The Chancellor used the Autumn Statement 2023 to set out 110 measures with the stated aim of boosting the economy. Almost a quarter of these measures related to tax. Headline announcements were: making permanent the capital allowances full expensing regime, reducing the main rate of class 1 employee National Insurance contributions (NICs) and class 4 NICs and abolishing class 2 NICs, and the merger of the research and development (R&D) expenditure credit and SME R&D relief schemes.
On examining the detail, many of the measures had already been announced or were subject to consultation. As usual, there had been speculation in the lead up to the speech, with rumours of changes to the corporation tax and income tax rates and more generally to inheritance tax, none of which materialised.
The greatest tax give away was in relation to NICs. With effect from 6 January 2024, class 1 employee NICs will reduce from 12% to 10%. For the self-employed, with effect from 5 April 2024, the class 4 NICs rate will reduce from 9% to 8% and class 2 NICs will be abolished. This has, however, to be viewed against the background of the tax raising measures that were announced at the Spring Budget 2023.
The big news for business was the move to make full expensing permanent. The full expensing regime was introduced at the Spring Budget 2023 to replace the super-deduction, which was itself introduced to encourage investment in the wake of the COVID-19 pandemic and to balance the increase in corporation tax rates. The full expensing regime had been timetabled to end on 31 March 2026, although the Chancellor had made public his desire to be able to introduce it on a permanent basis.
Investments in qualifying main rate plant and machinery will qualify for 100% first-year allowances, which will enable companies to write off the full cost of expenditure in the year of investment. While this is, essentially, a timing advantage, as allowances will reverse out over time, the continuation of the regime is undoubtedly a boost for infrastructure investment as well as a valuable relief for all companies that incur capital expenditure on qualifying plant and machinery. Now that full expensing has been made permanent, there is no longer a deadline pushing companies to focus on near-term expenditure.
The exclusion for expenditure on assets for leasing remains in place due to government concerns over the potential for abuse. But the government has established a working group for industry stakeholders to consider whether full expensing could be made available to expenditure on plant and machinery for leasing and this possibility remains under review.
The 50% first year relief for special rate assets introduced alongside the super-deduction in 2021 was also made permanent.
There were no changes announced to the intangibles regime or to allowances for structures and buildings, meaning that the gap between the levels of relief for different expenditure remains pronounced.
Research and development
Also following on from announcements made at Spring Budget 2023 and subsequent consultation, the Chancellor confirmed that the R&D expenditure credit (RDEC) and SME schemes will be merged for accounting periods that start on or after 1 April 2024. There will still be two schemes, because alongside the new merged scheme there will be a new SME intensive scheme. The merged scheme will allow an above the line taxable credit of 20% on which loss-making companies will be taxed at 19% rather than 25%.
There was also confirmation that, where R&D is contracted out, it will be the company that commissions the R&D that can claim the relief, rather than the contracted company. Non-UK expenditure will only qualify to the extent that it is necessary for the R&D to be undertaken outside the UK due to geographical, environment and social conditions that are not replicable in the UK.
The new R&D scheme for loss-making R&D intensive SMEs was introduced in Spring 2023. Some amendments to that regime were announced and will come into effect from 1 April 2024. The first is that the threshold for accessing the higher payable credit rate of 14.5% will be reduced from 40% to 30%, which means that loss-making SMEs for which qualifying R&D constitutes at least 30% of total expenditure will be able to claim the higher payable credit rate. A new one-year grace period has also been announced. This will enable loss-making SMEs that have successfully claimed enhanced relief in one year but then failed to meet the threshold the following year due to factors such as exceptional expenditure or small fluctuations in expenditure, to continue to qualify for relief for a second year.
Finally, the Chancellor announced measures to target avoidance in R&D. These include two targeted measures: the prohibition from 22 November 2023 of the assignment of R&D tax credits and, from April 2024, the prohibition of the use of nominees to receive payments. In addition, HM Revenue & Customs (HMRC) will publish a compliance action plan to deal with non-compliance in R&D reliefs, which HMRC has previously estimated to be worth £1.13 billion.
Freeports and investment zones
New investment zones including zones that target advanced manufacturing, green industries and life sciences, were announced for West Yorkshire, West Midlands, East Midlands, Greater Manchester and Wales. The Chancellor also announced that tax relief for investment zones and freeports will be extended from five to ten years.
Electricity generator levy
The government announced that it will introduce a new exemption from the electricity generator levy (EGL) for renewable electricity generation projects that create a new, or expand an existing, generating station if the substantive decision to proceed is made on or after 22 November 2023. This appears to be aimed at providing certainty for investment decisions in large-scale renewable energy projects that may not begin to produce electricity for some years, but where the investment decision has been affected by the risk that the EGL is extended beyond its current time period.
Pillar 2 and the ORIP
It was confirmed that the under taxed profits rule (UTPR), which operates as a backstop to the multinational top-up tax (MTT), would come into effect for periods starting on or after 31 December 2024, which is a year after the MTT is introduced. The offshore receipts in respect of intangible property (ORIP) regime, introduced in 2019 to discourage multinational groups from holding intangibles in jurisdictions where the income will be subject to no or low tax, will be abolished in respect of income that arises from 31 December 2024, to coincide with the introduction of the UTPR.
Also of interest was the Office for Budget Responsibility’s (OBR) forecast that Pillar 2 would generate additional UK revenue of £2.8 billion in 2028/29, albeit the OBR attached a very high level of uncertainty to this estimate.
Susie Brain is Knowledge Of Counsel at Norton Rose Fulbright LLP.