Wednesday’s Budget is intended to raise a staggering £40 billion in taxes. Employers will pay the brunt of this through the increase in National Insurance contributions (NICs) next April which is expected to raise £24 billion alone. Allied with the increase in the National Living Wage, this is a heavy burden on employers and could well impact on investment and growth which are supposedly the overall aims of the Budget. Time will tell whether the potential for growth has been strangled from the outset but meantime our analysis of Wednesday’s other announcements follows.
Significant changes intended to raise funds will apply to personal capital taxes. Whilst in most cases the pre- Budget scaremongering did not become reality, the Inheritance tax (IHT) changes, in particular to Business Property (BP) and Agricultural Property Relief (APR), could well place onerous burdens on many family businesses who will have to raise funds based on ill-liquid assets to pay taxes.
Inherited pensions are also to fall within the IHT regime from April 2027 and Capital Gains Tax (CGT) rates are to rise, some with immediate effect. The Chancellor also confirmed the well publicised introduction of VAT on private school fees and the abolishment of the tax regime for non-UK domiciled individuals will go ahead.
The rate of pension tax relief, abolition or reduction of tax free lump sums and NIC on employer pension contributions were supposedly all being considered in the run up to the Budget and have escaped for just now. If the hoped for growth doesn’t materialise don’t rule out these areas becoming targets again.
Depending upon the definition of 'working people,' the Government believes it has met its commitment other than no tax increases for this category of taxpayer. Aside from another relatively substantial increase o the National Living Wage from 6 April next year, there is a little cheer for most taxpayers on the income tax front. One bright spot, albeit well in the future, will be the unfreezing of the thresholds on Income Tax and employee NICs from 2028, whilst the cut in Fuel Duty is extended for another year but it does mean 'fiscal drag' is with us for a few more years yet.
All of the above is meant to be the start of the process that will involve a decade of ‘national renewal,’ with increased funding for schools and the NHS. With responsibility resting with the Scottish Government for these sectors, the Barnett Formula should reportedly produce extra funds of £3.4 billion to the Scottish Parliament. However, we will need to await the Scottish Budget in December to find out what this actually means for the users of the devolved services in Scotland.
For once this is an area where there was little or no change. Details of the allowances, tax rates and thresholds and the limits for pensions and savings etc. can be found here: https://msactax.co.uk/news/october-2024-budget-tax-bands-and-rates-pensions-and-isas/
The High Income Child Benefit Charge (HICBC) is a tax charge that applies to higher earners who receive Child Benefit or whose partner receives it and it had been announced previously that changes to the way this tax charge would be applied. However, the Government will now not proceed with the reform to base HICBC on household incomes.
As announced, previously significant changes are being made to the tax regime relating to non-UK domiciled individuals. Broadly, from 6 April 2025, changes will be made to replace the remittance basis of taxation, which is based on domicile status, with a new tax regime based on residence. This new system will provide 100% relief on foreign income and gains for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the ten consecutive years prior to their arrival.
The protection from tax on foreign income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four-year foreign income and gains regime.
Transitionally, for CGT purposes, current and past remittance basis users will be able to rebase foreign assets they held on 5 April 2017 to their value at that date when they dispose of them.
Any foreign income and gains that arose on or before 5 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK under the current rules. This includes remittances by those who are eligible for the new four-year foreign income and gains regime.
A Temporary Repatriation Facility (the Facility) will be available for individuals who have previously claimed the remittance basis. They will be able to designate and remit, at a reduced rate, foreign income and gains that arose prior to the changes. The Facility will be available for a limited period of three tax years, beginning from 6 April 2025. The Facility rate will be 12% for the first two years and 15% in the final tax year of operation.
The current domicile-based system of IHT will be replaced with a new residence-based system, which will affect the scope of non-UK property brought into UK IHT for individuals and trusts.
Overseas Workday Relief will be extended to four years to align with the new four-year foreign income and gains regime and will be subject to a financial limit on the amount of relief that can be claimed, namely the lower of £300,000 or 30% of an individual’s total employment income.
This is where the major fund raising measure in this budget is targeted but not, directly at least, for employees. The rates are set out below.
From 6 April 2024, the main rate of Class 1 employee NICs is 8%, so no change, but the same can’t be said for employers as the government announced that it will increase the employer rate from 13.8% to 15% from 6 April 2025.
If that wasn’t bad enough, the Secondary Threshold, which is the point at which employers become liable to pay NICs on an individual employee’s earnings and is currently set at £9,100 a year, but from 6 April 2025 until 6 April 2028, the Secondary Threshold will reduce to £5,000 a year and then increase by the Consumer Price Index (CPI). This is a cost of £615 per employee.
For some smaller employers, this blow will be softened by an increase in the Employment Allowance. Currently this is available to businesses with employer NIC bills of £100,000 or less in the previous tax year and enables them to deduct £5,000 from their employer NIC bills. From 6 April 2025, the government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NIC bills. For larger employers, it is fair to say this increase will be a drop in the ocean compared to the extra costs incurred.
The rates of Class 4 self-employed NICs are 6% and 2% and these will continue from 6 April 2025.
For Class 2 NICs from 6 April 2024:
The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) by the September 2024 CPI rate of 1.7% from 6 April 2025. For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs by 1.7%. The LEL will be £6,500 per annum (£125 per week) and the SPT will be £6,845 per annum. The main Class 2 rate will be £3.50 per week and the Class 3 rate will be £17.75 per week.
