Autumn Statement 2023: tax response

Our teams have analysed key areas of the announcement, including capital allowances; R&D tax; employment matters; energy and Net Zero; and capital markets.

• Capital allowances, investment zones and freeports - Jeremy Chapman, Capital Allowances Director

  "Many businesses will be happy with the announcements on capital allowances within the Autumn Statement. There was a promising announcement to make the full-expensing and the 50% special rate first year allowances permanent. It will not only allow companies to plan with certainty for longer-term projects but also help to encourage business investment, including in technology to reduce carbon emissions. However, the relief has still not been extended to trusts, most partnerships and individuals, all of which will continue to rely on up to £1 million of annual investment allowances. In addition, there will be no extension for full expensing or 50% first year allowances to cars, second-hand assets, and assets used for leasing.

  It was confirmed that for now assets used for leasing will continue to be excluded for full expensing, but the Government continues to keep this area under review with a technical consultation on draft legislation expected in due course. The review is focused on ensuring that the draft legislation appropriately mitigates HMRC’s perception of error and abuse risk within the leasing sector. If the Government proceeds with extending the scope this would be good news for plant hire businesses and the like, however it will probably not extend to the car-leasing sector.

  In addition, there will be a new consultation starting with a view to consider “simplifying, condensing or reducing broader capital allowances legislation”. It has a relatively narrow scope, appearing to be focused on simplification with a timeline for draft legislation to be published in June 2024.

  Investment zones have been confirmed for the East and West Midlands and Greater Manchester in England, and two new zones announced in the Cardiff and Newport and Wrexham and Flintshire areas within Wales. To further boost the programme, the investment zones and freeports tax relief will now last for 10 years instead of five years. This is a welcome move allowing greater time for businesses to identify a suitable site, progress planning, and ultimately build their new facilities."

• R&D tax reform - Lindsey Copland, Innovation Tax Partner

  "The R&D tax regime has undergone reforms recently and while expected, the confirmation today that the Government will proceed with implementing a single scheme from 1 April 2024 means there's no respite for businesses in keeping up with legislative change.

  The merged scheme will apply to expenditure incurred in accounting periods beginning on or after 1 April 2024 and will broadly follow the current RDEC rules, meaning all companies will benefit from the receipt of a tax credit that can be recognised ‘above-the-line’ as taxable income. Under the existing RDEC scheme, a notional tax at the main rate of corporation tax is applied to the RDEC for loss-making companies but under the new scheme the rate will be reduced to 19%, accelerating the RDEC cash benefit for loss-making businesses.

  While the objective of the merged scheme is simplification, a second scheme for R&D intensive SMEs will run alongside it offering enhanced rates of relief for certain loss-making SMEs for expenditure incurred from 1 April 2023. It was previously announced that a company would be considered R&D intensive where its R&D expenditure accounted for at least 40% of its total deductible expenditure for the period, but the intensity threshold will be reduced to 30% for accounting periods commencing on or after 1 April 2024. A year’s grace rule will be introduced to help provide some certainty to claimants where their spend fluctuates.

  Today’s announcements did provide some welcome clarity over the proposed restrictions under the merged scheme where R&D has been contracted out to a company. The intention appears to be that the party which makes the decision to undertake the R&D and bears the risk should get the benefit. A review of the Autumn Finance Bill 2023 (once released) will be required to understand the implications, and exceptions, around who can claim, which will depend upon the specific contract and fact pattern.

  With these changes, businesses will need to act quickly to review their R&D claims, both in terms of the methodology and forecasting the future benefit. The need to understand the new merged scheme mechanism is likely to cause some operational headaches for those not used to the RDEC scheme, so it's essential for companies to work with advisers who are experienced in preparing RDEC claims. The Government have also stated that further action may be needed to deal with high levels of non-compliance, while remaining open to further enhance the R&D intensive support for SMEs.

  With little time until the single scheme is implemented it's essential that the Government publish the proposed legislation, and accompanying guidance, as soon as possible to support businesses in their preparations."

