Anyone who followed the media coverage of the preparation of British Chancellor Jeremy Hunt’s first autumn statement would have been forgiven for thinking that the end of the world was near and that meteoric tax hikes were on the way for everyone. It was effectively ‘pitch rolling’, the careful management of UK Treasury news and expectations, designed to avoid the kind of market turbulence that followed its predecessor’s mini-budget.
The immediate economic situation is grim, although the Chancellor has announced phased tax and spending changes over the next six years in a way that has allowed him to support the economy through the recession forecast for 2023 and 2024.
Energy companies face looming one-off tax increases: oil and gas companies will see their tax bill increase by an additional 10% from 1 January 2023 (a total of 35% on top of normal rates corporate tax). And power companies will have to pay a new top-up tax of 45% from 1 January 2023 on electricity sold at prices above £75 ($90) per megawatt hour (i.e. exceptional prices). Although both levies are described as “temporary”, they will run until March 2028. When the main corporate tax rate increases to 25% from 1 April 2023, as planned, these companies will pay tax total on profits of 75% and 70% respectively.
At such rates, it seems inevitable that investment decisions for the sector will have to be reviewed. Longer-term goals have been sacrificed for short-term fiscal expediency; for example, investments in renewable energy generation are likely to be reduced in the short term but will almost certainly be profitable in the long term. From the perspective of energy consumers, despite the announcement of continued support for households through an extended energy price guarantee, there has been no substantial news on the energy saving program. reduction in the energy bill which reduces the energy costs of businesses. Indeed, we will only know next year if it will continue beyond March 31, 2023.
Banks are doing a little better in the autumn statement: the current surcharge rate of 8% will drop to 3% from April 2023, so that banks will in future pay tax on profits at a total rate of 28%.
The criminal rate of tax on UK corporations that divert UK profits to other countries will rise to 31% from April 2023. In addition, the government has confirmed that it will implement the second pillar rules of the OECD to apply an overall minimum tax rate of 15% for very large companies for fiscal years beginning on or after December 31, 2023.
Luckily, there was better news about corporate pricing. While the planned revaluation exercise will continue – from 1 April 2023 the rateable values of non-domestic properties in England will be updated to reflect the property market on 1 April 2021 – the government will limit the effect of new assessments for taxpayers to face substantial increases in bills. A package of relief, including a freeze on corporate rate multipliers and percentage caps on annual corporate rate increases, will apply through 2025-26.
Tariff relief for businesses for the retail, hospitality and leisure sectors introduced during the pandemic will be extended and increased by 25%. However, any hope of the government introducing a more radical alternative to corporate tariffs has now faded – it has finally decided against introducing a UK-based online sales tax. This is perhaps a recognition that the increasing integration and use of online and traditional sales would create increased complexity for businesses in defining and accounting for online sales.
Research and development
Rishi Sunak, when he was Chancellor, chose to limit the amount of tax relief available for research and development expenditure from April 2023 by excluding overseas outsourced costs from UK claims. Prior to the Chancellor’s last speech, there were many debates about possible additional restrictions on reliefs. Ultimately, the outcome was mixed – with more relief becoming available under the R&D Expenditure Credit (RDEC) program for large companies and some reduction in relief rates for small and medium-sized businesses. businesses.
For R&D expenditure in the UK from 1 April 2023, the RDEC relief rate will increase from 13% to 20%, but the additional deduction for SMEs will increase from 130% to 86% and the refundable credit for loss-making companies will drop from 14.5. % to 10%. With the corporate tax rate also increasing from April 1, 2023, it is important to understand that the RDEC is an above the line credit, so the effective tax benefit increases from 10.5% to 15 %, while the SME relief is an addition of costs, so that the effective profit increases from 24.7% to 21.5% for profitable companies.
Although the measures have drawn criticism from small businesses, the changes to the R&D relief, together with the Chancellor’s promise to protect public funds for science bodies in the UK, represent a strong commitment in favor of funding innovation in the UK and are welcome for businesses.
Another related announcement saw Kwasi Kwarteng’s proposal to create tax-advantaged ‘investment zones’ across the UK reimagined as Innovation Zones to be located at new universities in deprived parts of the UK . Although this is little more than an idea at this stage, and it remains to be seen to what extent they will be funded, the concept is rather more focused than the investment zone proposals, which should allow the Chancellor easier to control board costs. The concept is based on similar hubs that exist around high-profile universities, so it may have a better chance of fostering spin-off success.
The Government has also launched a consultation on its proposals for reforming tax relief for broadcasting, which represent five of the UK’s eight current tax relief schemes for the creative industry, to “ensure that they remain at the forefront of the world”. Key proposals under consultation include merging the current film and television relief into a single tax credit scheme, providing tax relief for schemes above the line (such as the RDEC ) but including refundable spending credits, raising the minimum spending threshold and introducing a spending requirement in the UK. Brexit will allow this to replace the current EU spending requirement.
Cost control will be a key objective for companies. When it makes commercial sense, it makes sense to maximize bumps; for example, if new plants and machinery are needed in the short term, investments made before March 31, 2023 will benefit from the super capital cost allowance. Similarly, the UK patent box regime still offers an effective tax rate of 10% on profits from patents, so pursuing R&D investment and patenting success seems to be a very valuable to a business.
For companies in the service sector, the fall statement contained very little good news – they will have to manage rising costs while inflation is high and likely beyond – at least as far as employees are concerned. In addition to announcing increases to the national minimum wage that keep pace with the current high rate of inflation, the government is freezing the current National Insurance (NIC) contribution thresholds. Therefore, while employers will likely have to accept wage increases each year to retain their employees, each year will see them paying more in the NPI (at least until 2028), as a secondary threshold (the amount of weekly/monthly wage at which employers start paying for network cards) will be frozen.
Keeping staff costs under control while maintaining a motivated team will certainly be a challenge, so companies need to make sure they are using all the tools at their disposal, from employee share plans to electric vehicles and other tax-advantaged benefits in kind. , to achieve their goals.
The verdict of the companies
Few will be happy but, given Hunt’s very short tenure, the fall statement announcements were key to stabilizing the economy. This damage limitation has been largely achieved, judging by the relatively calm response of the financial markets. The chancellor’s next decisions will be just as difficult; Until we have a full budget in the spring of 2023, businesses and financial markets will be looking for a roadmap to return to realistic levels of growth and fiscal policy that allows them to invest with confidence.
This article does not necessarily reflect the views of Bloomberg Industry Group, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Paul Falvey is a tax partner at BDO LLP.
The author can be contacted at email@example.com