Well, it’s a relief to get the social media and press pre-budget hysteria out of the way. Will we now hear some post-budget hysteria?
Introduction
Before we start, anyone who’s run a business knows that scenario planning and testing is part of the deal.
Running a government is no different, and indeed it’s a standard political tool to ‘leak’ potential changes (financial or otherwise) to test for reaction – in the same way that businesses need to check a potential new product or service with its perceived customer base. There have been far too many noisy worst-case assumptions from commentators who should know better.
We’ve kept out of that this time around.
So was it the great reset?
Yes…but.
A big part of todays announcements were about the ‘spend’, not just the ‘tax’. I’m sure we can all agree that public services – NHS, education, the justice system, transport and (veering further into the private domain) long term water management and food security, all have, let’s say, room for improvement. There’s no argument that extra cash is part of the solution.
Of course there are substantial tax increases in there, of course it hurts, but it feels relatively balanced and nowhere near the Armageddon predicted.
Some of us will get hit harder than others, and it’s particularly hard on employers, but that’s the nature of the beast. As always, basing commercial decisions on decent strategic and financial planning is the way forward. Your Blu Sky Client Director can, of course, help you here.
As usual, we’ll leave the macro-economics for other commentators. Together myself and Head of Tax Adrian O’Connell, have covered everything you need to know. On with the show!
Autumn Budget 2024 Impact on Employers:
We’ll start with the two big ‘job tax’ changes – changes to the national minimum wage (NMW) and increases in employers national insurance (NI).
NMW will rise to £12.21 per hour – a 6.7% increase – from April 2025. That’s a 20% increase in two years. For 18–20-year-olds it will rise a more mind-boggling 16% from £8.60 to £10. These are Low Pay Commission recommendations fully accepted by the Treasury.
Whilst we’re sure no-one will disagree with the need for, and social benefit of, an NMW increase, vacancies in the UK have declined now for a record 27th month on the trot according to Reed.
Regardless of ‘ringfencing’ workers from any tax changes, the potentially substantive rise in employer costs, taken alongside the Workers Rights Bill, will surely not help this turn around – although the hidden benefit will (we hope) be to encourage businesses to be more innovative and profitable with the resources they already have.
NMW payers are unlikely to be able to do so though, as the changes will disproportionately impact on hospitality businesses. Expect your pint (regardless of the 1p duty cut) or cheeky Nando’s to be more expensive next year.
The Employers NI rate will increase from 13.8% to 15% from April. The Secondary threshold (the point at which it kicks in) reduces – almost halves – from £9,100 a year (£758 a month) to £5,000 (£416 a month). BUT to sugar coat these increases for the smaller businesses, the employment allowance (i.e. a discount on your Employers NI bill) more than doubles from £5k a year to £10,500.
The Federation of Small Businesses (FSB) have declared themselves not unhappy with this, suggesting that a business with four FTEs on NMW will have no employers NI to pay. Their figures not ours.
The Chartered Institute of Taxation (CIOT) are less happy though: “We are concerned that the increase in employers’ NI could lead to an increase in ‘false self-employment’, where businesses trying to save money turn to arrangements where the worker is not directly employed by them, without necessarily appreciating the rules and risks of such arrangements.”
Despite previous rumours, Employers NI was NOT extended to employers pension contributions.
Other Business Taxes:
We’ll start with what didn’t happen. No change to Corporation Tax Rates, reliefs (including marginal relief), full expensing and allowances. There is no change to the R&D tax credit scheme in its current guise.
There’s no change to Fuel duty, with the duty again frozen for a further year and, against all betting, the temporary 5p cut extended for a further year.
Business Rates have had a little attention, with two new permanent lower business rate multipliers for Retail, hospitality and leisure (RHL) businesses from 2026/27. Temporary reliefs end next year so 40% discount for most hospitality reliefs. The small business multiplier remains frozen.
We think it’s about time the whole business rates regime was completely scrapped and reinvented in our opinion. It feels like no-one is brave enough to tackle this.
Quickly back to R&D and other innovation reliefs. The government will discuss widening the use of advance clearances in research & development reliefs with stakeholders, with the intention to consult on lead options in spring 2025 (when released for consultancy, we can comment).
The government has also published a document setting out further information on the scale and characteristics of error and fraud in R&D claims up to 2023-24, the policy and operational changes that have been made to address this, and further data on customer experience.
