The Autumn Statement: less growth, more plan?
Consilium Tax Partner Craig Coyle takes a deep dive into the UK Chancellor’s Autumn Statement and the implications for taxpayers and businesses now and in the coming months.
2022 has been an odd year from a tax perspective; we have had four Chancellors and no Budgets. Instead of a full Budget, we have had the optimistically named Growth Plan, and now the Autumn Statement, which is surprisingly not a particularly distinctive scarf.
In a full Budget, there are typically reams of press releases for us nerdy tax advisors to excitedly (everything is relative) look through and spot some tweak which has significant implications. Instead of this kind of nuanced approach, we have had the pulling of big levers to see what they do (for example, what if we get rid of the 45% tax rate?). The only genuinely hidden item of significance this time around is the 12p increase in the cost of a litre of fuel which the Office for Budget Responsibility points out is scheduled to happen in March 2023.
What is the significance of this approach?
In short, it is a missed opportunity to fix inequalities in the system.
Whilst the additional rate of tax will now apply from circa £125,000, the effective rate of tax between £100,000 and £125,000 is higher than the “top rate”. Consequently, many taxpayers will cap their taxable income at £100,000 and it will remain the case that someone earning £125,000 per annum for four years will pay more tax than someone taking £100,000 for three of these years and £200,000 in the fourth. It would clearly make more sense for that individual to have their £200,000 year in 22/23 rather than 23/24 given the impending change, with the amount at stake £1,243.
Much has also been made of the “stealth” tax rises through the freezing of other thresholds and the reduction in the annual dividend allowance and capital gains tax exemption. Whilst the latter measure is somewhat unlikely to lead to a stampede to sell businesses, those thinking of, for example, transferring properties into a corporate structure may wish to push through with those transactions prior to April 2023.
R&D tax credits take a hit
The other main area where companies will be worse off is because of the reduction in the rates of R&D tax credits for SMEs.
Let’s imagine the R&D tax credits regime for SMEs (bear with me) as a particularly delicious ice cream available at a school canteen. However, the ice cream is only available to those who have done extra homework to a certain standard. The school decides that the signing-off process on the homework doesn’t need to be done by a teacher. Therefore external parties get involved, some of them bringing genuine expertise, but some just desperate to get 25% of that delicious ice cream for themselves.
The school (which is probably HMRC in this example) realises it is giving out way more ice cream than it expected. It tries to do some checks of its own on the homework, but the fact it hasn’t checked it for years means the system is out of control. Rather than trying to fix it, it decides just to make the ice cream less delicious, and cut the rate of R&D for SMEs, basically saying “and this is why you can’t have nice things”.
R&D claims remain valuable to many businesses (particularly given the increase in corporation tax rates) but it is regrettable that the behaviour of rogue firms has led to the reduction in the relief announced last week.
What was missing from the Autumn Statement?
In terms of things not in the Autumn Statement, the never-ending rumours of an increase in the Capital Gains Tax rate or further reduction in BADR failed to materialise. Still, they could come back onto the agenda in the Spring Budget and those considering disposing of a business may wish to avail themselves of the current tax rates before then. Although it does feel like, as a profession, we have been saying this for some time!
The other now traditional warning is that for Scottish taxpayers, we must await the Scottish Budget on 15 December 2022 to see what early Christmas presents it may contain. Watch this space…
Please contact us if you want to discuss how the changes impact you or your business in more detail.
Learn more about Tax compliance and advisory services provided by Consilium Chartered Accountants for businesses, entrepreneurs and personal clients.