We’re heading very quickly towards the next election – will it be as early as May? Tradition dictates that the last budget before an election is politically loaded, and boy, does the current government need some help in the polls.
Executive summary
It’s only 4 months since the Autumn Statement – ‘a budget for growth’ – that has finally helped deliver a ‘technical’ recession. The initial two-point national insurance cut for employees announced and implemented has had no impact on voting intention polls, and frankly, we can’t see today’s announcements making much difference.
Overall, the measures leave around £8bn headroom, around a third of the average since 2010.
It would appear the majority of us would prefer to be able to see a GP, have an ambulance turn up quickly, drive on relatively pothole-free roads or buy a train ticket confident it will turn up, and send our children to school confident the roof won’t fall in on them.
Measures today sound committed to delivering such scenarios, but who doesn’t love a good soundbite?
Enough mischief, let’s see what’s been said and try to understand at this stage what it might mean.
The OBR (Office for Budget Responsibility) forecast that inflation will drop to an average of 2.2% in 2024, no doubt driven by the planned drop in energy prices commencing in April. Bank rate reductions will follow more slowly.
Energy prices may no doubt remain volatile whilst international pressures remains, and this uncertainty follows through in OBR inflation forecasts which cover a wide band from 6% inflation to 1% deflation by 2028.
In other words, and in the words of Queens of the Stone Age, no one knows*. Overall the OBR acknowledges there is a high level of risk in the assumptions made in both the budget and their own paper.
*Just the title, the rest of the lyrics have nothing to do with this.
Over the next few days we’ll be releasing more detailed supplements on R&D tax credit changes, the film and creative industries, and changes to non-dom taxation.
Personal tax
Headlines majored on personal tax announcements of course, which came with some good news!
National Insurance Cuts
The big headline from the budget is the further 2% NIC cut for both Employee and Sole Traders.
The government is cutting the main rate of employee National Insurance by 2p from 10% to 8% from 6 April 2024.
Combined with the 2p cut announced at Autumn Statement 2023, this will save the average worker on £35,400 over £900 a year, but the freeze in tax thresholds, not taking into account the inflation rates, eat into this substantially of course.
Overall, the personal tax cuts announced in the 2023 Autumn Statement and 2024 Spring budget reverse around a half of the total additional tax revenue raised from the freezing of thresholds in 2028-29.
The government is also cutting a further 2p from the main rate of self-employed National Insurance on top of the 1p cut announced at Autumn Statement 2023.
This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6%. Combined with the abolition of the requirement to pay Class 2, this will save an average self-employed person on £28,000 around £650 a year.
Employer NIC rates will remain at the highest level they have been with no change in the upcoming tax year.
There was also no announcement relating to any other personal income tax rates or allowances in the Spring budget with the personal allowance freeze still in place at £12,570 until 2028/29.
Child Benefit Charge
High Income Child Benefit Charge has shown to be a somewhat unfair tax system. It stated that a household with two parents each earning £49,000 a year will receive Child Benefit in full, while a household earning less overall but with one parent earning over £50,000 will see some or all of the benefit withdrawn.
This has been reviewed and the budget announced that the system will move to a household-based system over an individual income system (it’s the first time Income Tax has been assessed on this basis since 1799, does this open the door for other changes of this nature?).
Due to the huge change this reform will bring, this system will not be in place until April 2026.
In the meantime the Chancellor announced an increase to the income threshold, increasing from £50,000 to £60,000.
The rate at which you are required to pay the charge has also been halved, meaning that the child benefit will not be paid back in full until you earn over £80,000.
There are no changes to Inheritance Tax bands or rates, but there’s an easing off in terms of settling the tax (there’s no need to agree a commercial loan) before probate is granted – a stressful situation for those ‘lucky’ enough to be in that situation.
We will be in touch with anyone signed up to our personal tax services to run over the tax rates coming into play for 2024/25 shortly so keep a lookout!
If you wish for a bit of light reading, you can find more in depth discussion on the personal tax changes announced in todays budget by clicking here.
