Autumn Statement 2023 Tax cuts! But in a responsible and grown-up manner

Whether these long term policies survive a change of government remains to be seen. But some of the Chancellor’s announcements were intended to rebuild the UK’s reputation as a good place to do business. These include: full expensing for capital expenditure, extending the EIS and VCT schemes by another ten years from 2025 to 2035, and extending the tax benefits for the freeports and investment zones to ten years.

Tax avoidance was also mentioned, including the decision to double the potential prison sentence for the most egregious forms of tax evasion from seven to 14 years.
 

Business tax

Capital allowances

The temporary full expensing introduced at Spring Budget 2023 is to be made permanent. At a cost of over £10 billion a year, this change will make the UK’s capital allowance regime one of the most generous in the world. It allows companies incurring qualifying expenditure on the provision of new plant and machinery on or after I April 2023 to claim a 100% first year allowance for main rate expenditure (such as construction and office equipment and some fixtures) and a 50% first year allowance for special rate equipment (such as solar panels and other long-life equipment).

Whilst expenditure on plant and machinery for leasing is currently excluded from full expensing, the government will consult on a potential extension to include it in the future, as well as consulting on wider changes to simplify the capital allowances legislation.

Stamp Duty and Stamp Duty Reserve Tax: growth market exemption

The government plans to extend the growth market exemption, which relieves trades made on a "recognised growth market" from stamp duty and stamp duty reserve tax, to FCA regulated multilateral trading facilities (MTFs) run by investment firms. MTFs will be able to apply for HMRC approval to be classed as "recognised growth markets" to take advantage of the exemption. Under the same proposals, the current company market capitalisation cap condition set out under the exemption will be increased from £170 million to £450 million. The amended rules will be effective from 1 January 2024.

VAT treatment of private hire vehicles

The government will consult in early 2024 on the VAT treatment of private-hire operators following a high-profile July 2023 High Court ruling. That decision stated that, from a licensing perspective, private-hire operators must contract directly as principal with passengers (not as agents of drivers), requiring 20% VAT to be added and collected on passenger fares where no such VAT had been collected previously.  Stakeholder operators have already started to lobby the government to introduce a new 0% VAT rate for private-hire taxi transport in support of small businesses and communities which rely on minicabs across the country for their transport needs in areas less well-served by other public transport.

Business rates

The Chancellor announced that, whilst the standard multiplier for business rates will rise in line with inflation, the government will freeze the small business multiplier for a further year. In recognition of “the role of pubs and high street shops” in the UK economy, the government will also extend the 75% business rate discount for eligible retail, hospitality and leisure properties until the end of the 2024-2025 tax year.

Personal tax

National Insurance Contributions (NICs)

As expected, the Government has announced meaningful tax cuts for the self-employed and employees. 

For employees, this will be felt through the reduction of the Class 1 NIC rate (which is currently paid by employees on annual earnings between £12,570 and £50,270), which will be cut from 12% to 10% as of January 2024. 

For the self-employed, this will be seen in the abolition of Class 2 NICs (currently £3.45 a week), whilst the Class 4 rate will be reduced from 9% to 8% from April 2024. They will continue to receive access to contributory benefit like the state pension. Income tax and NI thresholds have remained untouched under the Government’s proposed personal tax plans, but these changes should benefit approximately 27 million workers.

For those paying voluntary contributions, the government will freeze Class 2 and Class 3 NICs are the 2023-2024 levels in 2024-2025.

Data collection and digitalisation

In an effort to narrow down the ‘tax gap’ and ensure both individuals and businesses are paying the correct tax, the government has confirmed its plans to introduce legislation requiring employers, company directors, businesses and the self-employed to submit real time data to HMRC. For employers, this will include the provision of employee hours via the PAYE Real Time Information System. For shareholders who are company-owner managers in owner-managed businesses, they will be required to provide: (i) the amount of dividend income received from their own companies separately to other dividend income; and (ii) the percentage share they hold in their own companies. Self-employed taxpayers will need to provide information on the start and end dates of their self-employment using their Self-Assessment tax return.

The government is also bolstering its wider tax administration strategy, which seeks to make the UK tax system digital, by announcing two measures under its ‘Making Tax Digital’ (MTD) initiative. 

The first relates to penalties, which will see volunteers who sign up to MTD early able to benefit from a fairer and more simplified penalty regime for late tax return filings and overdue tax payments. These changes will take effect from 6 April 2024, with the first penalties potentially applied to annual tax obligations due in January 2026. 

The second measure relates to changes under the MTD for Income Tax Self-Assessment. The government will simplify the requirements for all taxpayers providing quarterly updates and for taxpayers with more complex affairs, such as landlords with jointly-owned property, to remove the requirement to provide an ‘End of Period Statement’, exempt some taxpayers from MTD (including those without a National Insurance number) and enable taxpayers using MTD to be represented by more than one tax agent.

Innovation

Intangibles

Of interest to IP rich businesses will be the proposed abolition of the “offshore receipts in respect of intangible property” (ORIP) rules which were only introduced in 2019. These rules impose UK income tax on non-UK persons who receive income from intangible property that relates to the sale of goods or services in the UK. They were introduced to prevent unfair competitive advantages for multinational groups locating intangible property outside the UK in low or no tax jurisdictions that generated significant income through UK sales. 

This is unlikely to herald the start of IP rich businesses moving their IP offshore again, as the ORIP rules are being replaced by the so-called Pillar 2 rule. This is part of the OECD’s two pillar approach to reducing tax avoidance in the modern digitalised economy. The UK has announced that it will introduce the Pillar 2 Undertaxed Profits Rule (“UTPR”) for periods beginning on or after 31 December 2024. This rule is intended to discourage more comprehensively the multinational tax-planning arrangements that ORIP sought to counter. However, the UTPR only applies to multinational companies with global revenues of more than €750 million, so there may be some tax planning opportunities for businesses under that threshold with sales of more than £10million in the UK who would previously have been caught by ORIP.

Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme extension

The EIS and VCT legislation contain sunset clauses which limit income tax relief to shares issued before 6 April 2025. However, the government announced that it will legislate in the Autumn Finance Bill 2023 to extend the existing sunset clauses for the EIS and VCT to 6 April 2035. The measure will provide entrepreneurs and investors with certainty regarding the future of the EIS and VCT scheme.

R&D

As anticipated following government consultation on the R&D tax relief schemes, the current RDEC and SME schemes will be merged with effect from accounting periods beginning on or after 1 April 2024. The rate under the new merged scheme will be 20% (which is the current RDEC rate) and the notional tax rate applied to loss-making entities will be the small profits rate of 19% (rather than the 25% main rate currently set under the RDEC scheme). The government has indicated that it expects that further action may be needed to reduce the high levels of non-compliance in this area and has announced that HMRC will be publishing a compliance action plan in due course.

The government has also introduced enhanced support for R&D intensive SMEs by providing a higher rate of payable tax credit for those entities, which was announced in the Spring Budget 2023. It has now been announced that the intensity threshold to qualify for the enhanced support is going to be reduced from 40% to 30%, which the government anticipates will bring approximately 5,000 more R&D intensive SMEs within the scope of the relief. During the consultation, stakeholders flagged concerns about items of exceptional spending which might skew an SME’s intensity ratio for a year and lead to businesses moving in and out of the intensive SME regime, creating uncertainty. A one-year grace period will therefore be introduced for companies that have claimed successfully in the previous year but temporarily dip below the 30% threshold. Businesses will be able to claim under the scheme for expenditure incurred from 1 April 2023 once the Autumn Finance Bill 2023 has received Royal Assent, with the reduction in intensity threshold and grace period coming into effect for accounting periods beginning on or after 1 April 2024.

The government will also introduce legislation to: (i) remove the use of nominations for R&D credit payments (subject to limited exceptions); and (ii) prevent any new assignments of R&D tax credits, to ensure that payments go directly to claimants and not to third parties. The change on nominations will take effect for all claims made on or after 1 April 2024 and the restriction on new assignments will apply in relation to assignments made on or after 22 November 2023.

Real Estate

Construction Industry Scheme (CIS)

Under the CIS, contractors must make deductions on payments made to subcontractors and pay the withholding tax to HMRC. However, subcontractors that apply for and obtain gross payment status can receive payments from contractors gross, with no withholding tax deducted. The government will introduce legislation in the Autumn Finance Bill 2023 to add compliance with VAT obligations to the statutory compliance test for being granted, and for keeping, gross payment status. Minor VAT compliance failures will not be taken into account when determining gross payment status.

The measure also extends one of the grounds for immediate cancellation of gross payment status. It adds VAT, Corporation Tax Self-Assessment (CTSA), Income Tax Self-Assessment (ITSA) and PAYE to those taxes where HMRC is able to withdraw gross payment status if they have reasonable grounds to suspect that the gross payment status holder has fraudulently provided an incorrect return or incorrect information.

Media, Entertainment & Sport

Remote gambling duties

The government has announced that it will consult shortly on what could be potentially significant proposals for the gambling industry. It will consider bringing remote gambling offered over the internet, telephone, TV and radio into a single tax regime, potentially at a single higher rate, rather than taxing gambling through a three-tax structure which applies various rates. 

Creative reliefs

As announced at the Spring Budget 2023, the government plans to legislate in the Autumn Finance Bill 2023 to reform the film, TV and video games tax reliefs to refundable expenditure credits. There will be two schemes – an Audio-Visual Expenditure Credit (AVEC) for film and TV programmes and a Video Games Expenditure Credit (VGEC) for video games. The credits will be available from 1 January 2024, with animated film and TV and children’s TV programmes eligible for a rate of 39% under the AVEC. The new rules will also cover connected party transactions (with companies being required to disclose connected party transactions and charge connected parties at an arm’s length price) and require additional information to be shared with HMRC when companies claim the relief.

The government has published a call for evidence on recent trends in the visual effects industry. The call for evidence will run until 3 January 2024 and will be followed by a consultation on the design of additional relief for visual effects expenditure which is intended to be implemented from April 2025 under the AVEC scheme.

Energy

Energy-saving materials VAT relief

Following a call for evidence, the government will extend the VAT relief available on the installation of energy-saving materials to additional technologies such as water-source heat pumps and will bring buildings used solely for a relevant charitable purpose within scope as part of its ongoing investment to support energy efficiency and encourage businesses to invest in more low carbon technologies. 

Electricity Generator Levy

In a move that will be welcome to clients looking to invest in green energy, the government plans to introduce legislation in the upcoming Finance Bill 2023 to provide for an exemption from the Electricity Generator Levy for receipts from new electricity generating stations. The exemption will apply to revenues from new electricity generating stations where the substantive decision to invest (broadly reflecting the circumstances that would be expected to exist for a typical commercial “Final Investment Decision” or “FID”) is taken on or after 22 November 2023. New electricity generation stations within scope of the exemption will include both new standalone stations and substantial expansions and repowering of existing stations.

And finally….

Despite the recent dismal weather, the sun always shines in Watford (according to the Chancellor) where the all-Californian blockbuster Barbie was filmed. A call for evidence on increasing film and high-end TV tax credits is to be launched.