The Autumn Statement 2022 was pre trailed as tax raising and expenditure cutting.  In practice most of the hard lifting has been achieved by freezing tax thresholds for the next five years and keeping to existing spending limits, enabling inflation to bite into living standards over the years ahead.

Business in general will be relieved that few unexpected tax increases were announced.  Corporation tax, as previously announced, will rise to 25% from 1 April 2023, with the banking surcharge rate being reduced to 3%.  The diverted profits tax will also increase to 31%.  Following consultation, an online sales tax will not be introduced.

However, the energy profits levy is increasing to 35% with reduced investment allowances from 1 January.  The levy will remain until 31 March 2028.  Similarly, a new electricity generator levy will apply a 45% tax on extraordinary returns from low carbon UK electricity generation from 1 January 2023 until 31 March 2028.

Following consultation over the summer, the Government will legislate to implement pillar 2 of the OECD-G20 Inclusive Framework.  For accounting periods beginning on or after 31 December 2023, large UK headquartered multinational groups will have to pay a top up tax where their foreign operations have an effective tax rate of less than 15%.  A domestic minimum top up tax of 15% will also apply to UK operations with an effective tax rate of less than 15%.  Other major countries are also planning to introduce the same rules.

As announced previously, the annual investment allowance for capital expenditure is remaining at £1 million permanently, enabling businesses to get immediate tax relief for the first £1 million of expenditure on qualifying capital assets.  There was no update on the capital allowance super-deduction and so we can expect this to end as planned on 31 March 2023.

There will be a consultation on the design of a new single scheme for research and development tax reliefs bringing small and medium sized businesses in line with large companies.  In the interim, from 1 April 2023, the research and development expenditure credit is increasing from 13% to 20%, whilst the additional deduction for small and medium sized businesses is reducing to 86% from 130% with the credit rate for refunds reducing from 14.5% to 10%. 

For employers the national insurance employment allowance is frozen at £5,000 and the secondary threshold at £9,100 until 31 March 2028.  This will increase the real NIC cost to employers.

Whilst the freezing of personal allowances, higher rate threshold and national insurance thresholds will impact all individual taxpayers, the halving in 2023 and then halving again in 2024 of the dividend allowance and capital gains tax annual exempt amount will impact those with investment portfolios outside tax exempt ISAs.  Similarly, the expansion of the 45% tax band to those earning more than £125,140 will not impact the vast majority of individuals.  The retention of the 20% basic rate of income tax was as previously announced.

There were no changes in capital gains tax rates, or pension taxation which had been subject to speculation in the media in the run up to the statement.  Similarly, other than the introduction of a specific measure for non-doms in relation to share exchanges and freezing of Inheritance Tax Nil Rate bands, there were no changes to the domicile rules and remittance basis or to capital taxes.

In summary, the tax changes announced in the Autumn Statement were kept to a minimum, with the increase in effective tax rate arising through the workings of inflation and the freezing of tax thresholds.  This could be seen as a missed opportunity to reform the tax system, in areas such as the taxation of the gig economy, home working and effective income tax rates.  It is also still too early to understand the Government’s longer term approach to tax policy making and how the tax system interacts with broader government objectives such as net zero and levelling up.

For further details of the Chancellor’s announcements please see our additional commentary below and register for our webinar that will take place on 21 November.