VAT
Only one big announcement for VAT – the threshold to be VAT registered has been increased from £85k to £90k.
This will remove a huge admin burden for smaller companies who fall outside the VAT registration with the new threshold.
However, the EU average is below £30k and in some countries is nil.
A much lower VAT rate would level the playing field and no doubt cut VAT fraud for the many businesses whose revenue will hover in the high 80s. This could be accompanied by something along the French lines where ‘local’ services can apply the reduced rate (5%).
Film and Creative
We seem – rightly – to be pretty proud of our world standing in these industries and the fact that demand is growing.
Sunderland is soon to become the ‘Hollywood of the North’ with the creation of a new film and TV studio at Crown Works.
That was nailed on before todays announcements which included an increase in film tax credit by 5%, and the removal of the 80% expenditure limit.
A new 40% relief from business rates for eligible studios for the next 10 years, a new 53% tax credit for individual film-makers with lower than a £15m budget (other conditions apply!), increasing the rate of tax credit by 5% and removing the 80% cap for visual effects costs in the Audio-Visual Expenditure Credit.
All taken together this amounts to around £1bn in support.
There’s lots to soak up here, we’ll publish a more detailed supplement in the next few days.
Non-doms
Abolishment of the Remittance Basis & Non-Domicile tax regime
The current ‘remittance basis’ scheme will be abolished from April 2025, as will the archaic ‘domicile’ concept.
There are currently around 37,000 ‘non-doms’ taking advantage of the remittance basis who still paid £6bn in 2020-21 – around £170k each (source: Financial Times).
This measure abolishes the remittance basis of taxation for non-UK domiciled individuals and replaces it with a simpler residence-based regime.
Individuals who opt into the new regime will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last 10 years.
This new regime will commence on 6 April 2025 and applies UK-wide.
The government will introduce the following transitional arrangements for existing non-doms claiming the remittance basis:
- an option to rebase the value of capital assets to 5 April 2019
- a temporary 50% exemption for the taxation of foreign income for the first year of the new regime (2025-26)
- a two-year Temporary Repatriation Facility to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.
Overseas workday relief (OWR)
The government will also reform Overseas Workday Relief to be in line with the new residency-based system.
Eligible employees will be able to claim OWR for the first three years of tax residence, benefitting from income tax relief on earnings for employment duties carried out overseas but with current restrictions on remitting these earnings removed.
The details for this are still to be ironed out and we expect more details on the eligibility criteria to be available shortly.
We will be looking at both the Non- Domicile changes, and OWR in more depth in the next few days and will have a more detailed supplement published shortly!
Property Taxation
Furnished Holiday Lets (FHL)
FHLs were first introduced into the UK tax system in 1984, offering a range of different tax advantages for short term lets.
However, in recent years this has caused an imbalance and been a factor in a lack of choice for those looking for long term lets to rent.
In order to combat this issue, it was announced that the government will be abolishing the FHL tax regime from 6 April 2025 (draft legislation is expected to be published shortly), meaning short-term and long-term lets will be treated the same for tax purposes.
Individuals with FHL and non-FHL properties will no longer need to calculate and report income separately and will remove any tax advantages landlords with FHLs had.
Stamp Duty Land Tax (SDLT) – Multiple Dwellings Relief
From 1 June 2024, in England and Northern Ireland, the government is abolishing Multiple Dwellings Relief.
This is a bulk purchase relief in the Stamp Duty Land Tax regime which allowed a lower SDLT to be paid if more than one property was to be purchased in a single transaction.
This abolishment of the Multiple Dwelling Relief follows an external evaluation which showed no strong evidence the relief is meeting its original objectives of supporting investment in the private rented sector.
It will not take effect straight into the new tax year, instead property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024.
Capital Gains Tax (CGT) on Residential Property
The government will implement a change to Capital Gains Tax (CGT) to support the housing market and increase the number of second homes/currently rented properties sold.
