Autumn Statement 2023 – Key tax announcements

The Chancellor opened his speech with a statement that, “Our plan for the British economy is working, but the work is not done”.  Consistent, perhaps, with the tone of that message, yesterday’s announcements offered few real surprises, with the headline measures – on NI changes and full expensing – already widely anticipated.

A summary of the key announcements follows.

Tax measures for individuals (employees & self-employed)

National Insurance Contributions (NICs) rates

In relation to NICs, the Chancellor has announced the following.

• The main rate of Class 1 National Insurance contributions, payable in respect of earnings above the primary threshold, up to and including the upper earnings limit, will be reduced by 2% (from 12% to 10%) from 6 January 2024.
• Class 2 National Insurance contributions will no longer be mandatory for self-employed individuals with profits above £12,570 from 6 April 2024. The Chancellor has confirmed that:
  • those with profits above £12,570 will continue to receive access to contributory benefits including the state pension;
  • those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including state pension through a National Insurance credit without paying National Insurance contributions as they do currently;
  • those with profits under £6,725 who choose to pay Class 2 voluntarily to get access to contributory benefits including the state pension will continue to be able to do so.
• The Lower Earnings Limit and the Small Profits Threshold will be frozen at 2023 to 2024 levels in 2024 to 2025. For those paying voluntarily, Class 2 and Class 3 National Insurance Contributions will also be frozen at 2023 to 2024 levels in 2024 to 2025, which means that the main Class 2 rate will remain at £3.45 per week and the Class 3 rate will remain at £17.45 per week.
• The main rate of Class 4 National Insurance contributions for the self-employed will be reduced by 1% (from 9% to 8%) from 6 April 2024.

The government will also publish technical specifications for payroll software companies in due course.

Expanding the income tax cash basis for self-employed individuals and partnerships

It was announced yesterday that restrictions on the use of the cash basis are to be removed, with the aim of reducing the complexity of tax returns and making tax simpler for small businesses. The cash basis provides an alternative to the usual accruals basis and currently is available by election. Yesterday it was announced that the cash basis will become the default basis for eligible taxpayers, without the need to make an election.  This regime will be available to self-employed individuals and partnerships of individuals of any size.

Changes will be made to the current rules which restrict relief for interest costs and also to restrictions on the use of losses by cash basis users. This measure will have effect from the tax year 2024 to 2025.

Business tax measures

Full expensing made permanent for companies investing in plant and machinery

In the Spring Budget 2023, the Chancellor announced the introduction of full expensing for companies investing in plant and machinery from 1 April 2023 but before 1 April 2026, and an additional 50% first-year allowance for special rate expenditure.

Yesterday it was announced that legislation will be included in the Autumn Finance Bill 2023 to remove the expiry date of 1 April 2026 from the Spring Finance Bill 2023 and make full expensing permanent.

Expenditure on plant and machinery for leasing remains excluded from full expensing.

This measure will take effect from the date on which the Autumn Finance Bill 2023 receives Royal Assent.

The government will also launch a technical consultation on wider changes to further simplify the UK’s capital allowances legislation.

Pillar Two

Further announcements yesterday in relation to the UK’s implementation of Pillar Two were not unexpected, given that the UK legislative process is needing to keep pace with developments at OECD level and in response to stakeholder feedback on points of implementation detail.

However the list of topics for amendment which has been announced yesterday is very extensive, summarised in yesterday’s press release as 32 bullet points, which would seem largely to follow the points addressed in updated draft legislation published for technical consultation on 18 July and 27 September 2023, though it is not entirely clear to what extent further amendment may follow yesterday’s announcement, other than a reference to ‘Minor changes … reflecting responses received’. 

It was confirmed yesterday that the Undertaxed Profits Rule (UTPR), will take effect for accounting periods beginning on or after 31 December 2024. Alongside this, the government will introduce legislation to repeal the Offshore Receipts in respect of Intangible Property (ORIP) rules, for income arising from 31 December 2024.

Research & Development tax relief reform

Merger of current SME scheme and R&D Expenditure Credit scheme

It was announced yesterday that the Research and Development Expenditure Credit (RDEC) and the SME R&D relief schemes will be combined into a merged scheme.

The rate under the new merged scheme will be implemented at the current RDEC rate of 20%, with the notional tax rate applied to loss-makers in the merged scheme being the small profits rate of 19%. 

