November 22, 2023
UK announces tax measures for growth in Autumn Statement 2023
The UK Chancellor of the Exchequer delivered his Autumn Statement1 on 22 November 2023. Highlights of the tax measures announced in the UK Autumn Statement include:
Making full expensing permanent: Finance (No.2) Act 2023 introduced two temporary first-year allowances (FYA) for expenditures incurred after 1 April 2023 but before 1 April 2026:
The Chancellor said these allowances will now be made permanent.
Expenditure on plant and machinery for leasing remains excluded from full expensing. A technical consultation on draft legislation will be published in due course to help the government consider any potential extension to include plant and machinery for leasing. The government will also launch a technical consultation on wider changes to further simplify the UK's capital allowances legislation.
Research and development (R&D) tax credits: The government will move ahead with one simplified R&D tax credit regime. The rate offered under the merged scheme will be implemented at the current research and development expenditure credit (RDEC) rate of 20%. The notional tax rate applied to loss-makers in the merged scheme will be the small profit rate of 19%, rather than the 25% main rate currently set in the RDEC. The new scheme will take effect in relation to accounting periods beginning on or after 1 April 2024. Further, the threshold for additional support for R&D intensive loss-making small and medium enterprises (set at 40% from 1 April 2023) will be lowered to 30% with effect from 1 April 2024 and a one-year "grace period" will be introduced.
Base erosion and profit shifting (BEPS) and Pillar Two: Draft legislation for some of the amendments was published for consultation on 18 July and 27 September 2023. The government has said minor changes have been made reflecting responses received. In addition, it has said it will introduce legislation to repeal the Offshore Receipts in respect of Intangible Property (ORIP) rules in 2024. The repeal will take effect for income arising from 31 December 2024 alongside the introduction of the Pillar Two Undertaxed Profits Rule, which the government believes will more comprehensively discourage the multinational tax-planning arrangements that ORIP sought to counter.
Creative industries: A call for evidence will consider ways in which increased incentives in the form of film and TV tax credits could be delivered and requests input on challenges and opportunities in the visual effects industry. Responses should be made by 3 January 2024. There are some changes to the rules for claiming relief to be made in Autumn Finance Bill 2023.
Electricity generator levy (EGL): An exemption from the EGL will be introduced for new renewable generation projects that create a new electricity generating station or expand an existing generating station where the substantive decision to proceed is made on or after 22 November 2023. New electricity generating projects will include new standalone stations, capacity increases and wholescale replacement of generating plant of existing stations.
Investment Zones: The Chancellor confirmed the extension of tax relief for Investment Zones from five years to 10 years, until 2031 (first announced on 20 November 2023). He also provided details of five new Investment Zones.
Cuts to National Insurance: The rate of employees' National Insurance contributions (NICs) on income between the primary threshold (currently £242 per week) and the upper earnings limit (currently £967 per week) is 12%. From 6 January 2024, this rate will fall to 10%. The rate of Class 4 NICs for the self-employed will reduce with effect from 6 April 2024 from 9% to 8% (between the lower profits limit and the upper profits limit), with Class 2 NICs being abolished.
Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT): The government will introduce legislation in Autumn Finance Bill 2023 to extend the existing sunset clauses for the EIS and VCT schemes from 6 April 2025 to 6 April 2035.
What other documents were published?
In addition to the Chancellor's Statement, the government has published its response to the Oil and Gas Fiscal review, opened in July 2023. Among the conclusions in that response is confirmation that the energy profits (oil and gas) levy (EPL) will end in March 2028, or earlier if the energy security investment mechanism (ESIM) is triggered.
Also published are responses to the consultation on the reform of the Construction Industry Scheme (with proposals to strengthen the tests for gross payment status) and to the consultation on off-payroll working, allowing the reduction of the PAYE liability of a deemed employer where an engagement was incorrectly treated as self-employed for tax purposes. Separately, the government will accept all headline recommendations made by Lord Richard Harrington in his report on foreign direct investment (FDI), including a concierge service for potential investors into the UK.
Included in the update to legislation promised for Autumn Finance Bill 2023 are further changes to the rules for Real Estate Investment Trusts (REITs), including a key change that the "holders of excessive rights" rules (which can require holdings of 10% or more in a REIT to be fragmented) should not apply to investors whose tax charge under a double tax agreement is not altered by the size of their holding in a UK REIT.
There is also an extension of the growth market exemption from stamp duty and stamp duty reserve tax to include smaller more innovative markets from 1 January 2024 and confirmation that that the existing 0% charges under stamp duty and stamp duty reserve tax on issues (and certain related transfers) of securities onto foreign markets, will remain in place and be brought permanently into UK law. This latter provision will apply from 1 January 2024 and has immediate legal effect under a published Ways and Means resolution. Finally, the government has said it will introduce legislation in Autumn Finance Bill 2023 to clarify how value-added tax and excise law should be interpreted in the light of changes made by the Retained European Union Law (Revocation and Reform) Act 2023.
Although nothing was published alongside the Autumn Statement, the government referred to its consultation on possible measures to mitigate carbon leakage risk, including introducing a UK carbon border adjustment mechanism (CBAM), and has said it will publish its response shortly.
A consultation on the design of a new framework for encouraging the establishment and growth of captive insurance companies in the UK was promised for Spring 2024.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United Kingdom), London
Ernst & Young LLP (United Kingdom), Manchester
Ernst & Young LLP (United Kingdom), Reading
Ernst & Young LLP (United Kingdom), Aberdeen
Ernst & Young LLP (United Kingdom), Edinburgh
Ernst & Young LLP (United States), UK Tax Desk, New York
Ernst & Young LLP (United States), FSO Tax Desk, New York
Ernst & Young LLP (United States), Transaction Tax Desk, New York
Ernst & Young LLP (United States), UK Tax Desk, Chicago
Ernst & Young Tax Co. (Japan), UK Tax Desk (Asia-Pacific), Tokyo
Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor
1 The full Autumn Statement document can be viewed here. The UK Treasury landing page collects supporting and related documents and His Majesty's Revenue & Customs (HMRC) has published its overview of tax legislation and rates.