The first instalment of Chancellor Hunt’s tax policy changes has been published in the unusually slim Autumn Finance Bill 2022.
The Finance Bill’s committee stages are expected to be completed on 30 November 2022, with the other stages shortly afterwards, so it will become Finance (No 2) Act 2022 this year.
There are only 12 clauses in this Bill covering seven areas of tax. I can only assume that it was absolutely necessary to get these provisions on the statute book before the close of the year.
Oil And Gas Companies
Clauses 1 to 3 change the rates and scope of the energy profits levy, which was introduced in July 2002 on profits from North Sea oil and gas production and is commonly referred to as a windfall tax.
The rate of this tax is increased from 25% to 35%. This is levied in addition to the 40% total tax these companies pay on their ring-fence profits (corporation tax plus supplementary charge plus petroleum revenue tax). The deduction for additional expenditure is also reduced from 80% to 29%.
In addition, the sunset clause for this tax has extended so it will now expire on 31 March 2028 rather than 31 December 2025.
Both of these changes take effect for accounting periods starting after 31 December 2023, which is treated as a deemed accounting period end. This will impact the amount of tax those companies need to pay by instalments.
R&D Tax Relief
Clause 4 reduces the rate deduction for qualifying expenditure under the R&D scheme for SMEs from 230 to 186%, and the amount of claimable tax credit is reduced from 14.5% to 10%. The R&D expenditure credit for the large company scheme is increased from 13% to 20%. Both of these changes apply in respect of expenditure incurred on or after 1 April 2023.
Income Tax
The higher rate threshold is frozen at £37,700 and the personal allowance is fixed at £12,570 for the years 2025/26 to 2027/28. These figures were already frozen until 2025/26, but it was clearly necessary to bring these provisions into effect now.
The addition rate threshold is lowered to £125,140 with effect from 6 April 2023 and fixed at that amount up to and including 2027/28. For later years this threshold has been tied to twice the value of the personal allowance plus the threshold for withdrawing that allowance, which is currently £100,000.
The dividend nil rate (known as the dividend allowance) is cut from £2,000 to £1,000 for 2023/24 and cut again to £500 for 2024/25 and subsequent years.
Capital Gains Tax
- Their chargeable gains accruing in a tax year do not exceed the annual exemption
- The aggregate value of consideration for all chargeable disposals in the year doesn’t exceed four times the annual exemption, and the chargeable gains arising is less than the annual exemption, or
- The gain relates to a private residence and is wholly relieved by main residence relief.
The condition of “four times the annual exemption” is replaced with the figure of £50,000 for 2023/24 and subsequent tax years.
Inheritance Tax
The requirement to increase the inheritance tax (IHT) thresholds by inflation is removed for the year up to and including 2027/2028.
Electric Vehicles
Clause 10 removes the exemption from vehicle excise duty (VED) for electric vehicles from 1 April 2025. Owners of electric cars will pay the standard rate (currently £165) or the expensive car rate (currently £520) where the car’s list price is over £40,000.
The discounts for other electric vehicles such as vans and motorcycles will be removed from the same date. This policy paper provides more details.