2023 Autumn Statement

Reduction in Employee National Insurance Contributions (“NICs”)

The Chancellor announced a reduction in the main rate of Class 1 primary NICs (the contributions paid by employees) from 12% to 10%, to be implemented with effect from 6 January 2024. There is no change to the rate paid on earnings above the “Upper Threshold” by higher earners, which remains at 2%, nor to employer Class 1 secondary NICs. Effective marginal tax rates for employees, including NICs, will broadly be 30% (basic rate), 42% (higher rate), and 47% (additional rate).

Reduction in NICs for Self-Employed Individuals

The Chancellor has abolished Class 2 NICs, the flat rate weekly NICs paid by most self-employed individuals (currently £3.45 per week).

In addition, the Class 4 NICs rate, the national insurance contributions paid by most self-employed individuals as a percentage of their business income, will be reduced from 9% to 8%. The rate paid for profits above the “Upper Threshold” remains unchanged at 2%.

Consultation on “One Pension Pot for Life” Announced

The Chancellor announced a consultation that will cover the ability for employees to have a legal right to require their employer to contribute directly into the employee’s existing pension scheme, rather than into a pension scheme of the employer’s choosing (and therefore creating a single pension pot ‘for life’). This could be a fundamental change to the way employers contribute to employees’ pensions.

Increase to Minimum Wages

Just prior to the Autumn Statement, the government confirmed that the National Living Wage, applying to those aged 21 and above, will increase from £10.42 to £11.44 with even larger increases to the minimum wage for apprentices and those aged between 16 and 20 (inclusive).

Off-Payroll Working (IR35) – Offset of Contractor’s Income Tax and NICs

New legislation will be introduced to help reduce potential employer PAYE liabilities where an engagement falls within the off-payroll working rules (i.e., akin to employment for tax purposes) but was incorrectly treated as outside the rules (i.e., akin to self-employment for tax purposes) by an end-user, in cases where the contractor has already paid income tax or NICs.

Outcome of Construction Industry Scheme Consultation

Immediately following the Autumn Statement, HMRC released a summary of responses to the recent Construction Industry Scheme (“CIS”) reform consultation. This includes next steps on drafting legislation that will (1) remove most landlord to tenant payments from the CIS; (2) include VAT compliance when determining if “gross payment status” is appropriate for sub-contractors; and (3) increase the ways in which “gross payment status” can be immediately removed for sub-contractors engaging in tax fraud.

These changes will come into effect from 6 April 2024.

Further Money for HMRC Compliance Activities

The Chancellor announced further resources for HMRC to help combat underpayment of tax, expected to raise a total of £5 billion over the next five years. It is expected that all areas will see potential increased compliance checks, including employers.

Capital Allowances

At the 2023 Spring Budget, the government introduced “full expensing” enabling companies to claim a 100% first-year allowance for expenditure incurred between 1 April 2023 and 31 March 2026 on main rate plant and machinery, and a 50% first-year allowance for special rate plant and machinery. As was widely expected, the Chancellor today announced that this temporary measure would be made permanent, meaning qualifying expenditure will continue to qualify for the 100% and 50% first-year allowances (“FYA”) after March 2026.

Expenditure on cars, assets for leasing and second-hand assets is currently excluded from this accelerated relief. However, the Chancellor today announced that a consultation will be launched on extending FYA to assets for leasing.

OECD Pillar 2

As part of the ongoing implementation of Pillar 2 into UK law, a number of technical amendments (some of which had previously been announced) are being made to the Multinational Top-up Tax and Domestic Top-up Tax legislation through the Autumn Finance Bill 2023, to ensure it remains consistent with the most recent OECD developments on Safe Harbours and Administrative Framework. In addition, it has been confirmed that the Undertaxed Profits Rule will be introduced in the UK for accounting periods beginning on or after 31 December 2024.

Offshore Receipts in Respect of Intangible Property (“ORIP”)

The government has announced that they will repeal the ORIP legislation in respect of income arising after 31 December 2024. The rationale behind the repeal is that the implementation of Pillar 2 (in particular the UTPR) should more comprehensively discourage the tax planning arrangements that ORIP sought to counter.

R&D Tax Relief

There were two expected updates provided in the Autumn Statement 2023 in relation to the future of the R&D tax regimes, including the future merging of the SME and R&D Expenditure Credit (“RDEC”) schemes and enhanced support for loss-making SMEs where they are “research intensive.”

