The UK Chancellor of the Exchequer, Jeremy Hunt, delivered his Autumn Statement on the 17th of November 2022. Details of the Statement can be found here. This followed on from the Mini-budget and Growth Plan delivered by Kwasi Kwarteng, which unsettled the markets, and was discussed in our September blog.
The Chancellor had previously announced the reversal of many measures from the Mini-budget, which were detailed in our October blog , and there was a further announcement on the Investment Zones plan in the Autumn Statement.
However, there were also some new announcements relevant for the Project Finance sector and companies in related fields announced on 17th of November.
These were a much vaunted initiative in the Mini-budget, designed to aid supply side growth. The Chancellor wants to refocus this initiative, to catalyse “high potential” clusters, centred more around universities. Details will be announced in the coming months, so any expressions of interest in the previous scheme announced in the Mini-budget will not be taken forward, and interested parties will need to reapply once the details are announced.
Global Minimum Tax
This new tax will be introduced for accounting periods beginning on or after 31st of December 2023. It will implement the G20-OECD Inclusive Framework Pillar 2 in the UK and will introduce:
- an Income Inclusion Rule (IIR) which will require large UK headquartered multinational groups to pay a top up tax where their foreign operations have an effective tax rate of less than 15%.
- a supplementary Qualified Domestic Minimum Top-up Tax (QDMTT), which requires large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.
The government also intends to implement the backstop Undertaxed Profits Rule in the UK, but no earlier than for accounting periods beginning on or after 31st of December 2024, and further detail is awaited.
Transfer Pricing Documentation
From April 2023, large multinational businesses operating in the UK must retain transfer pricing documentation in a prescribed and standardised format, set out in the OECD’s Transfer Pricing Guidelines (Master File and Local File). This will give companies certainty on the appropriate documentation to prepare and keep.
Diverted Profits Tax
From April 2023, the rate of Diverted Profits Tax will increase from 25% to 31% in order to maintain the 6% differential above the main rate of corporation tax, to deter entities against diverting profits out of the UK in relevant circumstances.
There were a number of “windfall” style tax changes announced for certain companies in the energy sector.
Energy Profits Levy (EPL)
From 1 January 2023 until 31 March 2028, the EPL will rise to 35%, up from 25%. Decarbonisation expenditure will continue to qualify for the current investment allowance rate of 80%. The investment allowance is a “super deduction” style relief. Before the EPL rate increase, with the 80% investment allowance, businesses received an overall 91p tax saving for every £1 invested, and it was designed to encourage companies to invest in oil and gas extraction in the UK during the transition to Net Zero. With the increase in the EPL rate, the investment allowance for all non-decarbonisation expenditure will be reduced to 29%. The idea is to broadly maintain its existing cash value.
Electricity Generator Levy
This is a temporary 45% tax to be levied from 1 January 2023 on “extraordinary” returns from low-carbon UK electricity generation. For tax purposes, “extraordinary” returns are defined as “the aggregate revenue that generators make in a period from in-scope generation at an average output price above £75/MWh” and will apply to generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10 million.
First Year Allowance for Electric Vehicle Chargepoints.
In keeping with promoting the green agenda, the 100% First Year Allowance for electric vehicle charge points will be extended to 31 March 2025 for corporation tax. The government has stated that it wishes to continue to incentivise businesses to invest in charging infrastructure.
The Autumn Statement also set out a package of targeted support to help with business rates costs worth £13.6 billion over the next 5 years. Business rates are deductible for corporation tax, so increased relief reduces business rates paid, and increases tax receipts from taxes on profits.
Many of the measures are aimed at tax avoidance by large corporates, and also at the energy giants who have in many cases seen record profits during the current energy cost of living crisis. Some measures keep the UK in line with other developed economies such as the implementation of a global minimum tax regime. It remains to be seen whether the proposed measures will be sufficient to influence corporate behaviour and raise the taxes required to tackle the budget deficit.