Interesting to see that the number of SME scheme claims reduced by 23% from 2021/22 to 2022/23. Total claims in 2022/23 were £7.5bn, with HMRCs estimate that the overall level of error and fraud was £1.3bn or just short of 18%. Their Random Enquiry Program shows that in 2021/22 around half of SME claims were non-compliant in part or in full.
Finally, and related, the Audio-Visual Expenditure Credit (AVEC) will be enhanced from 34% to 39% for qualifying expenditure and companies from 1st January.
Autumn Budget 2024 Impact on Founders:
There had been a lot of speculation leading up to today’s Budget about whether or not Business Asset Disposal Relief (‘BADR’) would still exist in future.
This is a well known tax relief that is targeted at owners of 5% or more of the share capital of unquoted, trading businesses, and was originally intended to incentivise business founders, although the impact of this in recent years has possibly diminished as more and more modifications have been made to the qualifying criteria and the level of lifetime gains that qualify.
Whilst there is some good news that this relief has not been abolished, and the lifetime limit will remain at £1m, this is tempered by the fact that the rate of CGT that applies to qualifying disposals is to increase to 14% from 6 April 2025 and to 18% from 6 April 2026, in keeping with the changes made to Investors Relief.
The changes will also potentially affect employees in approved company share option schemes (specifically the EMI scheme) on exit. The devil will be in the legislative detail.
The government will ensure shareholders cannot extract funds untaxed from closed companies by legislating to remove opportunities to side-step the anti-avoidance rules attached to the loans to participators regime. This change will apply from 30 October 2024.
The government will also increase collaboration between HMRC, Companies House, and the Insolvency Service to tackle those using contrived corporate insolvencies and dissolutions, often referred to as “phoenixism”, to evade tax.
Autumn Budget 2024 Impact on Investors:
As forecasted, today has seen some significant tax changes for those of you who like to invest, particularly in terms of Capital Gains Tax (CGT) and Inheritance Tax (IHT).
The headline rates of CGT for individuals will be increasing across the board with immediate effect, although this is perhaps not as drastic as had been speculated in some quarters.
The basic rate of CGT has increased with immediate effect from 10% to 18%, and the higher rate has increased from 20% to 24%. However, there is no change to the rates charged on disposals of residential property, which remains at 18% (basic rate) / 24% (higher rate).
Those of you with shares in companies that are listed on the Alternative Investment Market (‘AIM’) will need to consider the IHT impact of today’s announcements.
From 6 April 2026, the potential rate of IHT relief on AIM shares will fall from 100% to 50%, resulting in an overall IHT rate of 20% on the chargeable value of the shares. Historically we have seen these types of investments held by individuals of a certain age as a strategy to mitigate IHT, but we may now see a change of investment strategy and behaviour in this space.
Investors Relief, which currently enables a 10% rate of CGT to be charged on capital gains from qualifying disposals, is subject to a lifetime limit of £10m.
However, with immediate effect, the lifetime limit has been reduced to £1m. In addition, the 10% rate will rise to 14% from 6 April 2025 and to 18% from 6 April 2026. Whist this is perhaps not a relief that has been as widely used as Business Asset Disposal Relief (‘BADR’) which follows the same rates and timelines, it will be disappointing news for angel-type investors, given the other CGT changes announced today.
The 3% surcharge that is currently levied on owners of second homes is to increase from 31st October to 5%, deliberately giving first time buyers or movers a comparative advantage and to stimulate more activity in the residential property market. This will also be suffered by non-UK residents purchasing additional property.
On the positive side, it was recently announced that the Enterprise Investment Scheme (‘EIS’) and the Venture Capital Trust (‘VCT’) scheme, which are government approved tax reliefs available to support investment in early stage and high-growth businesses, have both been extended by ten years to 5 April 2035.
Both schemes provide generous tax reliefs to mitigate the investment risk associated with early stage / high-risk businesses and so it is reassuring that these will continue for the medium term, as a minimum.
The rates of Income Tax charged on dividends has not changed and so dividend income will continue to benefit from lower rates of tax when compared to earned income.
Budget 2024 Impact on Employees:
From an employee perspective, today’s Budget was positive in a number of respects. Whilst the current Income Tax thresholds have been frozen until April 2028, which is often described as a ‘stealth tax’, it was confirmed that from April 2028 these thresholds will be uprated in line with inflation.
