Research and Development (‘R&D’)
The Chancellor has outlined a reduction in the benefit of R&D tax relief as part of a strategy to tackle an increase in fraudulent claims by SME’s. The SME regime will now provide an additional deduction of 86%, down by approximately one third from the original 130%.
The opportunity to surrender R&D losses for a cash payment has received a similar cut, reducing from 14.5% to 10%. The headline result may appear worse than the reality, as Corporation Tax rates are increasing to 25%, meaning the net benefit for profitable businesses may only be reduced by 14%.
Conversely, the large company R&D scheme, otherwise known as R&D Expenditure Credit (‘RDEC’), received a boost with the headline rate going from 13% to 20%. Due to the mechanics of this scheme (effectively a grant which is taxed), it was expected that the benefit would reduce in value as the headline Corporation Tax rate increased. However, these changes mean the effective rate of benefit on qualifying expenditure will increase from 10.53% to 15%, a significant improvement.
Following the announcement in Septembers ‘Mini-Budget’ that Annual Investment Allowance, which was due to reduce to £200k from April 2023, would remain permanently at £1m, coupled with the expectation that this allowance would cover the investment expenditure of most of the UK's businesses, it is not surprising the Capital Allowances was not a main feature of the Autumn Statement.
The Chancellor did announce that the Spring Finance Bill 2023 will extend the 100% First Year Allowance for electric vehicle charge points to 2025.
Employers National Insurance Contributions (‘NIC’) and Employment Allowance
The current employers NIC threshold, at which employers start to pay Class 1 Secondary NICs, is to be frozen at £9.1k until 2028.
In addition, the Employment Allowance, which was previously increased from £4k in April 2022, will be retained at £5k until March 2026. This allowance reduces the annual national insurance liability of many companies by up to £5k and means that 40% of businesses do not pay NIC’s while the largest employers contribute the most.
Global minimum Corporation Tax rate
The Government will also implement rules for a global minimum Corporation Tax rate of 15%, for accounting periods beginning on or after 31 December 2023. The rules will apply to large businesses operating in the UK with global revenues over €750m. This legislation 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 15%.
It is estimated that these measures will generate revenues of c£8.9bn by 2027/28.
Transfer Pricing Documentation
From April 2023, the UK will adopt the recommendation of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting project which requires large Multinational Enterprises operating in the UK to follow a standardised approach to transfer pricing documentation, being Master File and Local File requirements.
The announcement, which will be legislated for in the Spring Finance Bill 2023, should give businesses certainty on the appropriate documentation they need to keep and enable HMRC to effectively identify risks and conduct transfer pricing investigations more efficiently.
The VAT registration threshold of £85k and the VAT deregistration threshold of £83k have been frozen until March 2026.
A suspension for two years of tariffs on over 100 goods for imports from outside the EU has also been introduced. The suspension will cover a range of products from ingredients used by food producers to aluminium frames used by bicycle manufacturers.
Online Sales Tax
It has been confirmed that the UK will not introduce an Online Sales Tax due to concerns raised about its potential complexity and the risk of creating unintended distortion or unfair outcomes between different business models.
It was announced in September under Liz Truss’ government that new ‘Investment Zones’ were to be established to encourage investment in specific areas of the UK. The aim of the zones were to drive fast levels of growth by reducing taxes and removing some of the frustrations of planning frameworks.
The Autumn Statement has announced that the Government will refocus the Investment Zones programme to “the highest potential knowledge-intensive growth clusters”. Further announcements have been promised in relation to this prior to the Spring Budget.
Energy Profits Levy
As widely predicted, the Chancellor has announced a temporary increase in the rate of the Energy Profits Levy. Between 1 January 2023 and 31 March 2028 the windfall tax rate will increase from 25% to 35%.
A reduction in the investment allowance from 80% to 29% has also been introduced alongside a new decarbonisation allowance, set at 80% for upstream decarbonisation expenditure from 1 January 2023.
It is estimated that the changes to the Energy Profits Levy will raise c£4.6bn to the end of 23/24.
Electricity Generator Levy
A new Electricity Generator Levy has been announced. This levy is a 45% tax on extraordinary revenues of certain renewable, nuclear and biomass electricity generators.
This measure will be effective from 1 January 2023 to 31 March 2028 and, as a big earner in the Autumn Statement, is expected to generate c£5.1bn by 2023/24.
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