Hear from our experts on the Autumn Statement 2022

Corporate tax

  • The following announcements were made in respect of Research and Development (R&D) tax reliefs:
    • the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% for expenditure on or after April 2023;
    • the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10% for expenditure on or after April 2023;
    • the Government will consult on the design of a simplified, single RDEC-like scheme for all businesses; and
    • previously announced reforms to expand qualifying expenditure to include data and cloud costs, refocus support towards innovation in the UK, and target abuse and improving compliance will go ahead as planned.
  • The Government confirmed that the following previously announced measures will go ahead:
    • the headline rate of Corporation Tax will increase to 25% for companies with over £250,000 in profits from 1 April 2023;
    • the rate of Diverted Profits Tax will increase from 25% to 31% from 1 April 2023;
    • the banking surcharge rate will be reduced to 3% from 1 April 2023. This was first announced in the 2021 Autumn Budget and has already been enacted. However, there was uncertainty it would go ahead as it was cancelled in the September 2022 ‘mini Budget’.
    • the Annual Investment Allowance (AIA) will be permanently kept at its current level of £1 million; and
    • from April 2023, large multinational businesses operating in the UK will be required to keep and retain transfer pricing documentation in a prescribed and standardised format, set out in the OECD’s Transfer Pricing Guidelines (Master File and Local File).
  • Following consultation earlier this year, the Government has decided not to introduce an Online Sales Tax (OST). The Government’s response to the OST consultation will be published shortly.
  • A consultation has been opened on reforms aiming to simplify and modernise the audio-visual subset of the creative industry tax reliefs, covering film, animation, high-end TV, children’s TV and video games.
  • Additional detail has been given on the timeline for the UK implementation of the OECD Pillar 2 rules for a global minimum corporate tax rate. As announced previously an Income Inclusion Rule (IIR) will broadly 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% for accounting periods beginning on or after 31 December 2023. It has now also been confirmed that for accounting periods beginning on or after 31 December 2023 the Government will introduce a supplementary Qualified Domestic Minimum Top-up (QDMTT) tax rule which will require large groups, including those operating exclusively in the UK, to pay a top-up tax, broadly where their UK operations have an effective tax rate of less than 15%. The Government also confirmed its intention to implement the backstop Undertaxed Profits Rule in the UK, but with effect no earlier than accounting periods beginning on or after 31 December 2024.
  • Previously proposed technical changes to the capital allowance super-deduction rules will no longer be made, as these are not required in light of the increase in the main rate of Corporation Tax. There was no further mention of the super-deduction and it therefore appears that this will not be extended.

Income tax allowances, bands, and rates for individuals

  • The basic, higher, and additional rates of income tax will remain at 20%, 40%, and 45% respectively for 2023/24.
  • The personal allowance will remain frozen at £12,570 for a further two years until 6 April 2028. The married couples’ allowance will be uprated by September CPI of 10.1% for 2023/24.
  • The higher rate threshold will remain frozen at £50,270 for a further two years until 6 April 2028, but the additional rate threshold will reduce from £150,000 to £125,140 from 6 April 2023.
  • The annual dividend allowance will decrease from £2,000 to £1,000 from 6 April 2023 and to £500 from 6 April 2024. The dividend ordinary, upper, and additional rate of income tax will remain at 8.75%, 33.75%, and 39.35% respectively for 2023/24.
  • The Scottish Parliament and the Senedd will set rates of income tax on non-savings and non-dividend income payable by Scottish and Welsh taxpayers respectively. The Scottish Parliament will also set the tax bands for Scottish taxpayers’ non-savings and non-dividend income.

Non-domiciled individuals and the remittance basis

  • Despite speculation, the taxation of non-domiciled individuals remains unchanged except for a specific measure in relation to share for share exchanges involving a UK company and a non-UK company. 

National Living Wage (NLW) and National Minimum Wage (NMW)

  • From 1 April 2023, the NLW for those aged 23 or over will increase from £9.50 per hour to £10.42 per hour, with the NMW increasing to £10.18 per hour for those aged 21 to 22, £7.49 per hour for those aged 18 to 20, £5.28 per hour for those aged 16 to 17, and the apprentice rate will increase to £5.28 per hour. The accommodation offset will increase to £9.10 per hour

Employment income and NIC

  • As previously announced, Class 1A NIC, Class 1B NIC, and employer’s NIC in respect of directors who are subject to an annual earnings period will revert to 13.8% for 2023/24. 
  • Other rates of employee’s and employer’s NIC will remain frozen for 2023/24. 
  • Employee’s and employer’s NIC thresholds will remain frozen for 2023/24 and, broadly, are expected to remain at their current levels until 6 April 2028. 
  • On company car taxation, the appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2/km will increase by 1 percentage point in each of 2025/26, 2026/27, and 2027/28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.  
  • The rates for all other vehicles bands will increase by 1 percentage point for 2025/26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026/27 and 2027/28.  
  • From 6 April 2023, car and van fuel benefit charges and van benefit charge will increase in line with CPI. 

