Karen Campbell-Williams, Head of Tax, Grant Thornton UK LLP responds to the Autumn Statement 2022
The objectives of today’s Autumn Statement were clear – restore fiscal stability, instil market confidence and get inflation (at its highest rate in 41 years) under control. With a £55bn black hole to plug, there was little to cheer for businesses and individuals today, as the Chancellor delivered a statement in complete contrast to that of his predecessor. This was a Budget where the stated priorities were stability, public services and growth – whilst there was much to support the first two of these, tax incentives for growth were light on the ground.
Not unexpectedly, many of the tax rises were focused on individuals. Cuts to the Dividend Allowance and the reduced threshold for Additional Rate income tax payers, as well as freezing the Personal Allowances, Higher Rate thresholds and National Insurance limits for a further two years until 2028, will mean that whilst headline rates may have not risen, millions will pay more tax over the coming years as earnings rise in a high inflation environment. We also saw reductions in the Capital Gains Tax Annual Exemption and the freezing of the Inheritance Tax threshold until 2028.
There wasn’t much in terms of further support for business, already facing increasing cost pressures from all angles. Additionally, businesses are shouldering an increasing tax burden, with the Corporation Tax rate set to rise six percentage points from April 2023 and the end of the super deduction for capital investment. Amidst these steep increases in the tax burden and the lack of incentives for growth, a potential silver lining is that markets are expected to react positively, which won’t immediately drive growth, but lays the foundation for the longer term.
Whilst there was little room for manoeuvre on business tax increases, the energy sector was the exception. The Energy Profits Levy has been extended in both length (to 2028) and rate (from 25% to 35% from 1 January 2023) and the levy’s investment allowance, except on decarbonisation, slashed from 80% to 29%. Electricity Generators will also be impacted with the introduction of a temporary 45% Electricity Generator Levy on extraordinary returns, also to come into effect from 1 January 2023.
On Business Rates, the government confirmed that they will proceed with revaluations of properties effective 1 April 2023, mitigated by a package of measures worth £13.6bn to support businesses with rising bills. Most notable is that the business rates multiplier (which usually rises with inflation) will be frozen for another year. With inflation in double figures this will provide welcome relief. Targeted relief for retail, hospitality and leisure sectors and small businesses was also announced. There was a possibility that we could see wider business rates reform alongside the introduction of an Online Sales Tax, but this proposed new tax has been quietly dropped.
For multi-national enterprises, it was confirmed the UK will implement the Global Minimum Tax rules (Pillar 2) as previously planned, with effect for accounting periods beginning on or after 31 December 2023. For larger multinational groups this will certainly mean more administration (and higher taxes for some).
Whilst the ground had been laid for reform to R&D tax credits, changes here are likely to come as the biggest surprise for businesses. The good news was that the Research and Development Expenditure Credit increased from 13% to 20% (which will go some way to offset the proposed changes to restrict claims on overseas expenditure); the less positive that the SME tax credit was significantly scaled back. The additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. This has been framed as a step towards a “simplified, single RDEC-like scheme for all” with the carrot of further consultation to come on the design of a single scheme. The government has promised to “work with industry to understand whether further support is necessary for R&D intensive SMEs”. This will play an essential role in ensuring that SMEs who play a valuable role in the wider UK R&D ecosystem receive the necessary support.
Whilst there was little mention of the tax system’s role in the transition to net zero, there were some notable announcements for the taxation of electric vehicles with Vehicle Excise Duty to be levied on electric cars from 2025, but also greater certainty over the trajectory of Company Car Tax rates until 2028. For electric and ultra-low emission cars this will see a 1% rise annually up to a maximum of 5% and 21% respectively. In addition, HMRC also increased the Advisory Fuel Rate for fully electric cars, effective from 1 December 2022, from 5p per mile to 8p per mile and committed to quarterly reviews going forward. This is a step in the right direction for those employees that drive company electric vehicles in an environment of ever-rising energy costs.
Following the Mini-Budget, we asked over 600 mid-market business leaders what they most wanted to see from government policy. They said simplification of the UK business tax system and incentives for employers to invest in skills attraction. Neither of these elements was comprehensively addressed today. There are many elements of the tax ecosystem that can boost business confidence and contribute to the attractiveness of the UK as a destination for investment. Certainty, stability and simplicity of the tax system play key roles.
Many had been hoping the Chancellor may deliver on these pillars by announcing a business tax roadmap, and further detail on what may fill the hole left by the decision to abolish the Office for Tax Simplification. Perhaps he missed a trick here?
