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Anyone following the press coverage leading up to UK Chancellor Jeremy Hunt’s first autumn statement would be forgiven for thinking the end of the world was nigh and taxes on the way up. This was actually “pitch rolling”, the UK Treasury’s careful management of news and expectations, designed to avoid the market turmoil that followed its predecessor’s mini-budget.
The immediate economic outlook remains unclear, although the chancellor announced tax and spending changes to be phased in over the next six years to allow him to support the economy through the recession predicted for 2023 and 2024.
Energy sector
Businesses in the energy sector face an imminent windfall tax hike: Oil and gas companies will see their tax bill rise by a further 10% from January 1, 2023 (a total of 35% on top of normal corporation tax rates). And electricity generating companies will have to pay a new top-up levy of 45% from January 1, 2023 on electricity sold at prices above £75 ($90) per megawatt-hour (i.e. windfall prices). Although both levies are described as “temporary”, they will last until March 2028. While the main rate of corporation tax will go down to 25% from April 1, 2023, as per the plan, such companies will pay a total tax on profits of 75%. and 70% respectively.
At such a rate it seems inevitable that investment decisions for the sector will have to be rethought. Long-term goals have been sacrificed for the sake of short-term tax convenience; For example, investment in renewable energy production will be cost-effective in the short run but will almost certainly be profitable in the long run. From an energy consumer’s perspective, despite the announcement of ongoing support for households through an extended energy price guarantee, there is no concrete news on the energy bill relief scheme that provides concessions on the energy costs of industries. Indeed, we won’t find out until next year whether it will continue beyond March 31, 2023.
Banks fared slightly better in the autumn statement: the current surcharge rate will drop from 8% to 3% in April 2023, so banks will pay tax on profits at a total rate of 28% in future.
The penalty rate of tax on UK companies that divert UK profits to other countries will rise to 31% from April 2023. In addition, the government has confirmed that it will implement OECD Pillar Two rules to implement a 15% global minimum tax rate. Very large companies in respect of corporate accounting periods beginning on or after December 31, 2023.
Business rates
Happily, there was better news on business rates. While the planned revaluation exercise goes ahead—from April 1, 2023, the rateable values of non-domestic properties in England will be updated to reflect the property market on April 1, 2021—the government will limit the impact of the new valuations for ratepayers. Facing a significant increase in bills. A set of concessions, including the suspension of business rate multipliers and percentage caps on annual increases in business rates, will apply until 2025-2026.
Concessions in business rates for the retail, hospitality and leisure sectors introduced during the pandemic will be extended and increased to 25%. However, all hope of the government introducing a more radical alternative to business rates has now ended – it has finally decided not to introduce a UK-based online sales tax. This is perhaps a recognition that the increasing integration and use of online and traditional brick-and-mortar sales will increase the complexity of defining and accounting for online sales for businesses.
Research and development
Rishi Sunak, when chancellor, chose to limit the amount of tax relief available for research and development expenditure from April 2023 by excluding subcontracted overseas expenditure from UK claims. Ahead of the recent Chancellor’s speech there was much discussion on further possible sanctions for relief. In the event, the result was mixed – with more relief available under the R&D Expenditure Credit (RDEC) scheme for large enterprises and a slight reduction in relief rates for small and medium-sized enterprise claims.
For UK R&D expenditure on or after 1 April 2023, the RDEC relief rate will increase from 13% to 20%, but the SME excess deduction will decrease from 130% to 86% and the credit payable for loss-making businesses will decrease from 14.5%. % to 10%. As the corporation tax rate also increases from April 1, 2023, it is important to understand that the RDEC is an upward credit, so the effective tax benefit increases from 10.5% to 15%, while the SME relief is Cost increases, so the effective leverage for profitable firms falls from 24.7% to 21.5%.
Although the move has attracted criticism from small companies, the reforms to R&D relief, along with the Chancellor’s promise to protect government funding for science organizations in the UK, represent a strong commitment to funding innovation in the UK and are very welcome for businesses.
Another related announcement was Quasi Kwarteng’s proposal to create tax-advantaged “investment zones” across the UK reimagined as innovation zones that would be located at new universities in disadvantaged parts of the UK. While this is little more than an idea at this stage, and how well it will be funded remains to be seen, the concept is more focused than the Investment Zone proposals, which should make it easier for the Chancellor to control spending. treasure The concept is based on similar hubs that exist around prestigious universities, so perhaps there is a better chance of fostering successful spin-out businesses.
The government also launched a consultation on its proposed reforms to audio-visual tax reliefs, which represent five of the UK’s eight existing creative industries tax relief schemes, “to ensure they remain world-leading.” Key proposals under consultation include merging existing film and TV concessions into a single tax credit scheme, granting tax relief for above-the-line schemes (such as RDEC), but paying expenditure credits, raising the minimum expenditure threshold and introducing a UK expenditure requirement. Brexit will allow this to replace the current European spending requirement.
Cost control will be a key focus for businesses. When commercially sensible, it makes sense to provide maximum relief; For example, if new plant and machinery is required in the short term, investments made before March 31, 2023 will benefit from capital allowances super deduction. Equally, the UK patent box scheme still offers an effective 10% tax rate on patented profits, so continuing R&D investment, and patenting breakthroughs, looks like a highly valuable strategy for business.
Rising costs
For service sector businesses, there is little good news in the autumn statement—they will have to manage rising costs while inflation is high and perhaps beyond—at least in relation to employees. As well as announcing an increase in the national minimum wage to keep pace with the current high rate of inflation, the Government is stabilizing the current threshold for National Insurance Contributions (NICs). So, while employers must agree to raise wages each year to retain their employees, each year they will see NICs (at least until 2028), a secondary threshold (the weekly/monthly amount of wages at which employers pay more. NICs start paying) will be fixed.
Controlling staff costs while maintaining a motivated team will certainly be a challenge, so businesses should make sure they use all available tools to achieve their goals, from employee share plans to electric vehicles and other types of tax-advantaged benefits.
Judgment from businesses
Few will be pleased but, allowing for Hunt’s very short time in office, the Autumn Statement announcements were important in stabilizing the economy. This loss limitation was largely achieved on the back of a relatively muted response from financial markets. The Chancellor’s next decisions will be every bit as challenging; By the time we have a full budget in the spring of 2023, businesses and financial markets will be looking for a road map to return to realistic levels of growth and monetary policy to enable them to invest with confidence.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author information
Paul Falvey is a tax partner at BDO LLP.
The author can be contacted at paul.falvey@bdo.co.uk
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