Autumn Statement 2022 Webinar video

Key points from the video

Personal Tax and Employment Tax Update with Adele Clapp

Fiscal Drag

The policy of fiscal drag will continue until April 2028. so:

the income tax personal allowance will remain at £12,570 with the higher rate tax threshold remaining at £50,270 (£37,700)
national insurance primary threshold was increased to £12,570 in July 2022 and will remain at £12,570

Freezing of these allowances impacts average taxpayers more than additional rate taxpayers who don’t benefit from a personal allowance in the first place.

By 2027/28, it is anticipated that the total number of income taxpayers will increase by 11.6m and the number of higher or additional rate taxpayers will increase by 1.7m.

The NI rate increase of 1.25% which happened in April this year was repealed in November this year and there were no further changes announced, so 12% and 2% for employees and 13.8% for employers will remain at the lower rates

Despite Rishi previously introducing a potential 19% income tax, Basic rate of income tax will remain at 20%

Just to illustrate the impact of fiscal drag, if you assume wages grow by 3% over the next 5 years, someone on a salary of £35,000 now will be £75 worse off next year and £400 worse off by 2028/29.

If you compare this to someone on a salary of £50,000 with the same wage growth, they would be £321 worse off next year, increasing to £1,939 worse off in 2028/29 - so a bit hit at a time when households have less spendable income.

The additional rate threshold will reduce from £150k to £125,140, meaning approximately an additional 350,000 45% taxpayers.

Conveniently, the reduction of the threshold to £125,140 preserves the 60% tax trap that taxpayers fall into when their income falls between £100k and £125,140. It’s anticipated that nearly a million more workers will fall into the 60% tax band due to the freezing of allowances.

Someone earning £150,000 will now pay an additional £1,243 in income tax.

For self-employed taxpayers, class 2 and 3 thresholds remain frozen, and the rates will increase by inflation, so class 2 becomes £3.45 per week and class 3 increases to £17.45 per week.

Dividends tax

For business owners, the increase of 1.25% on dividend tax is here to stay despite the health and social care levy being scrapped and Kwasi Kwarteng indicating this would be reversed from April 2023.

In addition, the dividend allowance will decrease from £2k to £1k in April 2023 and will then decrease further to £500 from April 2024.

This will have a big impact on how business owners’ extract profits from their companies and will depend on the CT rate payable by the company and the individual’s own tax rate. Potentially, business owners could be looking at a tax rate of over 50%.

Capital taxes

Turning to capital taxes, although there has been much speculation about rates of capital gains tax and potential wealth taxes, the only change was to the CGT annual exemption which will decrease from £12.3k to £6k in April 2023 and then further reduce to £3k in April 2024. More likely to impact pensioners and investors.

With inheritance tax, again there have been no change to the rates and no mention of wealth tax. However, the nil rate band remains at £325k, which is significant when you consider the increases in property prices and the fact that the nil rate band has not changed since April 2009. The residential nil rate band also remains unchanged at £175,000.

Pension triple lock

But it’s not all bad news! Although a review into state pension age will be announced in 2023, at least pensioners are protected from inflation with the triple lock remaining in place and pension credit increasing with inflation as of September 2022.

Employers and employees

For employers, Individuals earning the National Living Wage (NLW) aged 23 and over will have their hourly pay increased to £10.42 (9.7% increase) from April 2023 and it’s likely that the Low Pay Commission's other recommendations will also be accepted, so generally it will be a 9.7% increase across the board except for 21/22-year-olds where a 10.9% increase has been suggested.

The employer NI threshold remains at £9,100, although the Employment Allowance increased to £5,000 and will remain in place until March 2026 to reduce the impact of this

Off-payroll worker rules

The off-payroll worker rules were repealed in the Mini Budget, but this move was then cancelled, so these remain in force with NO change and no mention of a future change/review.

Small businesses are not affected by these rules. There was a change in the definition of small businesses introduced in October of this year, so businesses are classed as small if they meet two of the following:

an annual turnover of £10.2m or less
£5.1m or less on its balance sheet
50 or fewer employees

An increased employee threshold of 500 or fewer employees from October applies to new regulations under development and any other regulations under current or future review.

