Following the dismantling of the previous chancellor's policy of tax cuts to fund growth, we can expect tax rises and deep spending cuts to be announced by the new chancellor in his autumn statement on 17 November 2022.
The new chancellor, Jeremy Hunt, announced in his statement to Parliament on 17 October 2022 (reversing the majority of the tax cuts and reforms announced by his predecessor, Kwasi Kwarteng) that decisions of "eye-watering difficulty" would be needed (for more detail see our Insight). It is understood that the Treasury is looking for ways to fill a £50 billion hole in the public finances.
Rishi Sunak, the new prime minister, has reconfirmed his commitment to delivering the promises made in the 2019 Conservative party election manifesto which included a pledge not to raise the rate of income tax, VAT or national insurance. However, with the majority of tax revenue coming from these three taxes, we expect this to be looked at carefully – if not in this financial statement, then in future ones.
The autumn statement will be accompanied by the first growth and borrowing forecasts from the Office for Budget Responsibility since March.
We are expecting the chancellor to announce the rate of the banking surcharge with effect from 1 April 2023. Under current legislation it will reduce to 3% (from 8%) from 1 April 2023 (to coincide with the increase in the main corporation tax rate to 25%) but it has been suggested that this position may be reviewed in the current climate due to the banks' increased profits from rising interest rates.
The rate of corporation tax will rise to 25% from 1 April 2023 which coincides with the end of the extension of the super deduction on capital expenditure (the temporary enhanced first year capital allowances). The government confirmed in its spring statement in 2022 that ahead of April 2023 it would consider reforms to support future business investment.
Although the chancellor has already confirmed that the Annual Investment Limit, which was due to reduce to £200,000 from April 2023 will remain at a permanent level of £1 million, business will hope that more announcements will be made to improve expenditure on general plant and machinery and/or other capital allowances such as the Structures and Buildings Allowance.
A further measure that has, seemingly, stayed on the drawing board from Kwasi Kwarteng's original "Growth Plan" announced on 23 September 2022 (see our Insight) is the establishment of investment zones where tax benefits (such as capital allowances, stamp duty land tax (SDLT) and business rates relief) will be available for ten years.
Although no timescale for the establishment of these zones has been mentioned so far, we understand the chancellor has confirmed a review is under way so we may see more detail in the autumn statement as to whether there is a scaling down of the project – with perhaps a cap being put on the number of zones.
Employee share plans
The chancellor confirmed in his statement on 17 October 2022 that the previously announced reforms to the tax-advantaged Company Share Option Plan (CSOP) are to continue. The expansion of the CSOP regime and doubling of the limit to £60,000 from 6 April 2023 is explained in our recent Insight.
We do not expect any further announcements in relation to this at the autumn statement, and await the draft legislation implementing these welcome improvements.
Energy Profits Levy
The Energy Profits Levy, first announced by Rishi Sunak when he was chancellor, is a temporary windfall tax on oil and gas companies to help fund government measures to ease the impact of high energy bills on consumers (see our Insight).
It is currently an additional 25% tax on UK oil and gas profits on top of the existing 40% headline rate of tax for those companies and is due to expire in December 2025. It is possible that the rate could be increased by the chancellor to 30% and/or the temporary timescale extended to 2028.
It has also been suggested that the levy could be extended to electricity generators that produce power from renewable sources and nuclear and currently benefit from contracts linked to gas prices.
Global minimum tax
We may hear more in the autumn statement about the progress of the UK government to implement OECD Pillar 2 – a global minimum corporate tax rate of 15% for multinational enterprises that meet a €750m turnover threshold.
Some draft legislation was published as part of "legislation day" on 20 July 2022 and the changes are due to come into effect in the UK for accounting periods beginning on or after 31 December 2023, but there is still work to be done around specific areas where further international engagement is needed.
While the government has given tax breaks for residential property, it may decide it is time to look at the stamp tax system in relation to commercial property and shares.
With the chancellor reversing the 1% reduction in the basic rate of income tax, it now seems likely that the current basic rate of 20% will remain for the rest of this parliament (Jeremy Hunt indicated in his statement on 17 October 2022 that it will remain at 20% "until economic conditions allow for it to be cut").
Despite the 2019 Conservative party election manifesto promising that they would not raise the rate of income tax, many expect that the four-year freeze in the personal tax allowance and income tax thresholds which is due to end in 2026 may be extended a further few years. This would bring millions more people either into the tax system or into higher rate bands.
Legislation has been enacted to reverse the temporary 1.25% percentage point rise in national insurance contributions from 6 November 2022. On that date, the rates will drop back to 2021-22 levels (broadly, 12% or 2% above the upper earnings limit for employees and 13.8% for employers) and those levels will continue to apply from 6 April 2023.
The proposed Health and Social Care Levy has also been cancelled and will not be introduced in April 2023.
While it might be politically awkward to increase the rates of national insurance contributions, it is possible that the impact of the recent reversal could be scaled back in some way. The government might also consider reintroducing a form of levy to pay for health and social care at a future point in time.
Capital Gains Tax
Although capital gains tax (CGT) is not a big revenue raiser for the government, the rates of CGT have remained the same since 6 April 2017. With such a big financial gap to bridge, CGT may be within the chancellor's sights with a rate increase. He could also look at lowering or abolishing the CGT annual exempt amount (which has remained at £12,300 since 6 April 2020).
The 2019 Conservative party election manifesto also promised to "review and reform" Entrepreneurs' Relief (now renamed Business Asset Disposal Relief) and so we may see some changes to raise revenue – perhaps reducing or limiting either the scope and/or the lifetime limit amount or even abolishing it all together. There is a tricky balancing act here for the government as the current rates and reliefs encourage investment and any cuts could potentially work against the growth agenda.
The question of whether the government should cut or remove the higher rate of pensions tax relief and/or restrict the lifetime allowance has been mooted for some time now. It is possible that this is another area in which announcements will be made (alongside any announcement regarding whether the triple lock will be restored from April 2023).
Although a politically sensitive issue, the chancellor may look at reforming the regime for non-domiciled taxpayers in the UK. While we do not expect any wholesale changes to be announced, it is possible that a consultation around the current rules could be launched.
Other measures still awaited
We are still expecting to see the outcome of several consultations which were in progress before the political turmoil of recent months. However, given the current economic situation, the detail on these may have to wait until the spring Budget (or indeed future fiscal events):
- the introduction of a corporate re-domiciliation regime to support companies seeking to relocate to the UK;
- the reform of the UK's sovereign immunity from direct tax;
- VAT on fund management fees and further reforms to the UK funds landscape;
- the UK's mandatory disclosure rules (which had been expected to come into force in the summer);
- reforming the way in which SDLT applies to mixed property and the introduction of restrictions on the availability of multiple dwellings relief;
- simplifying the VAT land exemption; and
- whether the government will be taking forward proposals for an online sales tax to rebalance the taxation of the retail sector between online and in-store retail. This question forms part of a larger conversation around business rates reform which is ongoing.
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