In light of the deterioration in the economic outlook since the Spring, the government must now take further action to return the public finances to a sustainable path.
Having concluded that now is not the right time to proceed with a package of tax cuts, the government has already confirmed the reversal of the majority of the tax measures set out in the Growth Plan.
The planned increase in the Corporation Tax rate to 25% for companies with over £250,000 in profits will go ahead. This will still be the lowest rate in the G7 ensuring the UK remains strongly competitive internationally. The Corporation Tax rise in April 2023 will only affect the most profitable companies because of the Small Profits Rate. The additional rate of income tax will now not be removed, and the basic rate of income tax will be maintained at 20%.
The government will decrease the additional rate threshold from £150,000 to £125,140 from 6 April 2023. The government is also fixing other personal tax thresholds within income tax, NICs and Inheritance Tax for an additional 2 years, until April 2028. Those in the highest income households will contribute more.
The Autumn Statement reduces the generosity of the Dividend Allowance and the Capital Gains Tax Annual Exempt Amount. The Personal Allowance will generally be available in addition to the reduced Dividend Allowance and Capital Gains Tax Annual Exempt Amount.
Reflecting the success of the transition to electric vehicles, the government will therefore introduce Vehicle Excise Duty on electric cars, vans and motorcycles from April 2025. This will ensure that all motorists begin to pay a fairer tax contribution.
The Autumn Statement ensures that businesses making extraordinary profits due to external factors contribute more. This includes those in the oil and gas sector. The government is therefore extending the Energy Profits Levy to the end of March 2028, and increasing its rate by 10 percentage points to 35% from 1 January 2023.
The structure of our energy market means high oil and gas prices are driving up the cost of otherwise cheap low-carbon electricity in the UK. The government will introduce a new, temporary 45% Electricity Generator Levy on these extraordinary returns from 1 January 2023.
All businesses contribute to restoring the public finances. The Autumn Statement maintains the NICs Secondary Threshold for employers at £9,100 until April 2028 and the VAT registration threshold at £85,000 for two years from April 2024.
As part of the ongoing review of the R&D reliefs, the government is reforming the reliefs to ensure taxpayers’ money is spent as effectively as possible by rebalancing rates. These changes will help to support fiscal sustainability by raising revenue and reducing fraud and error, without materially changing the levels of R&D expenditure over the forecast period.
Whilst businesses have their part to play in returning the public finances to a sustainable path, the government is committed to supporting small businesses and the high street. 70% of actively trading companies will not see an increase in the rate of Corporation Tax they pay due to the Small Profits Rate, and 40% of employers will not be affected by decisions on the threshold for employer NICs due to the Employment Allowance.
The government is going further to support businesses and the high street by reducing the burden of business rates, providing £13.6 billion of support for businesses over the next 5 years. This includes freezing the multipliers, increasing relief for retail, hospitality and leisure to 75%, and reforming transitional relief on the revaluation by exchequer funding the scheme and abolishing downward caps.
To support businesses to invest and grow, the government is setting the Annual Investment Allowance (AIA) at its highest ever permanent level of £1 million from 1 April 2023. This amounts to full expensing for an estimated 99% of UK businesses, which means that those businesses can write off the cost of qualifying plant machinery investment in one go. A permanent increase provides businesses with stability and makes tax simpler for any business investing between £200,000 and £1 million.
The government’s action to repair the public finances will be supported by a package of measures to tackle tax avoidance, evasion, and wider non-compliance. This will raise an estimated £1.7 billion over the next 5 years.
The government will also implement the OECD Pillar 2 rules for a global minimum corporate tax rate, for accounting periods beginning on or after 31 December 2023. This will protect the UK tax base against aggressive tax planning and reinforce the competitiveness of the UK, raising £2.3 billion a year by 2027-28.