UK Autumn Statement – 17 November 2022

• United Kingdom

• Tax planning and consultancy
• Tax planning and consultancy - Autumn Statement

21-11-2022

The UK Tax and Incentives teams at Eversheds Sutherland responded to the government’s announcements in the Autumn Statement on 17 November 2022. Their comments are set out below.

Energy taxes

Colin Askew, Tax Partner: "As part of his plan to fill the fiscal 'black hole' and following his rule that those with more should contribute more, the Chancellor announced (as part of his Autumn Statement) the introduction of a new Electricity Generator Levy – a temporary 45% tax that will be levied on what are called “extraordinary” returns from low-carbon UK electricity generation (defined as electricity sold above £75MWh). The tax will be limited to generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10 million. The tax will apply to extraordinary returns arising from January 1, 2023 and will be legislated for in Spring Finance Bill 2023. The devil will be in the detail when draft legislation is published.

The new Electricity Generator Levy was announced alongside a 10% increase in the Energy Profits Levy to 35% from January 1, 2023 and an extension of the Energy Profits Levy to the end of March 2028. The investment allowance will be reduced to 29% for all investment expenditure, other than decarbonization expenditure, which will continue to qualify for the current investment allowance rate of 80%.

Targeting the energy sector is a popularist move by the government, and the announced changes are broadly consistent with expectations in advance of the Autumn Statement. Retaining the current investment allowance rate for decarbonization expenditure is a nod towards the government’s need to ensure that it supports long-term green investment in the UK energy sector."

Find out more about the Electricity Generator Levy

Banking taxation

Deepesh Upadhyay, Tax Partner: "The Chancellor has helpfully confirmed that the proposed reduction in the corporation tax surcharge for UK banks from 8% to 3% will indeed go ahead from April 2023. Whilst UK banks will continue to pay a higher combined rate of corporation tax as compared to most other UK companies (i.e. 25% corporation tax plus 3% surcharge from April 2023), they will be relieved to know that the reduction will take place given that this was not necessarily certain. The Chancellor has helped to ensure that the UK banking sector remains competitive in the global marketplace."

Research and Development tax reliefs

Ben Jones, Co-Head of Global Tax: "In relation to Research and Development (R&D) tax reliefs, the Autumn Statement confirmed that, for expenditure on or after April 1, 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%. This is likely to be disappointing for SMEs. However, the reductions are preferable to the total abolition of the scheme, and the government has confirmed its intention to work with industry to understand whether further support is necessary for R&D intensive SMEs.

On a positive note, the Autumn Statement confirmed that, for expenditure on or after April 1, 2023 the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, improving its competitiveness. Given that current economic conditions are combining with the rise in the rate of corporation tax from April 2023 to make the growth environment challenging for businesses, the increase in this rate is a welcome development. The government has also confirmed that it intends to reform R&D tax reliefs by legislating in the Spring Finance Bill 2023 to expand qualifying expenditure to include data and cloud costs, refocus support towards innovation in the UK, target abuse and improve compliance."

Capital gains tax, dividend tax and income tax

Colin Askew, Tax Partner: "The Chancellor has set out his “difficult decisions” to tackle the cost of living crisis and rebuild the UK economy. When it comes to tax his rules have been that those with more should contribute more but avoiding (in the Chancellor’s opinion at least) rises that hurt growth. It comes then as no surprise that capital gains tax has been targeted – although by way of a reduction in personal allowances (down from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024) rather than a feared alignment of rates with income tax. Also, as predicted, dividend tax allowance has been halved to £1,000 from April 2023 and to £500 from April 2024. In addition, the rate at which 45% income tax is paid has been lowered from £150,000 to £125,140 – costing around £1,250 per annum for someone earning at least £150k.

Tax take is also being increased by the freezing of multiple allowances and thresholds, including the income tax personal allowance and the income tax higher rate threshold; these stealth taxes will hurt individual taxpayers who are already suffering from the cost of living crisis."

Tax compliance

Giles Salmond, Tax Partner: "In his Autumn Statement, the Chancellor confirmed the government will invest 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. The government expects this investment to bring in £725 million of additional tax revenues over the next five years.

This announcement is consistent with the government’s increased determination over recent years to root out and challenge cases of tax evasion and perceived tax avoidance. HMRC’s renewed focus on tax non-compliance is likely to result in even more tax disputes, which taxpayers may be more inclined to pursue to litigation, given the difficult economic conditions which are already putting pressure on taxpayers’ budgets."

Company Share Option Scheme

Danny Blum, Head of Incentives: "Whilst the adjustment to the band at which 45% tax is paid is unhelpful from an employee incentive perspective, the abandonment of the proposed NICs rate increase and the survival of the proposed increase in the individual limit for Company Share Option Scheme from £30,000 to £60,000 is very welcome – both listed and privately owned companies should think again about the benefits of this very valuable Scheme."

Find out more about the Company Share Option Plan changes

Conclusion

For more information on the Autumn Statement and how this may impact on your business, please do not hesitate to get in touch with the contacts listed below.