November 2022 / United Kingdom

The Chancellor of the Exchequer, Jeremy Hunt, noted in the Autumn Statement (see United Kingdom-1, News 17 November 2022) that with effect from 1 January 2023, the rate of the energy profits levy will increase to 35%. The levy will apply until March 2028.

The government believes that businesses in the energy sector are making extraordinary profits and therefore the energy profits levy (EPL) has been extended to operate until the end of March 2028, with a rate increased from 25% to 35% from 1 January 2023. The levy (commonly called a "windfall tax") applies to profits generated by oil and gas exploration and production companies. It was introduced in May 2022, because oil and gas prices had risen following the Russian invasion of Ukraine.

The increased EPL will apply in addition to the 40% tax already being paid by oil and gas companies, which consists of:

• the 30% ring fence corporation tax on profits from exploration and production in the UK; and
• the 10% supplementary charge on adjusted ring-fence profits, excluding finance costs.

Consequently, a total rate of 75% will apply from 1 January 2023. Furthermore, previous losses or decommissioning expenditure cannot be set against profits subject to the EPL.

Since the levy is rising from 25% to 35%, the previous 80% EPL investment allowance will be reduced to 29% so, when combined with the 100% first year capital allowance eligibility, the overall relief for expenditure will remain substantially the same. In fact, to support the government's net zero strategy, there is an 80% investment allowance for decarbonization expenditure. This will mean that for every GBP 100 spent on such costs, total tax relief of GBP 109.25 will be obtained.

The government had previously stated that if oil and gas prices return to historically more normal levels, the EPL would be phased out. However, it now says that this will not happen before the planned end date of March 2028, saying that this will give "companies greater certainty to plan their investments".

The UK Treasury has confirmed with the publication of order SI 2022/1147 (the Order) that a new version of the international transfer pricing guidelines is to be used when implementing national transfer pricing legislation.

The Organisation for Economic Co-operation and Development (OECD) published a new version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 in January 2022. The guidelines are now to be used by the United Kingdom's tax authority, His Majesty's Revenue and Customs, for the purposes of the definition of "the transfer pricing guidelines" in section 164(4)(a) of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010). The new guidelines will be brought into effect by The Taxation (International and Other Provisions) Act 2010 Transfer Pricing Guidelines Designation Order SI 2022/1147.

The Order comes into effect for accounting periods beginning on or after 1 January 2023 for corporation tax purposes and from 6 April 2023 (the start of the 2023/24 tax year) for income tax purposes.

Transfer pricing rules are based on the arm's length principle. Similarly, the United Kingdom's transfer pricing rules operate by comparing the transactions between connected parties with those that would have been made between independent parties.

Prices are rising around the world, made worse by Putin’s war in Ukraine, and shops and businesses are facing these costs head on.

From 1 April 2023 many businesses will be facing new business rates bills too, following new valuations of their properties to reflect more recent market conditions, as committed to in the government’s review of business rates.

In light of both of these, the government will be taking a number of steps to help rate payers. A package worth £13.6 billion in total.

• Freezing the business rates multiplier for another year to protect businesses from rising inflation, worth £9.3 billion over the next 5 years
• An extended and increased relief for retail, hospitality and leisure businesses worth almost £2.1 billion. This is the most generous in year business rates relief in over 30 years, outside of Covid-19 support.
• Reforming Transitional Relief so for businesses seeing lower bills as a result of the revaluation, the government will make sure they benefit from that decrease in full straight away, by abolishing downwards transitional reliefs caps. The government also announced a £1.6 billion scheme to cap bill increases for businesses who will see higher bills as a result of the revaluation.
• Protection for small businesses who lose eligibility for either Small Business or Rural Rate Relief due to new property valuations through a more generous Supporting Small Business scheme worth over £500 million.

This package means that the total increase in business rates bills will be less than 1%, compared to over 20% without intervention. The package as a whole exceeds expectations from stakeholders including business representative organisations, ratings agencies and large retailers.

Protecting high streets from rising inflation: freezing the multiplier

• The government is freezing the business rates multiplier for another year (2023-24), saving ratepayers £9.3 billion over the next five years and protecting them from the headwinds of rising global inflation. A key ask from stakeholders, including business representative organisations and ratings agencies.
• Business rates bills for properties are calculated by multiplying the rateable value of a property by either the small business multiplier or the standard multiplier and subtracting any relevant reliefs. Multipliers usually rise with Consumer Price Inflation (CPI) inflation.
• Freezing the business rates multiplier will keep the small business multiplier and standard multiplier at 49.9p and 51.2p respectively – rather than rising to 52.9p and 54.2p.
• This will support all ratepayers, large and small, meaning bills are 6% lower than without the freeze.
• For a restaurant chain with 400 restaurants with a rateable value of £45,000 each, that means support worth around £2.7 million over the next 5 years.