Self-employed income and NIC

  • Class 2 and 3 NIC rates will increase in line with CPI for 2023/24. 
  • The associated NIC thresholds will remain frozen for 2023/24 and, broadly, are expected to remain at their current levels until 6 April 2028. 

Capital Gains Tax (CGT)

  • The annual exempt amount will reduce from £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024. 

Inheritance Tax (IHT)

  • The IHT threshold and residence nil rate band will remain frozen at £325,000 and £175,000 respectively for a further two years until 6 April 2028. 

Windfall taxes

  • The rate of the Energy Profits Levy, which applies to the profits of oil and gas companies operating in the UK and the UK Continental Shelf, will be increased from 25% to 35% from 1 January 2023 and the levy will remain in place until the end of March 2028. Changes to the associated investment allowance, broadly intended to maintain its cash value, will also be made. 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.
  • A new temporary 45% Electricity Generator Levy on ‘exceptional generation receipts’ will be introduced from 1 January 2023 and also be legislated to end by 31 March 2028. The levy will be applied to groups generating electricity from nuclear, renewable and biomass sources, that undertake electricity generation in the UK and are either connected to a national grid or connected to local distribution networks.

Stamp taxes

  • In the ‘mini budget’ on 23 September 2022, the Government increased the nil-rate threshold of Stamp Duty Land Tax (SDLT) from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by first-time buyers from £300,000 to £425,000. The maximum purchase price for which First Time Buyers’ Relief can be claimed was also increased from £500,000 to £625,000. The Government has confirmed these reductions will now come to an end on 31 March 2025.

VAT and indirect taxes

  • VAT registration and deregistration thresholds maintained to 2026 – these had already been frozen until 1 April 2024. This freeze has been extended for an additional 2 years until 2026. This means that the threshold for registration will have been at £85,000 since 1 April 2017. 
  • Vehicle Excise Duty (VED) on Electric Vehicles – From April 2025, electric cars, vans and motorcycles will begin to pay in the same way as petrol and diesel vehicles.
  • Tariff suspensions – Import tariffs to be removed on over 100 goods for two years. The measure 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.  
  • Climate Change Levy (CCL) rates rebalancing – As previously announced, CCL main rates on gas and electricity in the UK are to be equalised by 2025. In Spring Finance Bill 2023 the CCL main rate on gas will be raised to £0.00775/kWh.

Other announcements of note

  • As announced in September’s ‘mini-budget’, the Office of Tax Simplification (OTS) will be closed. The Government has now confirmed that the OTS will publish its findings from the call for evidence on Hybrid and distance working before the end of the calendar year and will not undertake further work. The formal closure will take effect when the next Finance Bill receives Royal Assent.
  • Business rate bills in England will be updated from 1 April 2023 to reflect changes in property values since the last revaluation in 2017. A number of transitional measures were also announced, broadly intended to mitigate the impact of this change:
    • the business rates multipliers will be frozen in 2023-24 at 49.9 pence and 51.2 pence, preventing them from increasing to 52.9 pence and 54.2 pence;
    • upwards Transitional Relief will support properties by capping bill increases caused by changes in rateable values at the 2023 revaluation. The ‘upward caps’ will be 5%, 15% and 30%, respectively, for small, medium, and large properties in 2023-24, and will be applied before any other reliefs or supplements;
    • Retail, Hospitality and Leisure Relief for eligible retail, hospitality, and leisure businesses is being extended and increased from 50% to 75% business rates relief up to £110,000 per business in 2023-24;
    • bill increases for the smallest businesses losing eligibility or seeing reductions in the Supporting Small Business Scheme (SBRR) or Rural Rate Relief (RRR) will be capped at £600 per year from 1 April 2023; and
    • at Autumn Budget 2021 the Government announced a new improvement relief to ensure ratepayers do not see an increase in their rates for 12 months as a result of making qualifying improvements to a property they occupy. This will now be introduced from April 2024. This relief will be available until 2028, at which point the government will review the measure.