The off-payroll worker rules are NOT under a review currently, so this extended threshold currently does not apply. However, this may be an area to watch going forwards.

IR35

The latest report on IR35 reforms concludes that it’s difficult for businesses to get the right information to apply the rules properly, there is no independent review process, HMRC's CEST tool is difficult to interpret correctly and there is no clear definition of self-employment. It also states that in 2020/21, central government did not correctly apply the rules and owes £263m in back taxes as a result.

The promised Employment Bill announced in 2019 (with its amended definition of a worker) has also failed to materialise and is only currently with the House of Commons for its second reading.

Fleet cars

Any company introducing a fleet of cars now has some certainty over the company car benefit rates for the next few years.

From April 2025/26, car benefit percentages will increase by 1% for the following three years up to a max of 5% for electric cars and 21% for ultra-low emission cars.

Rates for all other vehicles will increase by 1% from April 2025/26 up to a maximum of 37% and will then be fixed in 2026/27 and 2027/28

Indirect Tax Update with Len Dean

Another fallow year Budget for VAT advisers, and the heady days of the Pasty Tax Budget seem a long time ago, so I’ll cover the indirect tax highlights and continue on the topic of cars...

Vehicle Excise Duty:

From 2025, electric vehicles will no longer be exempt from Vehicle Excise Duty (aka Road Tax) or Expensive Car Supplement (>£40k = +£355 /year for 5 years) and Hybrids will be road tax equalised as well.

Most will move to the standard rate £165/year, so a Tesla owner’s road tax will go from £0 to £520 in 2025. (NB lower 1st year rate for new cars: zero emission cars = £10 /year, Low emission = up from £10 to £20, E-Motorbikes to £22/year, Electric Vans = £290 /year).

Stamp Duty Land Tax (SDLT)

SDLT: From 1 April 2025 the 0% thresholds will be put back down to £125k (from £250k currently) and for 1st time buyers down to £300k (from £425k currently and maximum purchase price for First Time Buyers relief down to £500k from £625k).

Presumably this means a return to the SDLT thresholds in place before 23 September 2022, including 2% up to £250k, then 5% to £925k, 10% to £1.5m, and 12% thereafter?

VAT Registration

The VAT Registration Threshold will remain at £85k until 2026 (and deregistration at £83k). It has been at £85k since 2017, whereas previously it increased every year, so not a new policy apart from freezing it for another 3 years.

As the Chancellor mentioned, the UK has one of the highest thresholds in Europe. It was the highest, but by my calculations it has been overtaken by Switzerland’s CHF100k due to the weak pound. France and Ireland are next highest, but some are quite low: DE & NL = €22k.

No mention of Brexit by the Chancellor, except a 2-year suspension of Import Tariffs on a100 products ranging from bike frames to food ingredients. Import Duty rates up to 18% are being suspended for 2 years “following applications from business stakeholders, which suggests these are specific ones that have been lobbied for.

Other VAT news

Although the Budget notes announce an investment of £79m in staffing for HMRC, it is focused on tackling tax fraud, so won’t be the much-needed help for the HMRC VAT departments that are still struggling:

We are experiencing very slow processing of VAT Registrations, Options to Tax (OTT) and VAT Groups. Also disconnected e.g., joint OTT and VAT Reg, one approved one rejected etc.

Very slow on Error Corrections, even where large amounts are due to HMRC, and it is losing tax as old quarters drop out of time to recover.

Other potential delay issues for HMRC are out of time assessments (If assessment not made within 1 yr of evidence sufficient, can only go back 2 years from assessment date) and interest on delayed VAT claim refunds.

On a positive note, the online VAT error correction form has recently been made quite a bit less tortuous!

Corporate Tax Update with Mark Richdon

Corporation tax rate

This was the ‘difficult decisions’ Autumn Statement according to Jeremy Hunt but, the most difficult decisions seemed to be in what he didn’t say.

With the Mini-Budget just 2 months ago, and the subsequent U-Turns, I’m going to spend a few minutes talking about some of the changes that will be affecting companies in the near future.

