On Thursday 17 November the Chancellor of the Exchequer, Jeremy Hunt, set out the UK Government’s Autumn Statement with the stated aim of bringing stability, protecting growth and funding public services.
The Chancellor has avoided raising any headline tax rates in the Autumn Statement – most tax increases were announced by the now Prime Minister, Rishi Sunak, in his final budget and confirmed in the Chancellor’s fiscal statements of 17 October. Instead, tax revenue has largely been increased through freezing and/or cutting tax thresholds.
Surprisingly, there was little announced targeting offshore finance. The Chancellor’s aim was firmly fixed on UK residents and businesses so the effect on Jersey individuals and businesses is likely to be tangential.
The Chancellor did announce increased funding for HMRC to tackle tax fraud and non-compliance. We have seen significant use of “nudge letters” by HMRC in recent months and it is possible that we may see their use increase further as HMRC target offshore non-compliance.
A summary of the measures is detailed below.
Corporate tax
Previously announced measures
- Planned increase in the corporation tax rate to 25% to go ahead, with the increase to take effect from 1 April 2023
- Planned Diverted profits tax increase to 31% to go ahead with effect from 1 April 2013
- Temporary increase in capital allowances to £1m per annum to be made permanent – this was due to revert to £250,000 from April 2023 and the proposed change has been retained
Measures announced in Autumn Statement
- Implementation of Pillar Two rules issued in July 2022, in order to introduce a global minimum corporate tax rate of 15%. Measures expected to apply to companies with accounting periods beginning on or after 31 December 2023
- Reform of R&D relief for SMEs. For expenditure after 1 April 2023:
- Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%
- Small and Medium-sized Enterprises (SME) additional deduction will decrease from 130% to 86%
- SME credit rate will decrease from 14.5% to 10%.
- From 1 April 2023, large multinational entities operating in the UK will be required to maintain a Master File and Local File in a prescribed format as set out in the OECD Transfer Pricing guideline
The retained tax measures are less generous than those initially announced in the mini-Budget, however the permanent increase in the AIA rate will be a benefit to many CI based businesses investing into the UK.
The transfer pricing documentation requirements will impact large businesses with a presence on the Island. We recommend such businesses review their TP documentation, ensuring files are maintained according to OECD standards.
Personal taxes
Basic rate of income tax to remain at 20% indefinitely
- The basic rate threshold to be frozen until April 2028
- Additional rate of income tax of 45% to be retained indefinitely, with the additional rate threshold reduced from £150,000 to £125,140. This threshold will be frozen until April 2028
- The planned 1.25% increase in dividend tax rates from April 2023 will proceed as enacted, with UK dividend tax rates moving to 8.75% basic rate, 33.75% higher rate and 39.35% additional rate
- The dividend allowance of £2,000 will be cut to £1,000 from April 2023, and again to £500 from April 2024
As noted, the bulk of the increased tax revenue to be raised from income tax will be through freezing thresholds at current levels rather than increasing the headline rate of income tax. The effect of these policies will therefore be felt over time as allowances lag behind inflation. The immediate impact to Islanders will therefore be modest.
Employment taxes
- Reversal of the planned National Insurance rate increase. The 1.25% rise in NIC has been reversed, effective from 6 November. The planned “health and social care levy” to be introduced from April 2023 has also been scrapped
- National insurance thresholds are to be frozen until April 2028
- The IR35/off-payroll working changes introduced in 2017 and 2021 with much controversy have been retained.
Many businesses on the Islands engage with UK contractors and the revocation of the IR35 changes would have removed a significant administrative burden on those businesses. As these measures have been retained, businesses on the Islands must take appropriate steps to ensure continued compliance with the regulations.
Property taxes
The increase in the SDLT threshold for purchases of UK residential property to £250,000 has been retained. This change was effective immediately from Friday 23 September.
Whilst non-UK residents are required to pay an SDLT surcharge of 2% above the standard rates, the increase in the nil rate threshold should still benefit Jersey persons looking to purchase UK residential property.
ATED charges are to increase in line with the September RPI figure of 10.1%.
Tax avoidance
As noted, few specific measures anti-avoidance measures have been announced in the budget. The one measure that has been announced is a commitment to legislate in the 2023 Finance Bill to deem non-UK company shares or securities acquired in exchange for securities in a UK close company as being located in the UK.
The Chancellor has committed an additional £79m to HMRC to tackle tax fraud and non-compliance. HMRC have been making increasing use of “nudge letters” in recent months and it is possible that we may see an increased focus on offshore compliance as a result of these measures.
Other changes
In addition to the announced tax changes, the Chancellor also set out changes to the UK regulatory environment, with the following announcements:
- Introduction of “Investment zones” across the UK. Investment Zones will be special administrative regions benefitting from tax incentives, reduced regulation and planning liberalisation.
- Amendments to the application of Solvency II to entities in the UK. The Government has published its response to the consultation confirming a number of changes, including a significant reduction to the Risk Margin. The Government intends to legislate on this matter during this Parliament
Whilst this is an extensive Autumn Statement, with significant changes to the UK tax code, the direct impact to CI based individuals and businesses is unlikely to be significant.
Zaeem has many years of experience advising individuals and businesses investing into the UK via the Channel Islands. If you have any questions or concerns about your business' tax position or the implications of the Autumn Statement please get in touch with Zaeem or our tax team who will be happy to help.