Following today’s Autumn statement and the Chancellor Jeremy Hunt delivering a plan to tackle the cost of living crisis and rebuild our economy, here’s how some of our tax partners reacted.
The Autumn Statement presents a hard hit for earners and families, with tens of billions of tax rises announced today, giving the highest tax burden for the last 70 years.
Rather than increasing the tax rates, today’s announcement largely raise tax by freezing the rates for the main personal taxes – Income Tax, Capital Gains Tax, Inheritance Tax but either freezing or reducing the tax-free allowances.
As a result, a large number of taxpayers will be dragged into the higher rate bands. The freeze in rates will hit the middle hardest, rather than taxing those most able to shoulder the burden.
Due to the quirks of the tax system people earning up to £125k already suffer tax at marginal rates of up to 60% (on the abatement of the personal allowance and withdrawal of child benefit). This Autumn Statement now ensures that as inflation hits more of their earnings will be taxed at the highest rates.
The Chancellor has also filled the gap by lowering the tax-free exemptions for Capital Gains Tax and dividends. These exemptions have been useful in not only saving people tax but avoiding people with low levels of dividends/gains from having to complete tax returns and simplifying the tax system for the vast majority of taxpayers. With the dramatically lower allowances, this will potentially push a lot more taxpayers into completing tax returns. As HMRC is already under a huge amount of pressure and under resourced, if there is an increase in the number of people completing tax returns, will HMRC be able to cope? The increased level of resource for HMRC appears modest in the context of these changes.
In his speech to the Commons, the Chancellor reiterated that the UK would enact legislation in respect of the Global Minimum Tax (GMT) rate, which sets a “floor” of 15% Corporation Tax in each jurisdiction in which worldwide groups with global revenue in excess of €750m operate. This will take effect for accounting periods commencing after 31 December 2023.
However, within the Treasury documents released, it was further confirmed that the UK will enact a Domestic Minimum Tax for the same entities, meaning that all UK profits will be taxed at a minimum rate of 15%. This will extend the scope of these rules to pure-UK groups, and UK subsidiaries of Worldwide groups where the GMT would otherwise be payable in the ultimate parent jurisdiction. It remains to be seen how this operates for companies that claim UK tax incentives (such as R&D or creative industry reliefs) or those with “non-standard” methods of tax calculation such as insurance companies.
Head of Tax
Although much of the leaked news related to personal measures, there were some announcements for businesses.
Following continued rumblings of abuse of the SME R&D scheme, with measures already being introduced to ensure spend is incurred in the UK and more scrutiny being applied to claims by HMRC, the benefit of the scheme is to be reduced. This will see both enhanced deductions and payable tax credits reduced, at a time when corporation tax is due to increase from April next year, representing a further squeeze on innovative businesses.
Corporate Tax Partner
Aside from the freezing of registration thresholds at £85,000 until April 2026, there were no specific VAT measures announced. However, suspension of a limited number of customs tariffs, and confirmation that the UK will not proceed with an Online Sales Tax, will be a relief to affected businesses.
The Government is to consult on Solvency II requirements for life insurance companies operating in the UK. It aims to reduce the risk margin by 60%-70%, revise the basis of calculation, increase investment flexibility in long term assets and reduce the reporting and administrative burden. The aim is to unlock 10% - 15% of life insurers' capital and tens of billions of the current £2.2 trillion invested in the assets, available for long term investments such as infrastructure.