Additionally, the rules relating to subsidised expenditure in the existing SME scheme will not be carried forward into the new merged scheme. This means that the amount of relief available will not be reduced where a company received a grant which covers part of its R&D costs.

Enhanced support for R&D intensive SMEs

As regards the enhanced support for R&D intensive SMEs announced at Spring Budget 2023, the Chancellor has announced that the intensity threshold will be reduced from 40% to 30%. A one year grace period will be introduced in order to permit a company which has successfully claimed but which fails to meet the intensity threshold, for example due to a one-off shock, to continue to claim for the following period, provided it meets the other conditions for the relief.

Restricting nominations and assignments

The Chancellor has also announced the ending of the use of nominations for R&D tax credit payments, subject to limited exceptions. This means that payments will now go directly to claimants, as opposed to third parties. 

The measure will take effect in relation to accounting periods beginning on or after 1 April 2024.

Additionally, the government will legislate to prevent any new assignment (whether equitable or statutory) of R&D tax credits. This is because a high proportion of fraudulent or fraud-adjacent claims are made through the use of nominee bank accounts. This measure will operate to restrict assignments on or after 22 November 2023.

Investment regimes and incentives

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

The government will introduce legislation in Autumn Finance Bill 2023 to extend the operation of the EIS and VCT scheme to 6 April 2035 (therefore extending the existing sunset date of 6 April 2025), continuing the availability of income and capital gains tax reliefs for investors in qualifying companies and VCTs.

Amendments to the REIT rules

A tranche of expected amendments to the UK’s REIT regime has been announced.

The announced measures follow several changes to the regime in recent Finance Acts, resulting from proposals arising from the government’s wider review of the UK funds regime. The stated intention behind the continuing changes is to reduce administrative burdens associated with access to and involvement in the regime, and increase the attractiveness of the REIT as an investment vehicle.

Certain of the key measures confirmed include:

• Amendments to the exception to the non-close condition (one of the conditions for a company to qualify as a REIT) to clarify that it is possible to trace through intermediate holding companies where an institutional investor is the ultimate beneficial owner of a REIT.
• Allowing an insurance company to hold 75% or more in a UK group REIT.
• Making changes to the provisions concerned with the profit to financing cost ratio, to clarify that only financing costs relating to the UK property business are “property financing costs”, and that “property financing costs” excludes certain amounts in respect of which a deduction is denied for corporation tax purposes.
• Preventing certain investors who can benefit from reduced tax rates on distributions under the terms of a tax treaty from being “holders of excessive rights”.

Despite the stated aim of the amendments, further proposed changes to the definition of institutional investor will in some cases have the effect of “narrowing” access to the regime. As announced earlier in the year, the government has confirmed that it will require authorised unit trusts, open-ended investment companies and collective investment scheme limited partnerships to meet a genuine diversity of ownership condition or non-close condition in order to qualify as institutional investors for the purposes of the REIT regime. Additionally, those acting in the course of a long-term insurance business will be required to meet a non-close condition in order to qualify as an institutional investor.

The proposed effective dates of the amendments vary, with some being treated as always having had effect, some being treated as having effect for accounting periods ending after 1 April 2023, and some coming into effect from the date of Royal Assent to the Autumn Finance Bill.

Freeport tax reliefs sunset date extension

It has been announced that the sunset date for freeport tax reliefs for freeports in England will be extended to 30 September 2031. In each freeport, the extension will be conditional on agreement of delivery plans. For freeports in Scotland and Wales, the reliefs will be extended from five to ten years, subject to agreement with devolved administrations. 

Investment Zones tax relief sunset date extension

The Investment Zones tax relief will be extended from five to ten years subject to the ongoing co-design of proposals and agreement of delivery plans with the Department for Levelling Up, Housing and Communities (DLUHC) and HM Treasury. It was also announced that the UK government will work with the Scottish and Welsh governments to deliver an extension to the Investment Zones programme in Scotland and Wales.

Enterprise Management Incentives (EMI), extending the time limit to submit a notification of a grant of options

Changes have been announced to simplify EMI by removing two administrative requirements when companies grant EMI options from 6 April 2023. The first is the removal of the requirement for the company to set out within the option agreement the details of any restrictions on the shares to be acquired under the option. The second is the removal of the requirement for the company to declare that an employee has signed a working time declaration when there are issued an EMI option. (However, there is no removal of the working time requirement itself.)