• Employment matters - Jonathan Berger, Employment Taxes Director

  "The National Insurance Contributions (NICs) changes start to reduce the differential between employment and self-employment, together with a reduction in the main rate of Class 1 NICs for employees from 12% to 10% from 6 January 2024. Also announced was a reduction to the Class 4 NIC rate for the self-employed from 9% to 8%, along with a removal of the requirement to pay Class 2 NICs without the loss of benefits. No changes to employer NICs were announced, however the announcements will likely keep payroll teams and systems providers on their toes.

  Announcements relating to the self-employed didn't end there, confirmation was provided to allow a set-off for taxes already paid by a worker/intermediary against taxes due from a deemed employer in cases of non-compliance with the off-payroll working (IR35) rules. This welcome development should reduce the circumstances where income tax can be paid twice, or off-payroll workers don't end up paying any income tax on income they take from their business.

  Support for the lower paid was confirmed by increases to National Minimum Wage (NMW) rates, with the National Living Wage (NLW) rate due to rise to £11.44 and extended to those aged 21 and over from 1 April 2024. The NMW rules continue to be complex and employers should be mindful of existing risks. Those who offer non-cash benefits via salary sacrifice should review their arrangements to ensure they don't inadvertently breach the thresholds.

  A call for evidence was announced with the intention to simplify the pensions market by enabling individuals to have one pension pot for life. Such a 'lifetime provider model' would represent a significant change to the UK's pension infrastructure, however there are significant hurdles that will likely need to be overcome for it to be a success."

• Energy and Net Zero - Alasdair Grainger, Net Zero Director

  "The Autumn Statement 2023 re-emphasises the Conservative's commitment to Net Zero - after an uncertain period earlier in the year. There were 26 mentions of Net Zero in the text of the statement.

  There were some big announcements, including a £960 million Green Industries Growth Accelerator, though no gigafactories (from Tesla or any other battery manufacturer), which were rumoured and a new investment exemption within the Electricity Generator Levy (EGL), announced last year. The EGL will still be retired in 2028 as planned.

  Elsewhere, we're still waiting for details of any Carbon Border Adjustment Mechanism (CBAM). Given the EU's CBAM is now in-force this is something businesses are eagerly waiting to hear more on how the UK will proceed. The Crown Estate is to gain new borrowing powers to catalyse offshore wind deployment and it was confirmed that domestic maritime and energy from waste will be caught by the UKETS from 2026 and 2028 respectively. And there are promises to cut red tape for those trying to connect to the electricity transmission network, including the proposal for up to £10,000 off electricity bills for local communities."

• Capital markets - Samantha Harrison, Corporate Finance Advisory Director - Equity Capital Markets

  "We work with growing companies, many owner-managed and many looking to achieve their growth as listed companies on a UK stock exchange. They're looking for more equity funding to meet their requirements. Stimulating equity investment for unlisted and smaller listed companies, and providing a platform to allow such investment will benefit such companies and, it's anticipated, the wider ecosystem through providing investors with greater investment opportunities.

  The Chancellor’s announcement of support to pension schemes to make long-term investments into UK companies provides further impetus to his Mansion House reforms. An additional £250 million is to be deployed under Long-term Investment for Technology and Science initiative (LIFTS) investment vehicles and additionally a new Growth Fund is to be set up within the British Business Bank (BBB). There were also announcements to widen access to the growth market exemption for Stamp Duty and Stamp Duty Reserve Tax. Furthermore, the extension of Venture Capital Trusts (VCT) and Enterprise Investment Scheme (EIS) relief out to 2035 provides welcome certainty to investors and support to UK companies for whom these schemes have been a much-needed source of equity.

  We anticipate further developments in the investment landscape. Taken together with the ongoing reforms to ease the regulatory burden on listed companies, the environment for UK-listed companies is set to improve albeit these changes will still take time to have any impact."