On 17 November 2022, the Rt Hon Jeremy Hunt MP, the Chancellor of the Exchequer, unveiled the contents of the Autumn Budget 2022. This comes after the International Monetary Fund (IMF) published its world economic forecast on 11 October 2022. The IMF expects the British economy to grow 3.6% in 2022 and 0.3% in 2023. Other major developed economies are also expected to stagnate next year, namely Spain (1.2%), the US (1.0%), France (0.7%), Italy (-0.2%) and Germany (-0.3%).
This article focuses on tax measures included as part of that statement.
TAX RATES AND ALLOWANCES
As previously confirmed, the increase in the Corporation Tax rate to 25% for companies with over £250,000 in profits will go ahead. For Income Tax, the threshold at which higher earners start to pay the 45% rate will be reduced from £150,000 to £125,140 from 6 April 2023. The government will legislate for the income tax measures in Autumn Finance Bill 2022. The other thresholds for Income Tax, as well as the thresholds for Inheritance Tax (IHT) and National Insurance will be frozen for a further two years until April 2028. This means that by 2028 the IHT nil rate band will have been frozen for 19 years.
The Dividend Allowance will be reduced from £2,000 to £1,000 next year, and £500 from April 2024, whereas the Annual Exempt Amount in Capital Gains Tax will be reduced from £12,300 to £6,000 next year and then to £3,000 from April 2024. The VAT registration and deregistration thresholds will not change for a further period of 2 years from 1 April 2024 (currently at £85,000 of annual total VAT taxable turnover). Finally, from April 2023, the rate of Diverted Profits Tax will increase from 25% to 31%, and banks will be charged an additional 3% rate on their profits above £100 million (i.e. the Bank Corporation Tax Surcharge).
INTERNATIONAL TAXATION
Following consultation, the government will also implement the OECD Pillar 2 rules for a Global Minimum Corporate Tax Rate, for accounting periods beginning on or after 31 December 2023. The government will:
- Introduce an Income Inclusion Rule, requiring large UK-headquartered MNEs to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%.
- Introduce an extra Qualified Domestic Minimum Top-up tax rule, requiring MNEs (including those only operating in the UK) to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.
These measures will be included in the Spring Finance Bill 2023.
COMPLIANCE AND TAX AVOIDANCE
From April 2023, large MNEs operating in the UK will be required to keep and retain Transfer Pricing documentation in a prescribed and standardised format, set out in the OECD’s Transfer Pricing Guidelines (Master File and Local File). This will give businesses certainty on the documents they need to keep in the case of an eventual investigation by HMRC.
Additionally, shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK for Capital Gains Tax purposes. This will apply for transactions on or after 17 November 2022 and is designed to hit remittance basis users. Both measures will also be included in the Spring Finance Bill 2023.
Note that in general the Non-Dom Regime has been left alone and Jeremy Hunt has thankfully been sensible in this regard. He said that he did not agree with claims that abolishing the Non-Dom Regime will bring in more tax. On the contrary, he would rather wealthy foreigners spend their money in the UK than elsewhere.
Finally, the government is investing £79m over the next 5 years to allow HMRC to allocate further staff to deal with more cases of serious tax fraud and address tax compliance risks among rich taxpayers. The return is projected to be £725m of additional tax revenues over the next 5 years (£350m from tackling tax fraud and £375m from reducing non-compliance by wealthy taxpayers).
EU LAW
The Autumn Statement also says that the government is committed to reforming retained EU law, although it does not include any EU law-related measures about taxation. The Retained EU Law (Revocation and Reform) Bill is currently at committee stage, where detailed examination takes place. The Public Bill Committee is expected to conclude its consideration of the Bill on Tuesday, 22 November at 5pm.
Additionally, together with the Autumn Budget, the government published a consultation response about Solvency II, an EU Directive on insurance regulation. It noted that the Financial Services and Markets Bill, also currently at committee stage, “repeals retained EU law so that it can be replaced with an approach to regulation designed for the UK”. Albeit this is not related to taxation, it shows the government’s willingness to get rid of retained EU law when this is concluded as beneficial for the UK.
If you have any questions, please do not hesitate to contact any member of our tax team.