Protecting high streets from rising inflation: extended and increased business rates relief for retail, hospitality and leisure

• To support high street properties the government is extending and increasing the Retail, Hospitality and Leisure relief scheme from 50% to 75% for 2023-24, up to £110,000 per business. This surpasses the ask of the main business representative bodies.
• This means an estimated 230,000 business properties will get a £2.1 billion tax cut next year.
• A typical small shop with a rateable value increasing from £20,000 in 2017 to £21,500 in 2023 will receive RHL relief worth around £8,000 (subject to the £110k cash cap per business).
• A typical pub with a rateable value decreasing from £31,900 in 2017 to £27,600 in 2023 will receive RHL relief worth over £10,300 (subject to the £110,000 cash cap per business).
• A small property in the retail, hospitality or leisure sectors eligible for the Supporting Small Business Scheme will not see an increase greater than £150 per year, equivalent to £12.50 per month.
• Chains that reach the £110,000 cash cap on relief can also still benefit from the multiplier freeze and transitional relief.

Addressing the ‘Bricks v Clicks’ tax imbalance: reforming Transitional Relief

• Transitional relief supports ratepayers facing large increases in their business rates bills as a result of a revaluation. Previous schemes to help protect ratepayers facing bill increases were funded by capping the reduction of those with falling bills (‘downwards caps’).
• At Autumn Statement 2022 the government announced that it will make sure that for businesses who see a declining business rates bill as a result of the revaluation will benefit from the full decrease straight away. The government is permanently removing downward caps, a longstanding ask from business representative organisations, ratings agencies and other stakeholders. For April 2023’s revaluation this benefits 300,000 business properties.
• This helps to address the tax burden imbalance between online retailers and bricks and mortar sales. Total business rates paid by the retail sector is estimated to fall by 20%, but will rise 27% for large distribution warehouses to reflect the growth in the online sales sector.
• Physical shops on the high street who are seeing a fall in bills, will therefore get the full reduction, as a result of transition relief reforms, whilst online marketplace warehouses will pay higher bills, as a result of the revaluation.
• At Autumn Statement 2022, the government also announced a new three-year Exchequer funded Transitional Relief scheme worth £1.6 billion, to keep bills manageable for around 700,000 properties adapt to their new bills from April 2023 through capping their increases.
• The government will limit bill increases to 5% next year for around 500,000 small properties and is providing significantly more generous support for large businesses than under the 2017 scheme. Transitional Relief means that only 9% of properties in England will see bill increases greater than 15% in 2023-24.
• Transitional Relief will cap bill increases to a set percentage each year before other reliefs and supplements:

These caps are year on year increases. All caps are before other reliefs, supplements and, in years 2 and 3, inflation. Actual bill changes may vary.

• Following the recent consultation on an Online Sales Tax (OST), the government has decided not to introduce such a tax. The idea of an OST was put forward by certain stakeholders to “rebalance” the business rates bills paid by in-store retailers in comparison to their online counterparts.
• The government’s decision reflects concerns raised about an OST’s complexity and the risk of creating unintended distortion or unfair outcomes between different business models. Stakeholders also expected it would lead to higher prices for consumers.
• A response to the Online Sales Tax consultation will be published shortly.

Addressing the ‘Bricks v Clicks’ tax imbalance: the business rates revaluation

• At revaluation, the Valuation Office Agency (VOA) adjusts the rateable value of business properties to reflect changes in the property market.
• The next revaluation will come into effect on 1 April 2023, based on property values from 1 April 2021.
• The last revaluation was in April 2017, based on a valuation date of April 2015.
• This means that some business rates bills will decrease whilst others increase, dependent on the rateable value of the property.
• Businesses have been clear that this delayed revaluation is necessary to update business rates from 2015 property values.

Helping small businesses transition to new bills

• The government is also protecting small businesses that, due to the revaluation, will lose their eligibility for either Small Business or Rural Rate Relief (SBRR or RRR).
• The Supporting Small Business (SSB) scheme will provide over £500 million in support over the next 3 years to cap bill increases at £50 per month (£600 per year) for an estimated 80,000 properties at the 2023 revaluation.
• Together with the Retail, Hospitality and Leisure relief, no eligible small retail, hospitality or leisure business losing eligibility for SBRR will see an increase in bills greater than £12.50 per month in 2023 (£150 per year).

Further background

• Ratepayers in England will be able to see the future rateable value for their property and get an estimate of what their business rates bill may be from 1 April 2023 through the Find a Business Rates Valuation Service: https://www.gov.uk/find-business-rates
• Business rates are devolved in Scotland, Wales and Northern Ireland. They will receive Barnett consequentials in the usual way.
• Autumn Statement 2022’s business rates package follows the conclusion to the government’s review business rates in 2021, where the government committed to reform the business rates system by delivering more frequent business rates revaluations and new reliefs to help properties go green. Read the conclusion to the government’s review of business rates.

Document

Stamp Duty Land Tax — temporary increase to thresholds

This tax information and impact note explains the temporary increases to the nil-rate bands for Stamp Duty Land Tax on residential property and to the amount that a First Time Buyer may pay while qualifying for relief.

Details 

This document gives information about the changes and the impacts in the reduction of Stamp Duty Land Tax by temporarily increasing the:

• residential nil-rate threshold from £125,000 to £250,000
• nil-rate threshold for First Time Buyers’ Relief from £300,000 to £425,000
• maximum amount that an individual can pay for a home while remaining eligible for First Time Buyers’ Relief, from £500,000 to £625,000

The change will apply from 23 September 2022 to 31 March 2025.