News release
Autumn Statement 2022: Head of Tax response
17 Nov 2022
Karen Campbell-Williams, Head of Tax, Grant Thornton UK LLP responds to the Autumn Statement 2022
The objectives of today’s Autumn Statement were clear – restore fiscal stability, instil market confidence and get inflation (at its highest rate in 41 years) under control. With a £55bn black hole to plug, there was little to cheer for businesses and individuals today, as the Chancellor delivered a statement in complete contrast to that of his predecessor. This was a Budget where the stated priorities were stability, public services and growth – whilst there was much to support the first two of these, tax incentives for growth were light on the ground.
Not unexpectedly, many of the tax rises were focused on individuals. Cuts to the Dividend Allowance and the reduced threshold for Additional Rate income tax payers, as well as freezing the Personal Allowances, Higher Rate thresholds and National Insurance limits for a further two years until 2028, will mean that whilst headline rates may have not risen, millions will pay more tax over the coming years as earnings rise in a high inflation environment. We also saw reductions in the Capital Gains Tax Annual Exemption and the freezing of the Inheritance Tax threshold until 2028.
There wasn’t much in terms of further support for business, already facing increasing cost pressures from all angles. Additionally, businesses are shouldering an increasing tax burden, with the Corporation Tax rate set to rise six percentage points from April 2023 and the end of the super deduction for capital investment. Amidst these steep increases in the tax burden and the lack of incentives for growth, a potential silver lining is that markets are expected to react positively, which won’t immediately drive growth, but lays the foundation for the longer term.
Whilst there was little room for manoeuvre on business tax increases, the energy sector was the exception. The Energy Profits Levy has been extended in both length (to 2028) and rate (from 25% to 35% from 1 January 2023) and the levy’s investment allowance, except on decarbonisation, slashed from 80% to 29%. Electricity Generators will also be impacted with the introduction of a temporary 45% Electricity Generator Levy on extraordinary returns, also to come into effect from 1 January 2023.
On Business Rates, the government confirmed that they will proceed with revaluations of properties effective 1 April 2023, mitigated by a package of measures worth £13.6bn to support businesses with rising bills. Most notable is that the business rates multiplier (which usually rises with inflation) will be frozen for another year. With inflation in double figures this will provide welcome relief. Targeted relief for retail, hospitality and leisure sectors and small businesses was also announced. There was a possibility that we could see wider business rates reform alongside the introduction of an Online Sales Tax, but this proposed new tax has been quietly dropped.
For multi-national enterprises, it was confirmed the UK will implement the Global Minimum Tax rules (Pillar 2) as previously planned, with effect for accounting periods beginning on or after 31 December 2023. For larger multinational groups this will certainly mean more administration (and higher taxes for some).
Whilst the ground had been laid for reform to R&D tax credits, changes here are likely to come as the biggest surprise for businesses. The good news was that the Research and Development Expenditure Credit increased from 13% to 20% (which will go some way to offset the proposed changes to restrict claims on overseas expenditure); the less positive that the SME tax credit was significantly scaled back. The additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. This has been framed as a step towards a “simplified, single RDEC-like scheme for all” with the carrot of further consultation to come on the design of a single scheme. The government has promised to “work with industry to understand whether further support is necessary for R&D intensive SMEs”. This will play an essential role in ensuring that SMEs who play a valuable role in the wider UK R&D ecosystem receive the necessary support.
Whilst there was little mention of the tax system’s role in the transition to net zero, there were some notable announcements for the taxation of electric vehicles with Vehicle Excise Duty to be levied on electric cars from 2025, but also greater certainty over the trajectory of Company Car Tax rates until 2028. For electric and ultra-low emission cars this will see a 1% rise annually up to a maximum of 5% and 21% respectively. In addition, HMRC also increased the Advisory Fuel Rate for fully electric cars, effective from 1 December 2022, from 5p per mile to 8p per mile and committed to quarterly reviews going forward. This is a step in the right direction for those employees that drive company electric vehicles in an environment of ever-rising energy costs.
Following the Mini-Budget, we asked over 600 mid-market business leaders what they most wanted to see from government policy. They said simplification of the UK business tax system and incentives for employers to invest in skills attraction. Neither of these elements was comprehensively addressed today. There are many elements of the tax ecosystem that can boost business confidence and contribute to the attractiveness of the UK as a destination for investment. Certainty, stability and simplicity of the tax system play key roles.
Many had been hoping the Chancellor may deliver on these pillars by announcing a business tax roadmap, and further detail on what may fill the hole left by the decision to abolish the Office for Tax Simplification. Perhaps he missed a trick here?