Another expensive hit for employers is the announcement of increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2025. The rates which will apply are as follows:
| NLW | 18-20 | 16-17 | Apprentices | |
| From 1 April 2025 | £12.21 | £10.00 | £7.55 | £7.55 |
The apprenticeship rate applies to apprentices aged under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.
The rates of tax for company cars are amended for 2025/26:
The government has confirmed increases to the benefit in kind rates for company cars for tax years up to and including the year ending 5 April 2030 with those driving hybrid cars facing a major tax hike.
The government will uprate the car fuel benefit charge by CPI from 6 April 2025.
The government has returned with another measure that will treat double cab pick-up vehicles (DCPUs) with a payload of one tonne or more as cars for certain tax purposes. This was initially introduced last year but withdrawn within a week. It now looks as though it is here to stay.
From 1 April 2025 for Corporation Tax, and 6 April 2025 for Income Tax, DCPUs will be treated as cars for the purposes of capital allowances, benefits in kind and some deductions from business profits.
The existing capital allowances treatment will apply to those who purchase DCPUs before April 2025. Transitional benefit in kind arrangements will apply for employers that have purchased, leased, or ordered a DCPU before 6 April 2025. They will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.
The government will uprate the Van Benefit Charge and the Van Fuel Benefit Charges by CPI from 6 April 2025.
The government confirms that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2026. This will apply to income tax and Class 1A NICs.
To tackle the continued high levels of tax avoidance and fraud in the umbrella company market, the government will make recruitment agencies responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies. Where there is no agency, the responsibility will fall to the end client business.
This will take effect from April 2026 to protect workers from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.
A manifesto promise kept, as Corporation Tax (CT) will remain unchanged, which means that, from April 2025 companies with profits over £250,000 will pay 25%. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at 25% reduced by marginal relief.
Comment |
| There is a commitment that there will be no increase in the main rate of CT at 25% for the duration of the Parliament. |
Full Expensing rules for companies (only) allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long life assets at a rate of 50%. This can be a valuable relief for larger companies making major investments in qualifying assets.
The Annual Investment Allowance is unchanged at £1 million. Unlike full expensing these allowances are available to both incorporated and unincorporated businesses and gives a 100% write-off on qualifying assets.
The 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle chargepoints have been extended to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes.
There was no secret that CGT rates were going up and if truth be told, whilst no increase is welcome the new rates effective from 30 October are probably much less than expected. For disposals except carried interest, the basic rate will increase to 18% and 24% for higher rate, an increase from 10% and 20% respectively.
No changes will be made to the rates applying to the disposal of residential properties, which remain 18% and 24%.
The rate applying to trustees and personal representatives will increase from 20% to 24% from the same date.
The annual exempt amount will remain at £3,000 for the year ended 5 April 2026.
The rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025. The rate will increase again to 18% for disposals made on or after 6 April 2026.
In addition, the lifetime limit for Investors’ Relief will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. This limit takes into account any prior qualifying gains where the relief was claimed and so reduces considerably the attractiveness of this type of investment.
After what seems intense lobbying by the private equity sector, the rates that apply to carried interest of 18% and 28% will increase to a flat rate of 32% which was much less than originally forecast. This will apply to carried interest arising to an individual on or after 6 April 2025.
From April 2026, all carried interest will be taxed within the income tax framework. A multiplier of 72.5% will be applied to any qualifying interest brought within the charge.
The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to Qualifying Recognised Overseas Pension Schemes (QROPS), unless an exclusion from the charge applies. Transfers to QROPS established in the EEA and Gibraltar were included within the exclusion but this advantageous treatment will no longer apply for such transfers made on or after 30 October 2024.
The nil rate band has been frozen at £325,000 since 2009 and this will continue up to 5 April 2030. An additional nil rate band, called the ‘residence nil rate band’ is also frozen at the current £175,000 level, as is the residence nil rate band taper starting at £2 million. These are also frozen until 5 April 2030.
The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for IHT purposes from 6 April 2027. Currently, the existing legislation on the taxation of pensions ‘inherited’ from those aged over 75 are liable to income tax and there was no comment in the Budget on this being removed, meaning that in theory, double taxation could apply. There is, however, a consultation document on this change and it would be anticipated that double taxation will be removed.
Comment |
| Although this change will not apply until April 2027, it is important that the question of double tax on pension funds is clarified urgently, so that those with pension funds know where they stand. |
From 6 April 2026, agricultural and business property will continue to benefit from the 100% Inheritance Tax relief up to a limit of £1 million. The limit is a combined limit for both agricultural and business property. Property in excess of the limit will benefit from a 50% relief, as will, in all circumstances, quoted shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM.
From 6 April 2025, the existing scope of Agricultural Property Relief will be extended to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.
From 1 April 2025 the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.
Private school fees for education and vocational training will no longer benefit from VAT exemption and will be subject to VAT at the standard rate (20%). The change will apply to terms beginning on or after 1 January 2025 although certain prepayments made after 29 July 2024 will also be included.
The government is committed to delivering Making Tax Digital for Income Tax Self Assessment, which is supposed to start in April 2026. The government will expand the rollout of the programme to those with incomes over £20,000 by the end of this Parliament and will set out the precise timing for this at a future fiscal event.
HMRC has announced a variety of compliance initiatives, which include the following:
