Autumn Statement 2023 - key tax measures announced

It remains the case that assets for leasing are excluded from full expensing. This is a subject that HM Treasury and HMRC have been considering since the Spring Budget (in conjunction with an industry working group), but it appears that no decision has been reached yet. The government has announced that it will continue to consider whether there is a case to extend full expensing to leasing, and that a technical consultation will be published in due course to seek further input from a wider range of stakeholders.

It was also announced that HM Treasury and HMRC will be launching a further technical consultation on wider changes to the capital allowances legislation. The exact scope of the consultation is not currently clear, but the stated aim is to simplify the UK's existing capital allowances legislation. This process will launch with the Government engaging with interested stakeholders from January 2024 onwards, with draft legislation being planned for Summer 2024. 

Whilst there were no new measures announced in relation to business rates, the Chancellor did announce the extension of a couple of existing measures, focusing on small business and the Retail, Hospitality and Leisure sector:

1. Multiplier: The small business multiplier in England will be frozen in 2024-25 at 49.9p (for the fourth consecutive year).  However, the standard multiplier will be uprated to 54.6p based on September CPI.
   
   
2. Retail, Hospitality and Leisure: The current 75% relief for eligible Retail, Hospitality and Leisure properties is being extended for 2024-25.

In one of its headline measures, the Government announced that it would cut the rates of employee and self-employed National Insurance contributions (NICs) in 2024.

The main rate of employee NICs, charged on annual earnings between £12,570 and £50,270, will be cut from 12% to 10% with effect from 6 January 2024. The rate of employer NICs will, however, remain unchanged at 13.8%.

Similarly the main rate of self-employed Class 4 NICs, charged on annual profits between £12,750 and £50,270, will be cut from 9% to 8% - this time with effect from 6 April 2024. Self-employed Class 2 NICs, which were previously charged at £3.45 per week, will effectively be abolished as self-employed individuals with profits above the £12,570 threshold will no longer be required to pay these NICs but will continue to receive access to contributory benefits (including the State Pension). Those individuals who were paying Class 2 NICs voluntarily, including people who moved abroad, will continue to be able to do so in order to preserve their entitlement to such benefits.

Given the upcoming cuts, some employers may consider delaying the payment of their annual / year-end bonuses in order to fall within the lower rates. Whether this is actually possible and achieves the desired outcome will depend on the terms of the bonuses and the underlying legislation. Employers should remember that directors pay NICs on an annual basis and it is unclear at this stage whether they will benefit from a lower, blended annual rate.

The new rates of NICs are summarised in the table below:

Following a three month consultation, draft legislation was published on 18 July 2023 introducing a single R&D regime, replacing the existing Research & Development expenditure credit ("RDEC") and SME regimes.  After much speculation, it was announced in the Autumn Statement that the new regime will apply to accounting periods starting on or after 1 April 2024. According to the Autumn Statement, the merger will "[simplify] the system and [provide] greater support for UK companies to drive innovation".

We will need to wait for the Autumn Finance Bill 2023 to fully understand how the regime will apply, but on first blush there appears to be limited changes to the policy design set out in the draft legislation published earlier this year.

There are, however, some notable differences between the new regime and the current RDEC regime:

• Sub-contracted R&D: piggybacking off the existing SME regime, companies ("Company A") will be able to claim for expenditure incurred on R&D activities which they have contracted out to other entities ("Company B"), provided it is qualifying expenditure and relates to Company A's R&D projects. Company B cannot claim for R&D activities on Company A's project.
  
  If, however, Company B's work does not form part of Company A's R&D and was instead initiated by Company B, then Company B may be able to claim relief for their work, if they meet the requirements of having valid R&D which is eligible for relief.
  
  The guidance also confirms that (a) contracted R&D carried out by subcontractors who are working for non-UK corporation taxpayers, such as overseas companies, will continue to qualify for relief, and (b) these rules on sub-contracted R&D will similarly apply to R&D intensive SMEs.
  
  According to the Technical Note, this approach will increase the number of companies eligible for R&D relief and ensure that the entity "making the decision to do the R&D and bearing the risk" gets the benefit of the relief.
  
  It is worth noting that the draft legislation published earlier this year included additional rules restricting the availability of R&D tax relief for projects which have been subsidised. The Government has confirmed that these rules are no longer relevant as the new rules on contracted R&D addresses their concerns in this area. Accordingly, the subsidy restrictions will be removed from the merged scheme.
  
  
• Step 2 reduction: Under the current RDEC regime, any credit available to loss-making companies can be brought forward and used in future periods. That credit is, however, reduced by a notional rate of tax (currently either the small profits rate, 19%, or the main rate, 25%) to ensure consistency for both loss and profit making companies. The Government has announced in the Autumn Statement that the new regime will instead apply the small profits rate of 19% to loss makers, thereby increasing the credit available to them in future periods.
  
  
• Caps for loss-making SMEs: Under the existing RDEC and SME regimes, there is a cap on the amount of relief that can be claimed where a company is loss-making, with the SME rules being more accommodating (broadly being £20,000 plus 300% of the company's PAYE and NIC liability for the claim period). The draft legislation published in April 2023 suggests that the new regime will adopt the SME cap. We will need to wait until the Autumn Finance Bill to learn whether this has been retained.
  
  
• Qualifying bodies: The new regime will remove the list of qualifying bodies, which companies in RDEC are currently allowed to claim for contracted R&D costs to.

In a welcome move, the Technical Note also confirms that the draft clauses published in July suggested that there would be a double restriction on externally provided workers, but that this wasn't the intention and will be updated for in the final legislation.

R&D intensive SMEs

A separate "R&D intensive" regime was announced in the Spring Budget 2023 which aims to provide certain loss making SMEs with enhanced R&D relief. You can read about that in our Spring Budget 2023 briefing, but – broadly – qualifying loss-making SMEs are entitled to a subsidy of c.27% (being a 14.5% credit on 85% uplifted costs).

Originally, the R&D intensive regime was only available to SMEs if its ratio of R&D expenditure to its total expenditure (subject to certain adjustments) is 40% or more, tested by reference to the accounting period in respect of which the relief is being claimed. However, the Chancellor announced that the threshold will be reduced from 40% to 30% of total expenditure.

The Autumn Statement also announced a grace period for R&D intensive SMEs, which addresses industry concerns that exceptional spending might skew a SME’s intensity ratio for a year an unfairly restrict access to the enhanced R&D relief. This will provide loss-making SMEs a level of certainty not previously afforded by the rules.

What's next?

We will need to wait for the Autumn Finance Bill 2023 to understand how these changes will be legislated for.

The move to the merged regime joins a number of other R&D reforms which were recently announced, such as restrictions to claiming R&D for overseas expenditure (see our Spring Budget 2023 briefing for more information) which is set to come into effect for accounting periods beginning on or after 1 April 2024, and a number of process changes targeted at tackling abuse of the regime, such as the requirement to file an Additional Information Form and provide advanced notification of claims (with effect from August 2023 and April 2023 respectively).

Notwithstanding the recent overhaul, the Government has confirmed it is continuing to look at R&D closely and will be publishing a "compliance action plan" to "reduce the unacceptably high levels of non-compliance". This suggests there may be even more changes to the regime incoming.

The UK's work to implement the income inclusion and domestic minimum top up tax rules in the Global Anti-Base Erosion (GloBE) Rules agreed by the UK and other OECD members as part of the OECD's Inclusive Framework on base erosion and profit shifting continues, with these rules set to take effect in the UK for accounting periods beginning on or after 31 December 2023. You can learn more about these rules here.

In response to stakeholder consultation and updates to the OECD's guidance on its Model Rules, legislation will be introduced in the Autumn Finance Bill to make various amendments to the UK's multinational and domestic top-up tax regimes. These changes are intended to take effect alongside the main legislation.

The changes are numerous and are aimed at providing greater clarity in relation to certain key concepts,  correcting errors in the existing drafting and aligning the UK's rules with the OECD Model Rules and related guidance. There are, however, some more substantive changes to the rules, notably some changes relating to the treatment of partnerships,  an elective safe harbour which simplifies the calculation of top up taxes for entities which are not included in a multinational group's consolidated financial statements because of their size or materiality and the introduction of the qualified domestic top-up tax safe harbour which applies where members of the group are subject to a qualified domestic top-up tax in an accredited jurisdiction are and means that these members are treated as having no top-up tax amounts for the purposes of calculating multinational top-up tax.

Alongside these amendments, the Government confirmed its intention to introduce the Undertaxed Profits Rule (UTPR) into the UK top up tax regime in a future Finance Bill, with the intention that it will take effect for accounting periods beginning on or after 31 December 2024. The UTPR is intended as a sweeper provision to enable the UK to collect top-up taxes from entities within an in-scope multinational group (to ensure that the group's effective tax rate is at least 15%) where that tax is not collected from the responsible group members via a multinational or domestic top-up tax regime in another jurisdiction. Very broadly, the UTPR provides for top-up taxes to be levied on UK members of a multinational group in respect of these amounts, with that tax being apportioned between them based on the proportion of the groups' employees or tangible fixed assets, taking into account only jurisdictions which have UTPRs in effect. The date of implementation of the UTPR  reflects the hope that as more jurisdictions implement their own multinational and domestic top-up taxes, the situations in which the UTPR is relevant may be limited. An important qualification to this may, however, be that if the United States does not adopt the GloBE Rules, the UTPR regime could be deployed to collect tax from UK subsidiaries of a US-headed multinational group.

It was also announced in the Autumn Statement that the Government will introduce legislation to repeal the Offshore Receipts in respect of Intangible Property (ORIP) (the UK's rules taxing revenues received in respect of sales derived from the exploitation of intellectual property by companies in low tax jurisdictions) with effect from 31 December 2024. This is intended to coincide with the introduction of the UTPR and reflects the fact that the UTPR is itself expected to discourage the sort of tax planning previously undertaken by some multinational groups which ORIP was designed to counteract.   

It seems that the UK remains keen to be an enthusiastic and early adopter of the GloBE rules and there is currently no indication that it will change its view in the face of slower implementation in other OECD jurisdictions. Given the projected impact on Treasury receipts (projected as around £2.26bn of additional tax by 2028-9 in respect of multinational and domestic top-up taxes, and a further £490m in respect of the UTPR), clearly the UK considers that there is material value in claiming its share of these global tax revenues.

Pensions Lifetime Allowance

As announced in the Spring Budget 2023, the Lifetime Allowance (currently £1,073,100) is to be abolished. Finance (No.2) Act 2023 began this work by removing the Lifetime Allowance Charge.   The legislation in the Autumn Finance Bill 2023 will complete this by removing the Lifetime Allowance with effect from 6 April 2024 (as reported in March). Additional measures included in the Autumn Finance Bill 2023 will clarify how other aspects of the pensions savings tax code will work in the absence of the Lifetime Allowance.  In particular new limits will be introduced, alongside a new reporting regime, in relation to the total amount that can be paid to and in respect of an individual (so including on death) by way of tax-free lump sum. 

The measures also refer to the introduction of a new taxable lump sum that can be paid to an individual from a registered pension scheme, in addition to the existing tax-free "pension commencement lump sum".  Depending on the detail around when this type of lump sum can be paid (still be to confirmed), this could give significant additional flexibility to the amount of benefit that defined benefit pension scheme members can take in lump sum form.

LGPS Pooling

At the Chancellor's Mansion House speech in July this year, some ambitious proposed reforms to local government pension scheme (LGPS) were announced, followed by a consultation which ran from July to October. The headline-grabbers have been repeated at today's Autumn Statement: private equity investment allocation and pooling of LGPS assets. LGPS guidance will be revised to increase private equity allocation ambitions to 10%. This is estimated to unlock £30billion by 2030. The use of the word "ambitions" in the statement suggests this is a soft target which might be enough to appease some LGPS investors who have expressed concern about being bound to hard target allocations to private markets, including from a diversification of risk and price inflation perspective.

In addition, the deadline for consolidation of LGPS assets has been accelerated to March 2025. The government believes the pooling exercise, resulting in 8 LGPS pools which have been operational for a number of years, has delivered substantial benefits and cost-savings. But the government wants to go further in two key respects which are accelerated consolidation of assets, and even fewer pools. Across LGPS as of March 2022, 39% of assets have been transferred to the pools, with the percentage varying by pool from under 30% (LG0S Central) to over 80% (LPP). The government wants to encourage transition and noted in its consultation that this had mostly been done through guidance thus far, but that given the inconsistency of progress across schemes and the benefits of pooling, a fixed timetable is appropriate. It was suggested in the consultation that the timeframe would apply to liquid assets, but that transition of all assets should also be considered in this timeframe. Once the consolidation of assets is complete, the government had predicted that 5 out of the 8 pools would be around £50billion of higher, and the remaining 3 pools would occupy the £25billion - £40billion range. In the Autumn Statement, it was affirmed that the government wants to set a direction towards fewer pools exceeding £50billion of assets under management in order to access even greater benefits of scale.

Using the Pension Protection Fund as a consolidator

The Government will consult on making the Pension Protection Fund available as an investment vehicle for defined benefit (DB) schemes that are viewed as 'unattractive to commercial providers', with a target of having this in place as a public sector consolidator by 2026.

Accessing surplus in defined benefit (DB) schemes

The Government will reduce the authorised surplus payments charge which is currently payable on a return of surplus to a scheme employer from 35% to 25% from 6 April 2024. The Government also plans to consult this winter on whether changes to rules around when DB scheme surpluses can be repaid, including new mechanisms to protect members (potentially through a PPF backstop), could incentivise investment by well-funded schemes in assets with higher returns. The Government wants to encourage DB schemes to take more investment risk in UK businesses as using the investment capability of such DB schemes productively could be worth billions to the UK economy. However, soft encouragement to do so is not enough and so the hope is that these changes may provide sufficient incentive for DB schemes to invest with an aim of higher returns.

Changes to the defined contribution (DC) landscape

The Government announced a variety of consultations and policy changes in the DC space, including

1. Pot for life: The Government will launch a call for evidence on a lifetime provider model to simplify the pensions market by allowing individuals to move towards having one pension pot for life, by giving them a legal right to require a new employer to pay pension contributions into their existing pension.
2. Small pots consolidation: The Government will introduce the multiple default consolidator model for DC schemes, to enable a small number of authorised schemes to act as consolidators for eligible pension pots under £1,000.
3. Decumulation: The Government is publishing an update proposing placing duties on DC occupational pensions trustees to offer decumulation services and products at an appropriate quality and price when savers access their pension assets, either themselves or through a partnership arrangement.

The "off-payroll working" rules were introduced amid growing concerns that certain individuals were working like employees / directors but were not being taxed as such. The rules focus on arrangements where individuals provide services to end clients through "intermediaries" such as their own personal service companies (PSCs).

Broadly the rules apply where, if you assumed that the individual was engaged directly by the end client rather than through their PSC, the individual would be regarded as an employee or office holder of the end client. The end client is responsible for assessing whether the rules apply and, if so, it is then required to account for income tax and NICs as if it were paying salary.  

The Government is now proposing to amend the rules so that, if the end client made a mistake and determined that it should not account for income tax and NICs, then any income tax and corporation tax that has been paid by the individual / their PSC in connection with the engagement can be set off against the end client's liability. The Government considers this to be fair because, had the end client correctly applied the rules in the first instance, it would have deducted income tax and NICs from the fee that it paid to the PSC (assuming that it was contractually permitted to do so). As the end client would not have borne the relevant costs, it should also benefit from a set-off in the event that the individual / PSC have paid the taxes instead.

The changes will be welcomed by end-clients, who previously bore the full cost of the tax and NIC liabilities if they incorrectly applied the rules (unless they could successfully enforce indemnities against the PSCs).

Following a previous announcement in the Spring Budget, the Government has confirmed that it will introduce legislation to simplify the administration of Enterprise Management Incentive (EMI) share schemes. The changes include extending the time limit to notify HMRC of the grant of an EMI share option, so that companies now have until 6 July following the end of the tax year in which the grant was made. Given that EMI schemes are targeted towards start-ups, the simplification measures have been well received.  

10 year extension of EIS and VCT regimes

The government has announced that the 'sunsetting' date for the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) regimes will be extended from 6 April 2025 to 6 April 2035.  This will be welcome news to eligible investors, who will continue to have access to the existing income tax and capital gains tax reliefs in relation to investments in qualifying companies and VCTs.

Many of the proposed changes to the REIT rules (and draft legislation) published on 18 July 2023 have been confirmed as being enacted in the Finance Bill. The government have said that the changes will variously take effect from Royal Assent of the Autumn Finance Bill 2023, apply to accounting periods ending on or after 1 April 2023, or are deemed to have always had effect. By way of reminder, the measures published on 18 July included:

• Requiring certain institutional investors – authorised unit trusts, open-ended investment companies (including overseas equivalents) and collective investment scheme limited partnerships to be 'non-close' (broadly, not be controlled by 5 or fewer participators) or to meet the genuine diversity of ownership ("GDO") condition. Institutional investors that are long-term insurance businesses will need to be 'non-close'.
  
  
• Allowing access to the REIT regime where a company is 'close' but has an institutional investor as an indirect participator – previously the rules only anticipated the institutional investor to be a direct investor. This change requires tracing ownership through intermediate holding companies using the same mechanism as the non-resident CGT fund exemption election rules.
  
  
• Insurance companies are able to be members of a group UK REIT.
  
  
• Clarification that for the purposes of the profit:financing cost ratio, the financing costs to be included in the calculation are that of the UK property rental business of the REIT (rather than the worldwide property rental business). In addition, certain amounts in respect of which a deduction is denied for corporation tax purposes is excluded from the definition of property financing costs.
  
  
• Amending the single property rule to ensure the legislation works as intended where there is a change in the property held.
  
  
• Expanding the exemption for gains on disposals of interests in UK property rich companies to include gains realised on disposals of interests in a UK property rich Co-ownership Authorised Contractual Scheme.
  
  
• Amendments to the corporate interest restriction calculation in section 452 TIOPA such that there is a disregard of the REIT exemption for disposals of rights or interests in UK property rich companies in the same way as the REIT exemption on share disposals is disregarded for the purposes of the calculation.
  
  
• Making consequential changes to the non-resident capital gains tax rules for collective investment vehicles.

Some new changes have also been introduced today, again with the aim of increasing the competitiveness of the UK's REIT regime.

• The rules regarding holders of excessive rights will be amended such that investors are not treated as such where they are taxed at a particular rate (or not at all) on distributions from the REIT under the terms of a double tax treaty (other than where that treaty rate is conditional on holding an interest of a certain size).
  
  
• Co-ownership Authorised Contractual Schemes which meet the GDO or non-close condition will be added to the list of entities regarded as institutional investors.
  
  
• Insurance companies are able to hold an interest of 75% or more in a group UK REIT.

Some proposed changes included in the draft legislation published on 18 July 2023 have not reappeared today in the government's list of measures. We will have to wait for the updated draft legislation to see whether these proposals have been retained (and we expect that they should have been retained). These included amending the close company test such that where a partnership holds an interest in a REIT, the partners in that partnership should not be subject to the normal attribution rules which apply to partners in the close company rules, and that a general partner's possession of voting power in a partnership will not cause the REIT to be close.

These changes should assist in broadening the type of investor able to participate in REITs. The rules regarding tracing ownership are – as with the non-resident CGT fund exemption election rules and the QAHC regime – complex but may provide existing property groups and existing REITs with more flexibility in applying the requirements of the regime.

Perhaps the biggest stamp duty news coming out of the Autumn Statement was a lack of news.  No update has been provided on the status of the stamp duty modernisation proposals, following the closing of the policy consultation in June earlier this year.  This is not necessarily a surprise because the government has not committed to any timeframe in relation to the reforms, but the lack of any update may mean that any changes are more likely to be pushed out to late 2024 or 2025 at the earliest.

For more information on the proposed reforms, see our legal briefing on this topic: Stamp taxes modernisation – a breath of fresh air | Travers Smith. 

Widening access to the Growth Market Exemption

It has been announced that the existing exemption from stamp duty and SDRT (stamp duty reserve tax) that applies to shares and securities traded on "recognised growth markets" (such as AIM) will be extended to include "smaller, innovative growth markets".  Specifically,  FCA regulated multilateral trading facilities (MTFs) that are operated by investment firms will be allowed access to the exemption.

In addition, the measures will also increase the threshold for the market capitalisation condition within the Growth Market Exemption from £170 million to £450 million.

The changes are intended to take effect from 1 January 2024.

Removal of the 1.5% charge on issues and certain related transfers

In the Autumn Statement, the government confirmed that legislation will be introduced to address the concern that the 1.5% stamp tax charge arising on the issue or transfer of UK shares to clearance services and depositary receipt issuers would be reintroduced as a result of certain provisions of EU law ceasing to be part of UK law from 1 January 2024. 

Draft legislation published alongside the Autumn Statement provides that there will be:

(a) no SDRT on issues of UK shares to clearance services and depositaries; and

(b) an exemption from stamp duty and SDRT on transfers of shares to clearance services and depositary receipt issuers where such transfers are (i) by way of exempt listing instruments; or (ii) part of capital raising transactions.

The exemption for exempt listing instruments was not part of the original draft legislation published in September.  It will apply to instruments transferring securities of a company in the course of qualifying listing arrangements where those arrangements do not affect the beneficial ownership of the securities, addressing concerns that the original draft legislation did not exempt from charge transfers into a clearance service for the sole purpose of listing the shares on a stock exchange. 

The legislation will be included in the Finance Bill 2023-24 but will have temporary statutory effect through the budget resolution procedure until the time the bill receives royal assent.  The legislation has effect for stamp duty, in relation to instruments executed on or after 1 January 2024, and for SDRT for issues, transfers and agreements to transfer made on or after 1 January 2024.

The Chancellor announced a number of significant reforms to individual savings accounts (ISAs), intended to simplify the regime and improve choice for savers.

An ISA is a 'tax-free' savings and investment product. Individuals can save or invest money into an ISA, up to an annual ISA allowance. The main allowance remains unchanged for the 2024/25 tax year at £20,000, and this money can be split between cash and other investments. No tax is paid on savings interest, dividends or capital gains and withdrawals are not subject to income tax.

Currently, individuals can hold multiple ISA accounts, but can only pay into one type of ISA each year. From April 2024, this will change, with the Government allowing multiple subscriptions to ISAs of the same type each year, while also allowing partial transfers of ISA funds between providers.

In a sign of the Chancellor's desire to boost economic growth, the range of investment opportunities available within ISAs will be expanded from April next year, to allow individuals to hold Long-Term Asset Funds (a relatively new type of open-ended fund invested in illiquid assets) and open-ended property funds with extended notice periods.

The Government also announced that it intends to permit certain fractional shares to be held within an ISA and will engage with the finance industry on the precise method of implementation. This measure comes off the back of the widely reported dispute between HMRC and several brokerage firms over the holding of fractional shares within ISAs. Whilst there is some debate amongst tax professionals about whether HMRC's contention (that the current rules prohibit the holding of fractional shares within ISAs) is technically correct, this announcement is likely to be welcomed by affected investors and the wider industry.

Various measures to digitalise the ISA reporting system were also announced, which the Government hopes will enable the development of digital tools to support investors.

Changes to the ISA rules were heavily trailed ahead of the Autumn Statement, and the announced changes arguably represent a more modest set of reforms than many investment industry executives may have speculated. In particular, the potentially radical option of introducing an additional ISA for investing in UK companies and other ideas including enabling cash savings and stock market investments within a single ISA or reforming the exit penalties in relation to the Lifetime ISA, were not announced. However, today's announcement may lay the groundwork for further more radical reforms in next year's Spring budget.

The Government continues to focus on closing the estimated £35.8bn "tax gap" between the amount that HMRC should theoretically be able to collect in tax and the amount of tax actually collected, with a range of measures intended to deter tax evasion and aggressive tax avoidance, promote compliance and modernise reporting systems and collection of data.

Dealing with Promoters of Tax Avoidance

Following consultation, the Government intends to introduce two measures in the Autumn Finance Bill, both with the aim of deterring tax avoidance through the use of tougher sanctions.

New Criminal Offence – Failure to comply with a Stop Notice

The first measure is a new criminal offence which will apply to promoters of tax avoidance schemes who fail to comply with a Stop Notice under the Promoters of Tax Avoidance rules (POTAS). A Stop Notice is a notice issued by HMRC requiring the promoter of a designated avoidance scheme to stop promoting or marketing that scheme. HMRC has the power to publish the details of promoters who are subject to a Stop Notice, and of the scheme being promoted.

The criminal offence will be committed where a promoter continues to promote an avoidance scheme after the date of Royal Assent to the Autumn Finance Bill having received a Stop Notice from HMRC. The promotion of avoidance schemes in breach of a Stop Notice can already attract sizeable civil penalties, depending on the nature of the breaches concerned.

The new criminal offence will be a strict liability offence, where failure to comply with a Stop Notice will be an offence irrespective of the promoter's intent. Conviction would result in an unlimited fine, a prison sentence of up to two years, or both.

Whilst it is difficult to argue with the strengthening of HMRC's powers in relation to promoters of marketed tax avoidance schemes, representative bodies have expressed concerns that there are insufficient safeguards built into the current system to protect advisers against the incorrect or arbitrary use of Stop Notices by HMRC, and that the existing appeals process may be insufficient to overturn a criminal conviction once a prosecution has been brought, even where an avoidance scheme is subsequently judged by a tribunal or court to be lawful.

Disqualification of Directors

The second measure gives a new power to HMRC to apply to the court for a disqualification order in relation to directors and other persons who control or exercise influence over a company involved in promoting tax avoidance and operating against the public interest. HMRC will be able to seek a disqualification, either in the context of petitioning for a winding up of the relevant company, with the directors (or those exercising control or influence) being disqualified on HMRC's application, or without a winding up, on the basis that a director has acted against the public interest by promoting tax avoidance and is therefore unfit to hold the office.

In relation to any disqualification, existing safeguards will be preserved, which include the ability for the director to defend themselves in court, appeal a court decision to disqualify and seek leave of the court to act as a director whilst disqualified. The proposals would maintain the current civil and criminal sanctions for those breaching a disqualification order or helping disqualified directors.

As with the new criminal offence, respondents to the consultation have largely accepted the need to strengthen HMRC's hand against aggressive avoidance, but have suggested a need for additional safeguards to protect directors who may have limited understanding or knowledge of a company's tax avoidance activities.

Doubling the Maximum Sentence for Tax Fraud

As announced in the Spring Budget 2023, the Government intends to legislate in the Autumn Budget to increase the maximum sentence for the most serious cases of tax fraud from 7 to 14 years, with effect from the date of Royal Assent. The increased sentences will apply across a range of tax-related fraud offences, including all taxes administered by HMRC, but will not apply to the fraudulent evasion of national insurance contributions, which will be dealt with in a future NICs Bill.

Strengthening the Tests for Gross Payment Status in the Construction Industry Scheme

Also trailed in the Spring Budget 2023 and to be included in the Autumn Budget is legislation to strengthen the obligations on sub-contractors in the Construction Industry Scheme (CIS) who enjoy gross payment status. Gross payment status allows sub-contractors who meet certain criteria to be paid by contractors without the withholding for tax that would otherwise be required under the CIS.

Gross payment status is subject to review by HMRC and can be lost on an annual review if a company provides incorrect information in relation to CIS or if it regularly makes late payment or late returns in respect of certain taxes, including payments under the CIS, income tax and corporation tax. The new measures will add compliance with VAT rules as a condition of obtaining and keeping gross payment status.

Additionally, HMRC's current power to cancel gross payment status with immediate effect where HMRC reasonably suspects that a sub-contractor has registered for gross payment on the basis of false information, made incorrect returns or provided incorrect information, or knowingly failed to comply with the CIS will be extended to cover circumstances where HMRC reasonably suspect that the sub-contractor has fraudulently provided an incorrect return or incorrect information in relation to  VAT, Corporation Tax Self-Assessment (CTSA), Income Tax Self-Assessment (ITSA) and PAYE.

These measures will have effect from 6 April 2024.

Changes to HMRC Data Collection

The Government has announced that changes will be made no earlier than the start of tax year 2025/6 to the information that taxpayers and agents are required to provide in relation to employees and self-employed individuals. The changes, which will be implemented via regulations after a further technical consultation, are:

1. A requirement for employers to provide information about employee hours via real time PAYE reporting;
   
   
2.  A requirement for shareholders in owner-managed companies to report dividends from those companies separately to other dividends in their tax returns; and
   
   
3. A requirement for self-employed individuals to report the start and end date of their self-employment in their self-assessment return.

It is interesting to note HMRC is continuing to expand the range of data that it gathers through tax reporting and the additional information gathered as a result of these changes may well be used to drive HMRC's efforts to promote compliance by allowing it to identify patterns which may require further enquiry.

The Investment Zones programme in England will be extended from five to ten years and three new zones were announced in Greater Manchester, West Midlands and East Midlands. This extension is said to double the envelope of funding and tax reliefs available in each Investment Zone from £80million to £160million.

We wrote about the concept of Investment Zones in our March 2023 Budget briefing which you may want to revisit here.

The EGL was first announced at Autumn Statement 2022, and was introduced from 1 January 2023. Very broadly, it is a temporary 45% windfall tax on exceptional generation receipts of electricity generators, and is intended to remain in force until 31 March 2028. For further background, refer to the briefing we published earlier this year: Electricity Generator Levy (EGL) update | Travers Smith. 

The change to the EGL that has been announced at Autumn Statement 2023 is that there will be a new exemption from the EGL for receipts from new electricity generating stations. This will include new standalone stations and substantial expansions and repowering of existing stations. The new exemption will take effect for revenues from new electricity generating stations where the substantive decision to invest is taken on or after 22 November 2023. 

The government has restated that the EPL (the temporary windfall tax imposed on UK oil and gas extractors) will end no later than 31 March 2028.  However, the EPL could end sooner if average oil and gas prices fall back to historically normal levels.

In June 2023 the government announced the Energy Profits Levy (EPL) Energy Security Investment Mechanism (ESIM), in which it was confirmed that the EPL would permanently end if average oil and gas prices fall back to historically normal levels, by reference to the ESIM. At the Autumn Statement 2023, it has been announced that the government will publish a technical note which sets out the final design of the ESIM, including future adjustments to the mechanism’s price thresholds in response to inflation.  Legislation to give effect to the ESIM will follow in due course.

In the Autumn Statement, the government confirmed that they would proceed with two previously announced measures relating to tax and retained EU law.  Retained EU law is a special category of UK domestic law that was created on the UK's exit from the EU.  Broadly, retained EU law is a snapshot of EU law as it applied in the UK as at 31 December 2020 which was saved into UK law in order to ensure a smooth transition.  The Retained EU Law (Revocation and Reform) Act 2023 provides for the sunsetting or repeal of some types of retained EU law from 1 January 2024. 

As it is based on the EU's VAT Directive, there have been concerns that the UK VAT regime could be disturbed by these sunsetting provisions.  To address these worries, draft legislation provides that certain types of retained EU law will continue to apply in relation to VAT and excise law, including retained general principles of EU law such as fiscal neutrality.  

A second set of draft legislation responds to the concern that the 1.5% stamp taxes charge arising on the issue or transfer of UK shares to clearance services and depositaries would be reintroduced as a result of certain provisions of EU law ceasing to be part of UK law from 1 January 2024.  For more detail on this click here.

It is expected that both pieces of legislation will be included within next year's finance act but will have temporary statutory effect through the budget resolution procedure from 1 January 2024 until the time that act receives royal assent.