There were also changes made to the National Minimum Wage (‘NMW’) and the National Living Wage (‘NLW’). From April 2025 the NMW which applies to 18-20 year olds will rise to £10 an hour (a 16.3% increase). Not quite so dramatically, the NLW will increase by 6.7% to £12.21 per hour at the same time.
Employers have been asked to bear the NIC burden today but there are no changes in this respect for employees, who will continue to suffer NIC at existing rates.
Changes to the tax treatment of Electric Vehicles (‘EV’s) was also expected, given the need by the Chancellor to raise funds and the impact that the minimal benefit-in-kind rates charged on EV’s has been having on the tax take.
Nonetheless, existing rates will continue in the short term with 2% increases not being introduced until the 2028/29 and 2029/30 tax years. Non-electric vehicles benefit rate will increase by 1% per annum in those years, with a maximum percentage of 38% in 2028/29 and 29% the following year.
The above is in addition to a number of reforms that the Government will introduce in terms of employment rights, such as the right to protection from unfair dismissal from day one of a job rather than the existing two years, and a focus on flexible working where practical. Whilst this is good news for employees, your boss may be a bit grumpy as a result!
What it means for you, the individual:
There were a number of general announcements made today, across the main direct taxes, that could impact you as an individual. However, the brunt of this is likely to be felt by wealthier taxpayers.
Starting with Inheritance Tax (IHT), from 6 April 2027 the value of unused pension funds or any death benefits payable from a pension will be brought into a person’s estate. The rationale to this being that pensions should not be a vehicle to accumulate capital sums for the purpose of inheritance, as was viewed as being the case prior to pension reforms introduced in April 2015.
Sticking with IHT, valuable reliefs that have been available historically on the full value of business property (often shares in unquoted, trading companies) or agricultural property will be restricted to a combined value of £1m. After this, relief will only be available at 50%, meaning that some thought will need to be given as to how such future liabilities will be funded on death.
At the same time, the current ‘standard’ IHT threshold will remain frozen until 2030. Therefore the first £325,000 of a person’s IHT estate will suffer no charge to IHT.
The residential main rate band will also be available to those that qualify, providing further relief to an estate of up to £175,000. The Chancellor also highlighted the ability for spouses or civil partners to continue to benefit from unused rate bands of their pre-deceased partner.
If you want to know more about how UK IHT compares to that of other countries – we find this stuff quite interesting! – have a peek at a short blog from our friends at Co-Navigate here.
We have already commented on the CGT changes announced above but, interestingly, the Budget documents implied that this is a tax that is paid by less than 1% of the taxpayer population.
A major, but trailed, announcement was in respect of Non-Domiciles and the abolishment of the concept of Domicile from April 2025. Instead those that come to the UK will not suffer any UK tax on foreign income and gains in their first four years of UK residence.
They will also bring in measures to encourage taxpayers to bring their offshore wealth into the UK within the first three years of becoming resident. However, from the fifth year of UK residence, you will suffer UK tax on worldwide income and gains.
Sticking with Income Tax, for those of you with children who decide to claim Child Benefit there was some surprise that the Government have decided not to move forward with reforms to the current system and to base any future tax charge on household incomes.
This being the case, where possible, you may wish to manage your taxable income to enable you to benefit from claiming Child Benefit without suffering a corresponding tax charge. It was also announced, as part of HMRC’s vision on digitalizing tax, that employed individuals will be allowed to pay their High Income Child Benefit Charge through their tax code from 2025 and will also pre-populate Self Assessment tax returns with Child Benefit data for those not using the tax code route.
As an aside, income tax was introduced in 1799 to help pay for the Napoleonic Wars. For over 200 years it’s been based on individual income only – everyone’s financial affairs are private between them and the Treasury, until 2013 when the HICBC was introduced. Only saying.
There was also some good news as no changes were announced to restrict the rate of tax relief on personal pension contributions, nor any further restriction to the tax-free lump sum that can be taken from private pensions. In addition, no reference was made to bringing in a Wealth Tax. Current subscription limits will remain for ISA’s, Lifetime ISA’s, Junior ISA’s and Child Trust Funds.
More pre-budget myths debunked.
