Undoubtedly, the UK’s Autumn Statement delivered by Chancellor Jeremy Hunt on 17 November 2022 reflected some difficult decisions (see the Treasury’s news story and the text of his speech). But at least the one relating to the GloBE rules under Pillar 2 must have been relatively straightforward: the Chancellor confirmed that the UK would implement the income inclusion rule for accounting periods beginning on or after 31 December 2023 as planned. A qualified domestic minimum top-up tax will also now be introduced with effect from the same date – and apply to purely domestic as well as international groups! Both measures are to be legislated for in a Spring Finance Bill 2023 (which, it appears, will contain the more meaty measures whereas threshold, allowance and rate changes will be included in an Autumn Finance Bill 2022). The Government also intends to implement the undertaxed profits rule, but (effectively) with effect from 2025 at the earliest. The proposed introduction of an online sales tax has been abandoned.
Policies affecting individuals
Out of the numerous announcement, I have selected a few to highlight.
Having moved away from the idea of abolishing the additional rate of income tax as had been proposed by then Chancellor Kwasi Kwarteng in September, the Government will now extend its application. From April 2023, the additional rate threshold will be lowered from £150,000 to £125,140 (with legislation to be included in the Autumn Finance Bill). Why such an odd number, one might ask? The answer is that using the obvious round number (£125,000) would have meant an overlap of the personal allowance taper and the additional rate, resulting in a very high marginal rate for the first £140 above £125,000. The £125,140 threshold allows the additional rate to kick where the taper ends.
Other measures affecting individuals include the reduction of the dividend allowance (from £2,000 to £1,000 from April 2023 and to £500 from April 2024) and the capital gains tax annual exempt amount (from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024) which will be included in the Autumn Finance Bill 2022.
As regards CGT, a modification of the share-for-share exchange rules – relevant for “non-doms” - was also announced. Subject to an opt-out that would disapply the reorganisation rules and lead to an immediate (dry) tax charge, shares in a non-UK company received by an individual in exchange for shares in a UK close company would, in certain circumstances, be deemed to be situated in the UK, meaning that the individual would be subject to tax on dividend income and gains on a future disposal of the shares in the same way as if the shares had been those of a UK company. This modification will be legislated for in the Spring Finance Bill, but with effect for share exchanges or schemes of reconstruction carried out on or after 17 November 2022.
Taxing energy profits
As had been widely expected, the Government is looking to raise further revenues from the taxation of energy profits. The Autumn Finance Bill will provide for an increase in the rate of the Energy Profits (Oil and Gas) Levy (see my colleague’s post for details on the levy itself) from 25% to 35% from 1 January 2023. At the same time, the investment allowance rate will be reduced from 80% to 29% which the associated factsheet explains should maintain the existing cash value of the allowance. Decarbonisation expenditure will be carved out from this rate reduction (with legislation to be included in the Spring Finance Bill). The duration of the Energy Profits (Oil and Gas) Levy will also be extended until the end of March 2028 – and this time without the possibility that this end date may be brought forward: “The government will also no longer consider phasing out the levy ahead of its end date of March 2028, giving companies greater certainty to plan their investments.”
On 11 October 2022, the Government had announced the introduction of a “temporary Cost-Plus Revenue Limit” for electricity generators, stating that the “precise mechanics of the temporary Cost-Plus Revenue Limit will be subject to a consultation to be launched shortly”. This proposed Cost-Plus Revenue Limit is now being replaced with a new temporary Electricity Generator Levy to be legislated for in the Spring Finance Bill. It will be a 45% tax on “extraordinary profits, defined as electricity sold above £75MWh”. The Levy will apply from 1 January 2023 until 31 March 2028 (such that it has the same end date as the Energy Profits (Oil and Gas) Levy). Like the proposed revenue limit, the levy will not apply to electricity generated under a Contract for Difference entered into with the Low Carbon Contracts Company Ltd.
And what about banks?
UK Finance’s report on the total tax contribution of the UK banking sector published on 27 October 2022 concluded that the projected total tax rate for a model bank operating in London in 2024 would be 45.7% and thus “over 6 percentage points higher than Amsterdam and Frankfurt, and significantly higher than New York”. The projected rate differential would have been even higher (over 10 percentage points), if the bank corporation tax surcharge had been maintained at 8% when the headline corporation tax rate increases from 19% to 25% in April 2023. But the Autumn Statement now confirmed that, when the corporation tax rate increases, the bank surcharge will decrease from 8% to 3% as planned.
Just over a year ago, I asked what the Treasury’s Net Zero Review could tell us about the then upcoming Budget. In that case, the answer was really “not much” (except for a few things that were unlikely to feature), but it did actually foreshadow one measure that was announced in this Autumn Statement.
Chapter 6 on the “fiscal implications of the net zero transition” stated that the “primary impact is a large and relatively rapid structural shrinking of the tax base as motorists move away from using petrol and diesel vehicles. This leads to a significant and permanent fiscal pressure… motoring taxes will need to keep pace with these changes during the transition to ensure the UK can continue to fund first-class public services and infrastructure” – and the Chancellor announced as part of the Autumn Statement that, “because the OBR forecasts half of all new vehicles will be electric by 2025…to make our motoring tax system fairer I have decided that from April 2025 electric vehicles will no longer be exempt from Vehicle Excise Duty”.
This policy decision may be seen as regrettable given how far we still have to go on the road towards net zero. But it is also a logical consequence of changes that have already occurred (and the resulting decrease in public revenues). Over the long term, I think that preferential tax regimes aimed at kick-starting the transition to net zero are likely to be scaled back as they achieve the intended behavioural change. Does this discourage change? I think not. On the contrary, I think it should encourage early adoption to take advantage of transition incentives while they are available, given that the likely alternative would be a later transition forced by measures other than incentivisation, such as the ban on sales of new petrol and diesel cars to end in the UK by 2030.