Autumn Statement 2023: tax cuts in the NIC of time?

The UK Chancellor of the Exchequer, Jeremy Hunt, has delivered the Autumn Statement 2023.  The Office for Budget Responsibility (OBR) reports that, although the UK economy has proved to be more resilient to recent macroeconomic shocks than anticipated, the UK inflation rate is expected to be more persistently high, and the medium-term growth rate lower, than previously predicted. Accordingly, the Chancellor had only modest fiscal firepower at his disposal – and that headroom was used to send a political message about the Conservative Party’s priorities, with tax cuts for both businesses and workers announced.

In our latest podcast, London Tax partners Peter Clements and May Smith and London Tax senior associates Josh Critchlow and Chris Gotch discuss some of the business tax measures they found the most noteworthy in the Autumn Statement 2023. Highlights from the podcast discussion are summarised in this blog post.

Encouraging business investment

At the Spring Budget 2023, the Chancellor announced the introduction of new full expensing capital allowance rules, giving companies a 100 per cent first-year allowance for capital expenditure on main rate assets over the next three years. For capital expenditure on special rate assets – including long-life assets and integral fixtures – a 50 per cent first year allowance was introduced, with the remaining 50 per cent to continue to be relieved on a 6 per cent reducing balance basis.

Billed in the Autumn Statement 2023 as being “the largest business tax cut in modern British history”, and with a price tag of almost £11bn per year by 2028/2029, the Chancellor has now made the full expensing regime permanent.

For businesses, whilst only a timing benefit in substance, this regime offers very valuable cashflow advantages (in contrast to the length of time it would have taken to reach the same economic position under the old capital allowances rules). With the Labour Party appearing to welcome this aspect of the Autumn Statement 2023, businesses may perhaps feel confident in making decisions based on these rules despite the upcoming general election. 

It is perhaps not all positive though. As our speakers explore further in the podcast, there are potential missed opportunities here which reduce the practical benefit of these tax reliefs.

Reforming research and development tax reliefs

Bringing to a close the review into research and development (R&D) tax reliefs launched at the Spring Budget 2021, the Chancellor confirmed that the existing R&D Expenditure Credit (RDEC) and SME R&D regimes will be combined into a single merged scheme. This merged scheme involves a 20 per cent ‘above the line’ payable tax credit, and is heavily based on the current RDEC rules, albeit modified by the importing of a number of features from the existing SME regime.

This announcement was widely expected, with draft legislation published for consultation earlier this year. However, as our speakers discuss in the podcast, it heralds significant changes in R&D tax relief for SMEs and larger corporates alike – and until revised draft legislation is published as part of the Autumn Finance Bill 2023, questions on the details remain (including in relation to how the merged relief will apply in practice in relation to sub-contracted R&D activities). 

The Autumn Statement 2023 also included announcements relating to the additional tax relief available for loss-making R&D-intensive SMEs. In addition to confirming that this regime will continue in parallel with the new merged scheme, the Chancellor announced a reduction in the percentage of an SMEs’ expenditure that must be incurred on qualifying R&D to qualify for the relief – a change which is predicted to bring an additional 5,000 businesses within its scope. 

Supporting the oil and gas industry and the energy transition?

As part of the Autumn Statement 2023, the UK government published the outcome of a review on the long-term fiscal regime for the North Sea, which had been announced in light of the decrease in industry and investor confidence following the introduction of the Energy Profits Levy (EPL) last year. 

The review confirms the sunsetting of the EPL as scheduled in 2028 (or earlier if energy prices fall below levels set by the Energy Security Investment Mechanism), and acknowledges the importance of stability in encouraging investment in the UK’s oil and gas industry. However, as our speakers explain in the podcast, that message of certainty is diluted by a proposal to design measures for how taxes could be raised if there was another energy price shock in the future.

With momentum towards supporting the UK’s carbon capture, utilisation and storage (CCUS) industry growing, the review also includes proposals aimed at ensuring that the UK tax regime does not disincentive the repurposing of existing oil and gas assets for CCUS activities.

As a further measure to support the energy transition, the Chancellor announced an exemption from the Electricity Generator Levy (EGL) for revenues arising from any new projects (or extensions to existing projects) for which a final investment decision has not yet been reached, seemingly with the aim of discouraging businesses from postponing new projects until after the EGL expires in 2028. However, the combination of (i) the time lag between making such a decision and earning revenues from the new or extended generating station; and (ii) the 2028 sunset date potentially means that this exemption may not benefit a large number of projects in practice.   

Other key tax takeaways 

In the podcast, the team also considers a number of other key tax takeaways from the Autumn Statement 2023, including:

• a reduction in the rate of certain classes of National Insurance Contributions (NICs), benefiting both employed and self-employed workers;
• confirmation that the UK’s Under-Taxed Profits Rule (UTPR) – forming part of the OECD’s Pillar 2 reforms – will be introduced from 31 December 2024, after which time the Offshore Receipts in respect of Intangible Property (ORIP) rules will be repealed; 
• an update on the government’s proposal to legislate to ensure that the 1.5 per cent stamp duty/SDRT charge on the issue and certain transfers of shares and securities of UK incorporated companies into clearance services or depositary receipt systems is not inadvertently reintroduced from January 2024 (for background details, see our blog post on this topic); and
• the expansion of the growth market exemption from stamp duty/SDRT to cover shares traded on FCA-regulated multilateral trading facilities.

Looking ahead, the Autumn Finance Bill 2023 is expected to be published in December, casting further light on the detail of some of these tax measures.

Our Autumn Statement 2023 podcast is available here.