For any of our Pensioner clients, you’ll be pleased to hear that the Government are committed to maintaining the State Pension triple lock for the duration of this Parliament. This will see the State Pension rising by 4.1% from April 2025.
HMRC
There were numerous references in the Chancellor’s speech today, and the supporting Budget documentation, to ‘closing the tax gap’. This plays out in a number of ways, including changes to tax policy, increasing investment in HMRC to modernise but also increasing its headcount, potentially changing some ways in which agents interact with HMRC, and consulting on the overall Tax Administration Framework, amongst others. Headlines include:
- Recruiting an additional 5,000 compliance staff over the next five years, raising an additional £2.7bn per year by 2029/30;
- Updating HMRC’s app to allow Self Assessment taxpayers to make voluntary, advance payments of Income Tax in instalments (this must have been first mooted over ten years ago);
- Digitalise the IHT service from 2027/28 to make filing of IHT returns and payment of tax simpler and quicker;
- Expanding the rollout of Making Tax Digital to those with incomes over £20,000 by the end of this Parliament;
- A consultation on enhancing HMRC’s powers and sanctions against non-compliance facilitated by tax advisers, to include the registration of tax advisers with HMRC;
- A consultation on simplifying the taxation of offshore interest and potentially moving towards taxing non-UK interest on a calendar year basis;
- Committing additional resource, and scaling up compliance activity, to tackle serious offshore non-compliance by some wealthy taxpayers; and
- Continued and increasing focus on the promoters of marketed tax avoidance.
Closing the tax gap is one of three strategic priorities for HMRC, the others being modernisation and reform, and improving customer service, with an admission that only two-thirds of phone calls to HMRC where taxpayers wanted to speak to an advisor were answered last year. It will be interesting to see how successful this government can be in reforming HMRC, as there is certainly a lot of work to do to meet their ambition.
So they are taking an extra £40bn a year, what do we get for this?
By the nature of this document this is a brief summary. For full details have a look at the treasury documents.
The government is providing an additional £22.6 billion of resource spending in 2025-26, compared to 2023-24 outturn, for the Department of Health and Social Care. This will support the NHS in England to deliver an additional 40,000 elective appointments a week and make progress towards the commitment that patients should expect to wait no longer than 18 weeks from referral to consultant-led treatment.
The government is also investing £1.4 billion to help rebuild schools, £1.2 billion to deliver extra prison places, and almost £1.6 billion in local roads maintenance.
Pothole-free roads? We’ll believe it when we drive it.
The cash will support recruitment of 6,500 new teachers in England through a £2.3 billion increase to the core schools budget, launch ‘Great British Energy’ and help initiate a new Border Security Command
There’s an intended crackdown on antisocial behaviour by supporting neighbourhood policing.
There’s extra funding to speed up compensation for individuals affected by the Infected blood Scandal and Post Office Horizon scandal.
The MOD will receive an extra £3bn – not surprising in todays geopolitical environment – and an extra £2.2bn will go to Ukraine, repaid by interest on immobilized Russian assets.
The Office for Value for Money (OVfM) is launched. As a first step, the Chair will advise on decisions for Phase 2 of the Spending Review. This will include conducting an assessment of where and how to root out waste and inefficiency, undertaking value for money studies in specific high-risk areas of cross-departmental spending, and scrutinising investment proposals to ensure they offer value for money
A Covid Corruption Commissioner will shortly be appointed. Form a queue here with your application! The Commissioner will lead work to recover public funds from companies that took “unfair advantage” of government schemes during the COVID-19 pandemic.
An additional £1.9 billion will go to the Ministry of Justice (MoJ) in 2025-26 – an average real terms increase of 5.6% each year from 2023-24 to 2025-26. Total Home Office (HO) funding will increase from £20.3 billion in 2023-24 to £22.1 billion in 2025-26 supporting front line police and PCSO services.
What are seen as record levels of R&D investment will be protected, with £20.4 billion allocated in 2025-26. Over £500 million will go to deliver Project Gigabit and a Shared Rural Network to drive the rollout of digital infrastructure to underserved parts of the UK, including delivering full gigabit broadband coverage by 2030. Personal experience tells us that the UK is still a third world country as far as broadband is concerned.
Finally, the Government Communications Service is expecting to save £85 million from reducing unnecessary communications spend – We think they spend this much just sending little old Blu Sky unnecessary postal comms on a daily basis.