When Rishi delivered his pre-COVID March 2020 Budget the corporation tax rate was 19%; he then proposed a reduction to 17%; then a year later he proposed an increase to 25%; then the mini-Budget happened, and the rate was to be frozen at 19%; which was U-Turned back to the proposed 25% … so where are we now?

Well, from April 2023 the corporation tax rate will be as previously announced: 25%.

This will be the first time the rate has increased since 1974, and at the same time there will be the reintroduction of the small profits rate previously in force in 2015, along with marginal relief.

So, from April 2023:

companies with annual taxable profits of £50,000 or less will be subject to the new small profits corporation tax rate of 19%.
companies with taxable profits in excess of £250,000 will be subject to the main corporation tax rate of 25%.
companies with profits between £50K and £250k will pay at 25% less marginal relief – meaning the effective marginal tax rate is actually 26.5%

The last time a corporation tax return included marginal relief, the thresholds were reduced by being divided by the number of associated companies. From April 2015, when marginal relief no longer applied, the rules changed to a significantly simpler system of looking only at 51% owned group companies. This is especially important when determining whether a company is large or very large for quarterly instalment payments as well.

With the reintroduction of marginal relief, the associated company definition is back. This can have wider, and more immediate, implications for corporation tax, because if your accounting period ends after April 2023, a potentially higher number of companies are to be included in the calculation.

Companies previously outside the requirement to pay under the large or very large quarterly instalments regime could now have to pay their corporation tax earlier than anticipated, And although group taxable profits may be below £250k, depending on how many associated companies exist and which company generated the taxable profits, it is possible the main 25% tax rate could still apply.

Loans to participators

As Adele has mentioned previously, another of the tax rates that yoyo’d as a result of the Mini-Budget and subsequent U-Turn is the dividend tax rate.

Now why does that impact companies? Well, if a company has an outstanding loan to a participator, it will incur what is known as a s.455 tax charge on the value of that loan at the year end.

The tax is repaid when the loan is repaid, so it is purely a cashflow timing difference, but the s.455 tax rate is in line with the higher dividend tax rate. As the dividend tax rates have increased from last April to 33.75%, s.455 has also increase, and that could lead to unnecessary additional cashflow issues if tax planning is not done around settling these loans within nine months of the year end.

Super deduction

Something that escaped being caught up in the Mini-Budget was the temporary super-deduction capital allowance relief.

The relief allows companies to claim 130% of the cost of new qualifying plant and machinery in the year of purchase against their taxable income, or 50% of the cost of new qualifying special rate assets (such as integral features).

Super-deductions will end on 31 March 2023 and any year ends that straddle this date will have to apportion the 130% or 50% rate based on the number of days of their accounting period falling prior to 1 April 2023.

But what if the asset doesn’t qualify for super-deductions or is purchased after 31 March? Well, then it is important to consider the Annual Investment Allowance.

The annual investment allowance provides 100% relief for certain capital purchases up to £1m a year. The definition of qualifying capital expenditure is more widely drawn compared to the super deduction, which means it is applicable to a higher proportion of business assets.

This was a Mini-Budget initiative that has been kept, and it is advantageous to businesses because, having changed six times in the last 14 years, the annual limit of £1m is permanent.

Business Rates

What isn’t permanent is Business Rates. The Government is going to go ahead with the revaluation of business properties from April 2023 to accurately reflect market values but, they will soften the blow in a number of ways.

The Transitional Relief scheme will cap bill increases caused by changes in rateable values at the 2023 revaluation.

the multiplier will be frozen in 2023/24;
an increase to 75% business rates relief for eligible retail/hospitality and leisure businesses; and
the supporting small business scheme will protect the smallest businesses losing eligibility for reliefs.

Investment zones

The Government is also refocusing their programme of Investment Zones to create high potential clusters – although announcements of these will be released in the coming months.

Employee share schemes

A key part of company growth can come from employee incentivisation and specifically share schemes.

HMRC has four tax-approved share schemes, and one of the most flexible and tax efficient is the Enterprise Management Incentive or EMI share scheme. Where a company doesn’t meet the qualifying conditions for an EMI scheme, due to, say, their size, they can sometimes still meet the criteria for a Company Share Option Plan or CSOP.