From 6 April 2024 the government will extend the deadline for notification of an EMI option from 92 days following the grant to the 6 July following the end of the tax year.

ISA amendments

The government has announced that it plans various changes to ISAs in the hope of both simplifying the scheme and widening the scope of the permitted investments. In respect of simplifying the scheme, the government will:

• allow multiple subscriptions in each year to ISAs of the same type;
• remove the requirement to make a new ISA application, when an existing ISA account has not received a subscription in the previous tax year;
• permit partial transfers of current ISA subscriptions between providers; and
• harmonise account opening age for any adult ISAs to 18.

All of the above will be implemented from 6 April 2024. Furthermore, the government announced the plan to digitise the ISA reporting system to facilitate the development of digital tools to better support investors.

To widen the scope of these investments, the government will also allow Long-Term Asset Funds to be permitted investments in the Innovative Finance ISA and permit open-ended property funds with extended notice periods to be permitted investments, both from 6 April 2024. Furthermore, the government intends to permit certain fractional shares contracts to become permitted ISA investments and shall engage with the finance industry in respect of implementation.

Taxes relevant to the energy sector

Energy Profits Levy (EPL), the Energy Security Investment Mechanism (ESIM)

A summary of responses and technical note on the ESIM has been published as part of the Autumn Statement documents, following the discussion note on the ESIM published during the summer. The technical note provides detail on how the ESIM will apply, and how the EPL will end if triggered by oil and gas prices returning to historically normal levels for a sustained period.

The government has announced that it will introduce legislation to give effect to the ESIM in due course.

Treatment of payments into decommissioning funds for Carbon Capture Usage and Storage (CCUS) purposes

The government has announced that it will include legislation in a future Finance Bill to provide tax relief for payments by oil and gas companies into decommissioning funds, where such payments are in relation to the repurposing of assets within the oil and gas corporation tax ring fence for use in CCUS activities. Legislation will also be introduced to remove corresponding asset value payments for those assets from the charge to the EPL.

New investment exemption for the Energy Generator Levy (EGL)

With the aim of facilitating continued investment in the UK’s renewable generation capacity, the government announced yesterday that it will introduce an investment exemption for the EGL. The exemption will mean that the receipts from new electricity generating stations (including new standalone stations and substantial expansions and repowering of existing stations) will not be subject to the EGL. The exemption will take effect for revenues from new electricity generating stations where the substantive decision to invest is taken on or after 22 November 2023.

Oil and gas fiscal regime review outcome

The outcome and summary of responses for the Oil and Gas Fiscal Review has been published as part of the Autumn Statement publications. The document sets out policy decisions and principles for future tax policy making in this area.

Construction and real estate

Construction industry scheme (CIS)

The government has published a summary of responses, and outlined its proposed next steps, in relation to the consultation on the Construction Industry Scheme which was announced earlier this year. Proposed legislative changes will be introduced in the next Finance Bill, with effect from 6 April 2024.

In particular, the consultation was aimed at seeking views on compliance and simplification proposals. Of these, a welcome proposal announced yesterday was the intended introduction of regulations to remove the majority of payments from landlords to tenants from the scope of the CIS. There will also be a move to digitise CIS registrations.

The proposals announced yesterday also include more extensive compliance requirements and powers, with VAT compliance being added to the Gross Payment Status (GPS) compliance test, and an expansion of the grounds for immediate removal of GPS for cases of fraud involving a larger number of taxes.

Proposals for a CIS grouping arrangement will not be taken forward, as no practical solutions were identified – although it is noted that the government will continue to consider how to lessen the impact on groups.

Creative & Audio-Visual Reliefs

Audio-visual reliefs

It has been confirmed that audio-visual tax reliefs will be reformed to become a system of expenditure credits, similar to the Research and Development Expenditure Credit. Yesterday’s announcement follows the publication of a consultation on the modernisation and simplification of audio-visual creative tax reliefs, which resulted in the publication of draft legislation during the summer.

