On 17 November 2022, Jeremy Hunt delivered a sobering Autumn Statement, against the news that, according to the official statistics, the UK is now in recession.
As expected, it was a tax raising Budget, and a far cry from the short-lived announcements from September’s Mini-Budget.
Most of the main tax-raising measures take effect from April 2023, so there were none of the immediate shocks that people feared, and no increases to headline tax rates. And, as usual these days, some of the content was leaked in advance. But there were some surprises, and the changes to Research and Development tax reliefs will have been unwelcome news for many SMEs.
The Chancellor outlined three priorities, being stability, growth and public services. He continually stressed the need to be true to “British values” which include balancing the books, compassion, and protecting the vulnerable.
The good news about this Autumn Statement is that the Office of Budget Responsibility has been involved so we can be confident that the effects of the announcements have been properly forecast and analysed. Although, with the expectation that household income will fall by 7% over the next 18 months, we can expect things to get worse before they get better.
We outline below the main announcements.
Personal taxes allowances and thresholds
As I write this, the lyrics of Ronan Keating’s 2000 hit “Life is a Rollercoaster” are going round in my head. Well, for higher income taxpayers that is certainly true. At the Mini-Budget the 45% rate was abolished for just 10 days, then reinstated, and now greatly extended to an extra 232,000 people by reducing the threshold from £150,000 to £125,140. Combined with the tapered removal of the personal allowance for income between £100,000 and £125,140 which results in an effective 60% tax rate in that band, there is even more incentive for certain taxpayers to reduce their taxable income, for example by making pension contributions.
Whilst this measure spreads some of the tax burden, as anticipated, to higher earners, those with lower incomes did not escape unscathed. The main revenue raising strategy is to freeze various tax allowances, which will affect almost everybody.
The income tax personal allowance and higher rate threshold, the National Insurance Contributions (NICs) Upper Earnings Limit and Upper Profits Limit, are already fixed at their current levels until April 2026 and this has now been extended for a further two years to April 2028.
The inheritance tax nil-rate band and residence nil-rate bands are also now to remain at their current levels for a further two years until April 2028.
The dividend allowance and capital gains tax annual exempt amount will not be maintained but will reduce. The dividend allowance will reduce from £2,000 to £1,000 from April 2023 and to £500 from April 2024. The capital gains tax annual exempt amount will reduce from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024. These measures are likely to see more taxpayers brought back into the self assessment system, which is unfortunate.
Research and Development (R&D) tax relief changes
The small and medium-sized enterprises (SME) R&D additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%, from April 2023.
For larger companies, the R&D Expenditure Credit (RDEC) rate will however increase from 13% to 20% on expenditure from April 2023.
We have previously reported that HMRC are concerned that the R&D reliefs are being abused, and that the system is to be reformed. The Chancellor’s announcements were about the rates but the government is to consult with industry on designing a single scheme and will consider whether the separate SME scheme is necessary. So this is not the last of the R&D changes.
Capital gains tax anti-avoidance
With immediate effect, shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK.
This will have effect where an individual has a material interest in both the UK and the non-UK company and where the share exchange is carried out on or after 17 November 2022.
Stamp duty land tax (SDLT) cuts
The SDLT cuts announced in the Mini-Budget were some of the few measures to survive the subsequent U-turn. However, in the Autumn Statement it was announced that these cuts would only be temporary and that they will remain in place until 31 March 2025.
Other measures in brief
Vehicle Excise Duty (VED) is to be introduced on electric cars, vans and motorcycles from April 2025.
The VAT registration threshold will remain unchanged until March 2026.
There were various changes to energy windfall taxes. The Energy Profits Levy will be extended to March 2028, and the rate will be increased from 25% to 35% from January 2023. There will be a new Electricity Generator Levy from January 2023, applying a temporary 45% tax on extraordinary returns from certain low carbon UK electricity generation.
How can we help?
If you have any questions about the Autumn Statement, just let us know!
