much higher tax payments.

Although the tone of the statement was far more cautious than the "Growth Plan" announced by the previous chancellor, economic growth and innovation in the UK featured throughout the wider proposals, although the restriction of the R&D tax credit scheme for SMEs may seem at odds with this commitment.

While reducing inflation must be the chancellor's most important growth strategy for the short term, it is clear that this will come at a cost of an increased tax burden for individuals and businesses alike. While the financial outlook may appear more stable following these measures, there are clearly difficult times ahead.