The new Audio-Visual Expenditure Credit will replace the existing film, high-end TV, animation, and children’s TV tax reliefs, and the Video Games Expenditure Credit will replace the Video Games Tax Relief. Film, high-end TV and video games will be eligible for a credit rate of 34% and animation and children’s TV will be eligible for a rate of 39%. The qualifying criteria and other rules will broadly remain the same as under the existing relief system.

The introduction of the new expenditure credit system will be staggered:

• the new expenditure credits will be available from 1 January 2024;
• new productions must claim under the new system from 1 April 2025; and
• all productions must claim under the expenditure credits system from 1 April 2027, when the current system of tax reliefs will cease.

Creative industry tax reliefs

Following the publication of draft legislation in the summer, it has been confirmed that the Autumn Finance Bill will provide for companies claiming creative tax reliefs to complete and submit an online information form. This requirement will apply from 1 January 2024 for companies claiming the new Audio-Visual Expenditure Credits and the Video Games Expenditure Credits, and from 1 April 2024 for claimants of Theatre Tax Relief, Orchestra Tax Relief, and Museums and Galleries Exhibition Tax Relief.

A number of amendments will also be introduced to the above reliefs with the stated aim of correcting anomalies existing in the legislation, and preventing abuse of the regimes.

Tax administration

Tax administration

It has been announced that the government will introduce legislation to provide for: (i) a new strict liability  criminal offence for promoters of tax avoidance who continue to promote tax avoidance schemes after receiving a Stop Notice requiring them to stop promoting the specified scheme, regardless of any dispute about the effectiveness of the scheme; and (ii) a new power enabling HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance, including those who control or exercise influence over a company.

In an attempt to improve the quality of the data collected by HMRC, changes to HMRC data collection have been announced. First, employers will be required to provide more detailed information on employee hours paid via Real Time Information PAYE reporting. Secondly, shareholders in owner-managed businesses will be required to state the amount of dividend income received from their own companies separately from other dividend income in their self-assessment return, detailing the percentage share they hold in their own company. Finally, the self-employed will be required to provide information on start and end dates of self-employment via their self-assessment tax return.

Gambling

Tax treatment of remote gambling

The government announced that it will publish a consultation on the proposal to bring remote gambling (i.e., gambling offered via TV, radio, telephone, and the internet) into a single tax.

Key indirect tax measures

Stamp Duty and Stamp Duty Reserve Tax, the Growth Market Exemption

It was announced that the Autumn Finance Bill will contain provisions to extend the “Growth Market Exemption”, which provides relief from Stamp Duty and Stamp Duty Reserve Tax, such that it will provide relief in relation to trades on certain smaller, newer growth markets. In particular, multilateral trading facilities (MTFs) regulated by the FCA which are approved as “recognised growth markets” by HMRC will now be able to access the exemption.

Additionally, the company market capitalisation cap condition will be increased from £170 million to £450 million.

VAT and excise

On 20 October 2023, the UK government confirmed a bespoke approach to VAT and excise law, which will depart from the general approach to retained EU law under the Retained EU Law (Revocation and Reform) Act 2023. The measures announced yesterday confirm that these measures will form part of the Autumn Finance Bill. The technical consultation on the draft legislation published in October closed on 17 November 2023.

Very broadly, the measures are expected to provide continuity in the UK’s VAT and excise regimes, to allow the relevant UK legislation to be interpreted by drawing on certain retained EU law rights and principles which are currently available in interpreting UK law (and which would otherwise not be available once the REUL Act comes into effect at the end of this year).

However, amongst other confirmations, the draft legislation is clear that it will no longer be possible for any part of any UK primary or domestic subordinate legislation in relation to VAT and excise to be quashed or disapplied on the basis that it is incompatible with retained EU law.

Removal of 1.5% charge on the issuance of UK shares into clearance or depositary receipt services

It has been confirmed that proposed amendments to UK domestic legislation to ensure that the Stamp Duty and Stamp Duty Reserve Tax 1.5% charge on the issue of UK securities into clearance and depositary receipt services, and on transfers linked with capital raising, will be included in the Autumn Finance Bill. Without the proposed amendments, the charge would be re-introduced from 1 January 2024.

The measures and draft legislation were originally published on 14 September 2023, and also included a proposal to remove the 1.5% (or 0.2%) charge in relation to the issue of bearer instruments.

The changes have been announced to take effect from 1 January 2024.

With thanks to Joshua Yard and Adelina Frunza for their contributions