Any media coverage of Chancellor Jeremy Hunt’s first autumn statement would suggest that the end of the world is imminent and everyone is wobbling on tax hikes. It was effectively a “sell”, the Treasury’s careful news and expectations management aimed at avoiding the kind of market turmoil that followed its predecessor’s mini-budget.
The current economic picture remains bleak despite the Chancellor announcing a phased adjustment of tax and spending over the next six years to support the economy through a predicted recession in 2023 and 2024.
energy field
Businesses in the energy sector face a looming windfall tax increase: Oil and gas companies will see their tax bills rise by another 10% from Jan. 1. January 1, 2023 (35% total on top of normal corporate tax rate). From January 1, power generation companies will have to pay a new surtax of 45%. Electricity sold for more than £75 ($90) per megawatt-hour (ie the windfall price) on 1 January 2023. While both levies have been described as “temporary”, they will last until March 2028. These companies will pay 75% tax on gross profits and 70% when the main rate of corporate tax is planned to increase to 25% from 1 April 2023.
At this pace, it seems inevitable that investment decisions in the industry will need to be revisited. Long-term goals are sacrificed for short-term tax expediency; for example, investment in renewable energy generation may be less in the short term but will almost certainly be profitable in the long run. From the perspective of energy users, despite the announcement of continued support for households through the extension of the Energy Price Guarantee, there has been no substantive news on an energy bill relief scheme that discounts energy costs for businesses. In fact, we won’t know until next year if it will last beyond March 31, 2023.
The banks fared a little better in their autumn statement: from April 2023, the current surcharge rate of 8% will be reduced to 3%, so banks will be taxed on their profits at a gross rate of 28% in the future.
From April 2023, the penalty rate for UK companies that transfer UK profits to other countries will rise to 31%. In addition, the government confirmed that it will implement the OECD Pillar 2 rules, applying the lowest global tax rate of 15% to very large companies with corporate accounting periods beginning on or after December 31, 2023.
business rate
Happily, there is better news when it comes to business rates. While planned revaluations will continue – from 1 April 2023 the taxable value of non-residential property in England will be updated to reflect the housing market on 1 April 2021 – the government will limit new valuations The impact is on taxpayers facing large increases in their bills. A series of relief measures will be implemented until 2025-2026, including a freeze on business rate multipliers and a cap on the annual percentage increase in business rates.
Business tax breaks for the retail, hospitality and leisure industries during the pandemic will be extended and increased by 25%. However, all hopes of the government introducing a more aggressive alternative to the business tax rate have now been dashed – it has finally decided not to introduce a UK-based online sales tax. This may be a recognition that the increasing integration and use of online and traditional brick-and-mortar sales increases the complexity for businesses in defining and accounting for online sales.
research and development
Rishi Sunak, then chancellor of the exchequer, opted to limit the amount of tax relief available for R&D spending from April 2023 by excluding the overseas costs of subcontracting from UK claims. Ahead of the recent chancellor’s speech, there was a lot of debate about the possibility of further restrictions on dole payments. As a result, the results have been mixed – under the Research and Development Expenditure Credit (RDEC) scheme, larger businesses are able to get more relief, while SME claims have been reduced at a reduced rate.
For UK research and development expenditure on or after 1 April 2023, the RDEC relief rate will increase from 13% to 20%, but the SME supplementary deduction will be reduced from 130% to 86%, and the credit repayable by loss-making enterprises will be reduced from 14.5% to 10%. As the corporate tax rate is also going up from April 1, 2023, it is important to understand that RDEC is an online credit, so the effective tax benefit rises from 10.5% to 15%, while the SME relief is a cost increase, so effective for profitable companies Gains fell from 24.7% to 21.5%.
While the measures have drawn criticism from small companies, the R&D relief amendments and the Chancellor’s pledge to protect government funding to UK science institutions represent the UK’s strong commitment to innovation funding and are very popular with business.
In a related announcement, Kwasi Kwarteng proposed the creation of tax-advantaged “investment zones” across the UK, reimagined as innovation zones that would house new universities in deprived parts of the UK. While it is only an idea at this stage and it remains to be seen how well they are funded, the concept is more focused than the investment zone proposal and should make it easier for the Chancellor to rein in the coffers. The concept is based on similar centers that exist around well-known universities and thus may have a better chance of nurturing successful spin-offs.
The government has also consulted on its proposed audiovisual tax relief reforms, which represent five of the UK’s current eight creative industries tax relief schemes, “to ensure they remain world-leading”. The main proposals being negotiated include combining the current film and television credits into a single tax credit scheme, giving tax credits to schemes above the line (such as RDEC) but including reimbursable spending credits, raising the minimum spending threshold and Introducing UK spending requirements. Brexit would allow it to replace current European spending requirements.
Cost control will become the focus of enterprises. Where it is commercially reasonable, it makes sense to maximize the relief; for example, if new plant and machinery are required in the short term, investments made before 31 March 2023 will benefit from the capital allowance super deduction. Likewise, the UK Patent Box scheme still offers an effective tax rate of 10% on patent-derived profits, so continued investment in R&D and patent success appears to be a very valuable strategy for businesses.
rising costs
The autumn statement offers little good news for businesses in the service sector – who will have to contend with rising costs amid high and likely excess inflation – at least for staff. In addition to announcing an increase in the national minimum wage to keep pace with the current high rate of inflation, the government has also frozen the current National Insurance Contribution (NIC) threshold. So while employers may have to agree to annual salary increases to retain staff, each year will see them pay more at the NIC (at least until 2028) as a secondary threshold (wages paid by employers weekly/monthly ) to start paying for the network card) will be frozen.
Controlling staff costs while retaining a motivated team is certainly a challenge, so businesses should ensure they use all the tools at their disposal, from employee share plans to electric vehicles and other tax-advantaged benefits in kind, to achieve their goals. .
corporate verdict
Few will be happy, but the release of the autumn statement will be crucial to stabilizing the economy, given the short duration of Hunt’s tenure. Judging by the relatively calm response in financial markets, this damage limitation has largely been achieved. The Chancellor’s next decision will be challenging; by the time we get the full Budget in spring 2023, businesses and financial markets will be looking for a roadmap to return to realistic levels of growth and fiscal policy that will allow them to invest with confidence.
This article does not necessarily reflect the views of Bloomberg Industries plc, the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
author information
Paul Falvey Is a tax partner of BDO LLP.
The author can be contacted at paul.falvey@bdo.co.uk