After the debacle of eight weeks ago, the announcements by the Chancellor today were never going be so radical as to cause concern in the markets, but we all knew that there would be some element of revenue raising, we just didn’t know which taxes would rise and by how much.
On a positive note, there was no actual increase in the main rates of tax, but the revenue will still be raised by what may be called ‘accelerated fiscal drag’ – not only have many thresholds not increased with inflation, some will be reduced over the coming years. Most notable are in relation to the additional rate of income tax (where the threshold will fall from £150,000 to £125,140 from April 2023 – the level at which the personal allowance is fully abated) and the capital gains tax annual exemption (which will reduce from the current level of £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024). Chipping away around the edges of the dividend allowance will also see this being reduced from the current level of £2,000 to £1,000 from April 2023 and then to £500 from April 2024.
Moving onto some wider changes, there was a shift in the direction of R&D relief, on the basis that the Government believes there to be significant error and fraud within the existing SME scheme, while the RDEC scheme (predominantly for large companies) is considered better value yet less competitive internationally. From April 2023, the additional deduction under the SME scheme will be reduced from 130% to 86% while the repayable tax credit under the scheme will decrease 14.5% to 10% – the water is muddied by the increase in the corporation tax rate from that same date, but overall, there will be a significant reduction in the R&D benefit for SMEs. In order to make the RDEC scheme more competitive, the credit rate will increase from 13% to 20% with effect from the same date. It looks like there will be further changes ahead in this area, with a desire from the Government to move to a single RDEC like scheme.
Looking back to the Autumn Budget, the Chancellor announced a time limit on one of the few surviving provisions – the increase in the stamp duty land tax thresholds for residential properties will now be temporary, reverting back to their original levels from 1 April 2025.
We also had some announcements on the taxation of company cars. From April 2025, electric vehicles will be subject to vehicle excise duty as well as the expensive car supplement (which currently applies to cars with a list price exceeding £40,000 for the first five years). The benefit in kind charge on electric and ultra-low emission cars will also increase from April 2025 at a rate of 1% per annum, meaning that the maximum percentage from April 2027 for electric cars will be 5% and for ultra-low emission cars will be 21%. A 1% rise in the benefit charge for all other company cars will also apply from April 2025, taking the maximum rate up to 37%.
Finally, we saw the introduction of some anti-avoidance provisions in respect of certain share for share exchange transactions – these are focussed on the insertion of non-UK companies above UK close companies in order to provide UK resident but non-domiciled individuals with the ability to claim the remittance basis on any income or gains arising from these structures. In broad terms, where such a share exchange occurs on or after 17 November 2022, the individual can either elect to be taxed upon the disposal (as if the share exchange provisions did not apply) or otherwise their new interest in such overseas companies will be treated as UK situs assets, and therefore outside the scope of the remittance basis rules. That said, it still looks like there may be some benefit from an inheritance tax perspective, but we will have to await the final legislation to confirm.
All in all, we probably expected some more tax content to the Autumn Statement, and although more taxpayers will be pulled into higher rates, we should probably be grateful that there were no more fundamental changes!
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