The windfall taxes are the noteworthy tax-generating announcements. The energy windfall tax (Energy Profits Levy) has been increased to 35%, and a temporary 45% levy introduced on electricity generators. The timeframe the windfall tax will apply has also been extended to 2028. These measures are expected to raise £14 billion next year and £55 billion over the life of the levies. Further detail on the measures and their impact are discussed here.
Although today’s announcements represent some level of stability and certainty for businesses, keeping the scheduled increase of the corporation tax rate to 25% firmly on the cards may have an immediate impact on business decisions and forecasts. Companies may wish to consider accelerating taxable transactions or income recognition where possible before April 2023.
To target abuse and improve compliance, it was announced following consultations, that the Research and Development (R&D) tax reliefs will be reformed. The relief aimed at large businesses, R&D Expenditure Credits (RDEC), will become more generous whilst the relief aimed at Small and Medium Enterprises (SMEs) is reducing. Our R&D experts consider this in more detail in their article.
Businesses are demanding simplicity and certainty from the tax system. We have long heard commitments from Chancellors to simplify the tax system but have not yet seen the root and branch simplification that is desperately needed. With the proposed abolition of the Office of Tax Simplification, the drive for simplicity needs to be taken on seriously by internal Government departments.
We hope to see evidence of this at the next Budget and in the outcome of consultations.
Other key business announcements
With the return of the planned corporation tax increase to 25%, the corresponding changes to the bank corporation tax surcharge and the diverted profits tax are re-instated. From 1 April 2023, the combined rate of tax on bank profits above £100m will be 28% and the diverted profit tax will remain 6% above the main rate at 31%. Companies impacted may wish to consider accelerating taxable transactions or income recognition where possible before April 2023.
The Government continues to announce its commitment to supporting research and innovation, with an increase to public funding of R&D by £20 billon and an aspiration to turn the UK into the ‘next Silicon Valley’. Alongside the re-targeting of the R&D tax reliefs, the investment zones announced in the ‘mini-Budget’ in September will still go ahead but will be re-focused on knowledge-intensive sectors.
Further reforms on capital allowances were not announced today and we await the response to the capital allowances consultation launched in summer, which includes what will replace the valuable but temporary ‘super-deduction’.
The VAT registration and deregistration thresholds have been frozen for a further 2 years, from 1 April 2024 until 1 April 2026. The current VAT registration threshold in the UK is £85,000. Although the UK still has a higher registration threshold than many other jurisdictions, this will result in many more small businesses being liable to register for UK VAT.
The Chancellor announced customs tariff suspensions, removing tariffs on import of over 100 goods for two years. This supply side reform will remove tariffs as high as 18% on goods ranging from aluminium frames used by UK bicycle manufacturers to ingredients used by UK food producers. A full schedule of the goods applicable should be released in the coming days.
There were several announcements in relation to business rates, including welcome news that the uniform business rates multiplier will be frozen at current rates. This will provide some short to medium term certainty for those trying to budget and survive other economic pressures. The British high street and its retailers will be overwhelmingly pleased that an extension and increase in the retail, hospitality and leisure (RHL) relief was confirmed. See our business rates article for a full appraisal of the measures and relevant planning points.
The employment taxes announcements represent a slow creep in taxation and widening of the tax base, with income tax thresholds to be frozen for a further two years to April 2028. The threshold at which workers start paying NICs and the threshold at which employers start to pay NICs will also be fixed until April 2028.
In addition, the Chancellor also announced that the threshold over which individuals are subject to the additional rate of income tax (45%) will reduce from £150,000 to £125,140 from April 2023.
As wages continue to grow, employees will undoubtedly notice the impact of these threshold freezes in real terms, as will employers. The additional rate change will need to be considered as part of the Pay-As-You-Earn employee tax collection system.
The increasing popularity of electric vehicles (EVs) will continue to be supported with the Chancellor confirming that the benefit in kind (BIK) charge on EVs of 2% will remain in place until 2025 but will then increase by 1% each year until it reaches 5% in 2027/28
See our article for full analysis of the employment tax measures in more detail.
Multinational groups (MNEs)
For larger MNEs, with turnover above €750m, there was confirmation of measures that are already in the pipeline. The implementation of the OECD’s global minimum level of tax (Pillar 2) is set to apply for accounting periods beginning on or after 31 December 2023. Draft legislation was already published in July and there is on-going work for how to effectively apply the rules. Relevant MNEs should start planning for the information that will need to be submitted and modelling any potential impact. It is worth noting that the rules could even apply to UK-only groups, with the Government forecasting this measure will generate £2 billion a year from 2027-28.
The requirement for UK large businesses to complete a ‘Local file’ and ‘Master file’ for transfer pricing documentation will be well understood by most relevant MNE’s and bring the UK in-line with many other jurisdictions. The new requirement will apply from April 2023. There will be further consultation on the ‘Summary Audit Trail’, which means additional disclosure on steps taken to prepare the local file.
Please speak to your usual adviser or one of the contacts listed if you would like to discuss the impact of the above on your business
Autumn Statement 2022
Analysis and commentary from the experts at Evelyn Partners, identifying the key tax changes and outlining the practical implications for you and your business.