The higher rate of CGT for residential property disposals will be cut from 28% to 24% from the 6th April 2024. The lower CGT rate will remain at 18% for any property gains that fall within an individual’s basic rate band.
There is no change to Principal Private Residence Relief however, so there will be no tax due if you are selling your main residence! This CGT rate only applies to second residential properties owned and being sold.
HMRC
Yes, well, he didn’t say much here, but here it is:
Compliance and debt collection measures are strengthened. The highest yielding measure places HMRC tax debt with private sector debt collection agencies using £140 million of additional funding, raising a cumulative £4.3 billion over the forecast period.
Our strong advice is to always treat your tax liabilities as a high priority debt, and if you can’t pay, work with us to agree a payment arrangement with HMRC and avoid the doorstep collection agencies.
There will be simpler access to digital services for those of you who want to pay income tax in advance through a budget payment plan, or in arrears via time to pay. This is planned to start in September 2025.
Customer net promoter score anyone?
From HMRC’s annual customer survey, the government will track the views of small businesses and individuals on the ease of dealing with tax issues, and the ease of finding information.
They will also measure how easy taxpayers found it to deal with HMRC from a survey offered after using HMRC’s telephony or digital services. It’d be interesting to find out the average amount of time taken to get through on the phone.
Also, following representations from the Federation of Small Business, the government will monitor HMRC’s estimate of the net change in the cost to businesses of meeting tax obligations from fiscal event measures.
Other stuff: SMEs & business
Well, 2024 is named ‘the year of the SME’, but poor pickings here.
The Recovery Loan Scheme is to be rebranded the ‘Growth Guarantee Scheme’ and is extended.
There’s a re-announcement of the help for University spin-outs and a consultation on a £20m proof of concept fund.
Fuel duty has been frozen for the 14th year running, and the proposed 5% increase also frozen. There’s been a lot of ‘statistics’ doing the rounds here. The end result is that the price at the pump shouldn’t change other than due to other market forces.
Alcohol duty was due to rise by 3% later this year, the increase has been extended out by 6 months to February 2025. You’ll pay more for tobacco and vape products though.
There’s an additional £2.5 billion of funding for the NHS in England in 2024-25, protecting day-to-day funding levels in real terms and supporting the NHS to continue to improve performance and reduce waiting times.
There appears to be a great drive to ‘modernise’ NHS processes (and those in other public services) which may lead to many exciting opportunities for those offering solutions to the NHS issues. If you’ve not sold to them before, beware, it can take forever….but it might be worth the pain if you have the solution.
Full expensing will apply to leased assets, we just don’t know when. The government will seek to extend full expensing to assets for leasing ‘when fiscal conditions allow’ and will publish draft legislation shortly.
Other stuff: Finance
ISA System Reform
A British equity ISA with a £5k limit will be introduced on top of existing ISA thresholds. No further details at present but it will be launched for the next tax year. There are varying opinions out there on the viability of a UK-only focus for equity savings.
AI Industries
There will be a new £7.4 million upskilling fund aiming to help SMEs develop AI skills of the future, unlocking the new opportunities that AI brings. A task force will investigate how best to support the adoption of digital technology by SMEs to boost their productivity.
The work of the taskforce will support that of the AI Opportunity Forum, which brings pioneering companies together to encourage AI adoption across the private sector to boost productivity, fuel innovation, and deliver growth in all areas of the economy.
This’ll be on top of the many current initiatives around digitisation of businesses.
Crypto-Asset Reporting Framework
The government is launching a consultation to seek views on how best to implement the Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard. As announced on 10 November 2023, these changes will be made in time to ensure that information exchanges take place from 2027.
In summary
Overall, the 2024 budget announcement contains a mixed bag of measures. While some, like the increase in the VAT threshold and the support for the film industry, are welcome, others, such as the freeze on income tax thresholds, may not go far enough to address the cost of living crisis. It remains to be seen whether these measures will be enough to boost the economy and win back voters ahead of the upcoming election.
If you’d like to chat to us about what any of this means in practice for your business, get in touch with your Relationship Director.