The single merged scheme is to be an above-the-line credit that will allow claimants to claim for contracted out R&D whilst incorporating the PAYE and NIC cap from the SME regime, and restricting the ability to bring in R&D carried out overseas. The rate of benefit under the new scheme will be 20%, whilst the notional tax rate applied to loss-makers in the merged scheme will be the small profits rate of 19%, rather than the 25% main rate set in the current RDEC. It was also announced that a restriction for subsidies will not be a feature of the new regime, meaning that companies in receipt of grants, or other forms of subsidy, will not have their entitlement to relief reduced. The new merged regime will take effect in relation to accounting periods beginning on or after 1 April 2024.

The enhanced support for SMEs, as already announced, allows loss-making SMEs to claim the repayable credit at the higher 14.5% rate rather than at 10% where they are “research intensive”. To qualify as a “research intensive” company the R&D expenditure must constitute at least 40% (for expenditure incurred on or after 1 April 2023) or 30% (for accounting periods beginning on or after 1 April 2024) of total expenditure. In addition, there will be a year of grace where a company falls below the 30% threshold.

There was also an announcement that advances the ongoing work being undertaken to tackle abuse in the system with a new measure removing the ability for nominees to receive repayable credits and a restriction on assignments of repayable credits.

Real Estate Investment Trusts (“REITs”)

As part of the ongoing UK funds review, it has been confirmed that a series of further changes to the UK REIT regime will be enacted in the Autumn Finance Bill 2023. The changes are as follows:

• The condition that the REIT principal company must not be a close company or only be a close company because it has one or more institutional investors as participators is to be refined. Legislation will be introduced that makes it clear that it is possible to trace through intermediate holding companies where an institutional investor is the ultimate beneficial owner. In addition, the definition of “institutional investor” will be amended so as to require authorised unit trusts, open-ended investment companies and collective investments scheme limited partnerships to meet a genuine diversity of ownership (“GDO”) condition or non-close condition and enable long-term insurance businesses to qualify;
• Co-ownership Authorised Contractual Schemes (“CoACS”) that meet a GDO condition or non-close condition will be added to the list of entities regarded as institutional investors;
• The rule allowing REITs to hold a single commercial property is to be amended to ensure the condition works as intended;
• The exemption for gains on disposals of interests in UK property rich companies is to be expanded to include gains realised on disposals of interests in UK property rich CoACS;
• Insurance companies will be able to hold an interest of 75% or more in a group REIT for the first time;
• The profit to financing cost ratio legislation will be amended to make it clear that the definition of “property financing costs” means financing costs which are referable to the UK property rental business. Certain amounts in respect of which a deduction is denied for corporation tax purposes will also be excluded from the definition of property financing costs;
• The “holders of excessive rights” legislation will be amended to prevent investors being regarded as such where they are not taxed or taxed at a lower rate under the terms of an applicable double tax treaty on distributions from a REIT; and
• Legislation currently provides for a disregard of the REIT exemption for direct disposals of assets in computing the corporate interest restriction. This disregard will be extended to the REIT exemption for disposals of rights or interests in UK property rich companies.

Freeports and Investment Zones

As well as announcing the introduction of new investment zones, the Chancellor announced that the window in which to claim tax reliefs for freeports and investment zones is to be extended from five years to ten years. The tax incentives include enhanced capital allowances, Stamp Duty Land Tax relief, Employer NICs relief and 100% business rates relief.

Electricity Generator Levy

The government is to introduce a new investment exemption from the Electricity Generator Levy (“EGL”), which is a 45% charge on receipts generated from the production of wholesale electricity that applies from 1 January 2023 to 31 March 2028. The exemption will mean that receipts from a new or expanded electricity generation station will not be subject to the EGL where a substantive decision to proceed with a project to create a new or expanded station is made on or after 22 November 2023.

Annual Tax on Enveloped Dwellings (“ATED”)

The ATED, which is payable by corporate and other “non-natural” owners of UK residential property valued at over £500,000, annual chargeable amounts will be increased in line with September Retail Price Index (“RPI”) (6.7%) for 2024-2025.

Plastic Packaging Tax (“PPT”)

The government is monitoring the thresholds relevant to the chargeability of UK PPT suggesting that the application of the tax could be expanded in future, reflecting the importance for UK businesses to focus on their impact on the environment to avoid facing higher taxes. The CPI rate increase is in line with expectations.