Historically CSOPs are less flexible than an EMI scheme but, in the mini-Budget the total maximum employee share option limit based on market value at the date of grant is to increase to £60,000 from 1 April 2023. This isn’t as high as the £250,000 through an EMI scheme but it is bringing the two more closely aligned.

In addition, there can be an inability to qualify for a CSOP if the company has multiple classes of shares. However, HMRC is removing these rules to open up the scheme to a wider pool of companies.

Research and Development.

Already announced in the Spring 2022 Statement:

R&D tax relief for qualifying subcontracted activity will only be available where that subcontractor performs the work in the UK.
a requirement to notify HMRC of the intention to make an R&D tax relief claim in advance of filing; and
HMRC will widen the scope of development activities to include cloud computing and advances in the field of pure mathematics.

These are all applicable from 1 April 2023.

In the Autumn Statement, the Government also announced an increase in public funding for R&D to £20 billion by 2024-25.

However, they are also reforming the relief because they have identified significant error and fraud in the small and medium-sized enterprise SME scheme, with the generosity of the relief making it a particular target.

Therefore, for expenditure on or after 1 April 2023 the SME additional deduction will decrease from 130% to 86%, and the SME credit rate for surrendering the enhanced tax relief for cash will decrease from 14.5% to 10%. Ultimately this reduces the benefit for a business surrendering for cash from 33p in the pound to 19p.

By contrast, the rate of Research and Development Expenditure Credit (which is abbreviated to RDEC) will increase from 13% to 20%. This will increase the benefit from 11p in the pound to 15p and is seen as a step towards a simplified, single RDEC-like scheme for all.

Large Corporates and International Update with Pippa Clarke

CGT share exchange

non dom, UK resident – eg Rishi Sunak’s wife
If share exchange, first principles dictate it’s a CGTable disposal at MV.
Share exchange provisions allow “stand in the shoes”
Previously, where UK shares exchanged for non-UK shares, they were treated as assets not situated in the UK for all UK tax purposes.
Now, the non-UK shares will be treated as if they are UK shares, if close company.
Previously, a non-domiciled person who is resident in the UK could receive dividends and make gains on non-UK shares, and if left outside the UK, no UK tax. Now, UK tax will still be due.
Still allow “stand in the shoes” - so no CGT at time of exchange.

Commitment to introduce OECD pillar 2 framework into UK domestic law:

A measure to counter international tax avoidance
Global minimum tax rate of 15%
Applicable to taxpayers with €750m consolidated revenue

For APs beginning on/after 31/12/23:

Income inclusion rule – top up to 15% if foreign operations of UK headquartered businesses suffer <15% tax overseas
Qualified Domestic Minimum Top Up - top up to 15% if profits on UK operations suffer <15% tax

For APs beginning on/after 31/12/24:

Back stop undertaxed profits rule – deny deductions if necessary to ensure 15% minimum tax

Complex – model rules 10 chapters

Diverted profits tax

This tax is already in existence
It applies a 25% rate of tax on profits which are deemed to have been artificially diverted out of the UK to a related entity which lacks economic substance.
There is a carve out so it’s not applicable to SMEs.
Rate increases to 31% from April 23 to retain 6% differential.

Electricity generator levy

May be applicable to solar farms and other renewable generators
Counterintuitive, but these experience “super profits” as prices they can sell at are linked to a market price largely based on gas powered electricity production

Applies to:

Electricity generation in the UK supplying national grid or local networks
Nuclear, renewable and biomass, who are getting the benefit of increased price but not corresponding increase in costs
Not if under Contract for Difference with the Low Carbon Contracts Company
Above de minimis of 100 Gigawatt-hours pa.
45% tax on “exceptional generation receipts”
Calculated as receipts, minus benchmark price of £75 per MWh, minus £10m
1/1/23 - 31/3/28
HMRC and the Treasury will be discussing with generators, who are invited to contact them to discuss.

Separate from, and in addition to, the existing energy profits levy applicable to oil and gas companies, which is being increased by 10% from 25% to 35%.

Questions

Questions covered: the taxation of electricity companies, working pensions and NI contributions, CGT reliefs for divorcing spouses, changes to business asset disposal relief, and R&D and capital allowances on structures.

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