Autumn Statement 2022 – The Chancellor confirms tax rises and spending cuts

After many weeks of speculation, the Autumn Statement was presented to Parliament today by the Chancellor Jeremy Hunt. The statement confirmed a package of tax rises and spending cuts aimed at plugging the current spending deficit in a speech which the Chancellor explained was to tackle three priorities as stability, growth and public services.

This was in the same week that inflation in the year to October reached a 41 year high of 11.1% driven by rising energy and food prices, based on figures by the Office of National Statistics (ONS). The measures announced in the Autumn Statement are aimed at helping bring inflation down.

Research and Development Tax Credits

The Chancellor announced that the deduction rate for the SME R&D scheme is to be 86% down from 130% and the credit rate to 10% down from 14.5%. At the same time, the rate of the separate R&D expenditure credit for larger companies will be increased from 13% to 20%.

The OBR have confirmed that these measures will have no detrimental impact on the level of R&D investment taking place in the economy.

Ahead of the next Budget, the Chancellor confirmed that the Government will work with industry to understand what further support R&D intensive SMEs may require.

We are working with a wider range of businesses providing R&D tax support. Professional advice is vital, especially giving the continued crackdown on questionable and fraudulent claims. Please contact us if you need advice on potential claims or have any concerns regarding current or previous claims.

Dividend allowance dramatically reduced

Tax relief on dividend income to be reduced by 75% over the next two years. Investors can currently take £2,000 a year tax-free. This will be reduced to £1,000 in 2023, and then reduced further to £500 in 2024.

This will affect business owners who choose to withdraw dividends rather than a salary, where tax rates are lower. A cut in the dividend allowance (from £2,000 this year to £1,000 next year and £500 by 2024) will impact how much can be withdrawn tax-free.

The rate of Diverted Profits Tax to be increased

The rate of Diverted Profits Tax will increase from 25% to 31%, from April 2023. This is to retain a 6 percentage points differential above the main rate of Corporation Tax, which the Government states will ensure that it remains an effective deterrent against diverting profits out of the UK.

Legislation announced in the Autumn Statement to address the digitalisation of the economy

The Government is to legislate to implement the globally agreed G20-OECD Inclusive Framework Pillar 2 framework within the UK.

For accounting periods beginning on or after 31.12.2023, the Government is to introduce an Income Inclusion Rule (IIR) which will require large UK headquartered multinational groups to pay a top-up tax where their foreign operations have an effective tax rate of less than fifteen percent.

From the same date, it will also introduce a supplementary Qualified Domestic Minimum Top-up (QDMTT) tax rule which requires large groups, including those operating exclusively within the United Kingdom, to pay a top-up tax where their operations in the UK have an effective tax rate of less than 15%.

Both QDMTT and the IRR will incorporate substance-based income exclusion which formed part of the G20-OECD agreement.

Legislation for this will be brought forward in the Spring Finance Bill 2023. The Government intends to implement the backstop Undertaxed Profits Rule in the United Kingdom, but effective no earlier than accounting periods beginning on or after 31 December 2024.

The prevention of Capital Gains Tax avoidance

As a measure to help address tax avoidance, the Government is to legislate in the Spring Finance Bill 2023 so that shares and securities held in a non-UK company which are acquired in exchange for securities in a UK close company will be deemed to be located within the UK and potentially subject to UK tax on disposal.

This will have effect where a person has a material interest in both the UK and the non-UK company and where the share exchange is executed on or after 17.11.2022.

Additional HMRC resources for tax compliance

The Government is investing an additional £79 million over the next five years to help enable HMRC to allocate more staff to tackle additional cases of tax fraud and address tax compliance risks.

These measures are estimated to result in an additional £725 million of tax revenues over the next five years.

Business rates revaluation to go ahead, with transitional relief provided

The Chancellor confirmed that the revaluation of business properties will go ahead from April 2023.

To ‘soften the blow’, as the Chancellor put it, close to £14 billion of business rates tax cuts will be made available over the next five years. The Government estimate that nearly two thirds of properties will not pay any more in business rates next year and thousands of restaurants, pubs, and small high street retail premises will also benefit.

These tax incentives will include a new Transitional Relief scheme, which the Government estimates will benefit circa 700,000 businesses.

Minimum Wage increased to £10.42 per hour confirmed in the Autumn Statement

The national living wage is to increase for those aged 23 and over from £9.50 an hour to £10.42 an hour from April 2023.

The Chancellor estimates that this will equate to a £1,600 annual pay rise for full-time workers on the national living wage and the measure will help two million people.

Capital gains tax allowances slashed in the Autumn Statement

Individuals currently have an annual exemption amount of £12,300. This is to be reduced to £6,000 from April 2023, and then reduced further to £3,000 from April 2024. This will not affect investments held within an Isa.

Tax increases through the freezing of thresholds

The majority of tax thresholds have already been frozen; given the current rate of inflation this equates to tax increases in real terms. Thresholds are now being frozen for a further two years to April 2028 and these include:

  • Income tax personal allowance
  • Higher rate threshold
  • Main national insurance thresholds
  • Inheritance tax thresholds

In addition to the above, the VAT registration threshold will be maintained at £85,000 until at least March 2026.

Additional tax threshold cut to £125,000

The level at which individuals pay the 45p additional rate of income tax is being reduced from £150,000 to £125,000.

It is estimated an additional 629,000 individuals who are already paying this 45p tax rate will pay just over £1,200 more in tax per year, raising an extra £1.3 billion for the Treasury.

Autumn Statement confirms that pensions are to increase with inflation

The triple lock to the state pension is to remain. This means that the state pension will rise each year in line with average earnings, inflation or 2.5%, whichever is highest.

As a result of this, the state pension will increase from £185.15 to £203.85 per week from April 2023. This is the highest increase on record and is based on September’s rate of inflation (10.1%).

Stamp duty Land tax changes (from 2025) confirmed in the Autumn Statement

In Kwasi Kwarteng’s September ‘mini-budget’ the threshold at which homebuyers pay stamp duty was increased to £250,000 (£400,000 for first-time buyers). This will be reduced from 31 March 2025, at which point the threshold will be cut to £125,000 (and £300,000 for first time buyers).

Electric Vehicles to be taxed

With the Office for Budget Responsibility (OBR) forecasting that 50% of all new vehicles will be electric by the year 2025, the Chancellor announced that from April 2025 electric vehicles will no longer be exempt from Vehicle Excise Duty and will be taxed. This is a move which Mr Hunt claims will make the motoring tax system fairer.

For electric vehicles, company car tax rates will remain lower, and the rate increases will be limited to 1ppt a year for three years from 2025.

How will the Autumn Statement affect your business?

For tax and accountancy advice or assistance, whatever industry you’re in, contact our dedicated team of accountants and tax advisors. Our team is here to provide you with all aspects of tax and business growth advice to help your business thrive.

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