Against the backdrop of recession and the highest monthly increase in inflation in over 40 years, Chancellor Jeremy Hunt delivered today’s Autumn Statement. The focus was on bridging a gap of some £55 billion in public finances with a combination of tax rises (£25 billion) and public spending cuts (£30 billion). The freezing of some allowances until at least April 2028 combined with cuts in allowances for dividends and capital gains and a lowering of the 45 percent additional rate income tax threshold were the main personal taxes announcements. Citing tax avoidance behaviour in the area of research and development (“R&D”) tax relief for small and medium sized enterprises (“SMEs”), relief for SMEs is to be reduced, although the relief available under the “large” company regime is to be increased. According to the announcements, Northern Ireland will receive an additional £650 million in funding from Westminster. Next Monday’s edition of Chartered Accountants Tax news will feature the tax announcements in more detail. Read the Institute’s Press Release reacting to the Autumn Statement. The analysis herein is based on the publications of HMRC and HM Treasury.
Personal taxes
The personal allowance, inheritance tax nil rate bands, employee’s national insurance contributions (“NICs”) Upper Earnings Limit and Upper Profits Limit thresholds and the level of the income tax higher rate band were all due to be maintained at their current level until April 2026. These have now been frozen for a further two years until April 2028; effectively resulting in a tax increase by remaining unchanged.
The threshold above which the 45 percent additional rate of income tax commences is to be lowered from £150,000 to £125,140 from 6 April 2023, costing such taxpayers a maximum of £1,243 in additional income tax every year.
The level of the £2,000 dividend allowance which taxes dividends at 0 percent is to be reduced from £2,000 to £1,000 from 6 April 2023 and further reduced to £500 from 6 April 2024.
The capital gains tax (“CGT”) annual exemption will be reduced from its current level of £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024. The Chancellor did not make any changes to the rates of CGT.
Business taxes
As part of the ongoing review of the R&D reliefs, the Government is reforming these reliefs. According to the Chancellor’s speech and accompanying documents, there is significant error and fraud in the small and medium-sized enterprises (“SME”) scheme, with the generosity of the relief making it a target for fraud. By contrast, the separate R&D expenditure credit (“RDEC”) under the “large” regime is better value but has a rate that is less internationally competitive. The Government is therefore rebalancing the rates of each relief.
For qualifying expenditure on or after 1 April 2023, the SME additional deduction will decrease from 130 percent to 86 percent, and the SME payable tax credit rate will decrease from 14.5 percent to 10 percent. However, the taxable RDEC rate will increase from 13 percent to 20 percent.
The employer’s NIC threshold will be maintained at its current level of £9,100 until April 2028 however it was confirmed that the employer’s allowance will remain at £5,000. The current VAT registration and registration thresholds of £85,000 and £83,000 respectively will stay at these levels until the end of March 2026.
And finally, it is confirmed that the government will implement the OECD Pillar 2 rules, to deliver a global minimum corporate tax rate of 15 percent for accounting periods beginning on or after 31 December 2023.
Energy profits levy
From 1 January 2023, the Energy Profits Levy on oil and gas companies will increase from 25 percent to 35 percent, with the levy remaining in place until the end of March 2028. A new, temporary 45 percent levy will be introduced for electricity generators. According to the Government publications, together these measures will raise over £55 billion from 2022/23 until 2027/28.
Additional Compliance Resource for HMRC
The Government is also investing a further £79 million over the next 5 years to enable HMRC to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers. This investment is forecast to bring in £725 million of additional tax revenues over the next 5 years.