Autumn Statement bulletin

The Chancellor today delivered his Autumn Statement, focusing on “stability, growth and public services.” As expected, it was a tax raising Budget with significant reforms to the tax system, along with some new measures. The main tax announcements include:

Windfall taxes
The Chancellor announced several changes to the new Energy Profits Levy (EPL), stating that windfall taxes should be temporary and not deter investment. That said, the existing EPL will be extended to March 2028, and the rate will be increased from 25% to 35% from January 2023, alongside changes limiting the investment allowance. With these changes the EPL is expected to raise over £40 billion in total over the next six years.

There will be a new Electricity Generator Levy from January 2023. A temporary 45% tax will be levied on extraordinary returns from certain low carbon UK electricity generation. Extraordinary returns will be defined as the aggregate revenue that generators make in a period from in-scope generation at an average output price above £75/MWh. The tax will be limited to generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10 million. The Levy is expected to raise £14 billion over the next six years.

Research and development tax relief changes
The Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% on expenditure from April 2023. The small and medium-sized enterprises (SME) R&D additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10% also from April 2023. As previously announced at Autumn Budget 2021, the R&D tax reliefs will be reformed by expanding qualifying expenditure to include data and cloud costs, refocusing support towards innovation in the UK, and targeting abuse and improving compliance. The government will consult on the design of a single scheme and work with industry to understand whether further support is necessary for R&D intensive SMEs.

Rate and allowance changes
Significant changes were made to personal taxes. From 6 April 2023, the additional rate of income tax threshold will be reduced from £150,000 to £125,140, meaning that those earning above £150,000 will pay an additional £1,243 in income tax a year. The basic and higher rate thresholds will remain frozen until 2028.

The Dividend Allowance will be halved, to £1,000 from 6 April 2023, and again to £500 from 6 April 2024. The Capital Gains Tax Annual Exempt Amount will also be reduced from £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024.

For companies, the government will fix the level at which employers start to pay Class 1 Secondary NICs for their employees (the Secondary Threshold) at £9,100 from April 2023 until April 2028. This change is expected to raise £25 billion over the next six years.

Business Rates
The biggest tax giveaway was in Business Rates as the Chancellor announced a package of benefits amounting to savings of £14bn over next 5 years. These include a further freeze on the multiplier for 12 months and an extension of the current relief for Hospitality Leisure and Retail businesses for another year, as well as increasing the relief to 75%, capped at £110,00 relief per business. A Transitional Relief Scheme will apply to support businesses by capping bill increases caused by changes in rateable values. The transitional relief scheme will support 700,000 ratepayers.

The government has also decided not to introduce an online sales tax that was considered alongside business rates reform, reflecting concerns raised about the complexity of such a scheme.

Investment Zones
The government will refocus investment zones over the coming months, to leverage research strengths and help build clusters for the highest potential knowledge-intensive growth industries. The Department for Levelling Up, Housing and Communities will work closely with mayors, devolved administrations, local authorities, businesses and other local partners to consider how best to identify and support these zones. The first clusters will be announced in the coming months.

Vehicle excise duty
The government will introduce Vehicle Excise Duty (VED) on electric cars, vans and motorcycles from April 2025, aligning the treatment with petrol and diesel vehicles. This means that new zero emission cars registered on or after 1 April 2025 will be liable to pay the lowest first year rate of VED, currently £10 a year. From the second year of registration onwards, they will move to the standard rate, currently £165 a year.