Introduction
Budget 2024 introduces significant tax shifts aimed at stabilising the economy and filling a £40 billion funding gap. This year’s budget includes higher employer national insurance rates, increases in capital gains tax (CGT), and changes to inheritance tax (IHT). Below is a breakdown of the primary tax changes and their potential implications for businesses.
Employer National Insurance and New Thresholds
From April 2025, employer national insurance contributions will rise by 1.2%, increasing the rate to 15%. This adjustment is accompanied by a decrease in the secondary threshold, lowered from £9,100 to £5,000. While increased employment allowance, now set at £10,500, may offset some costs, small and medium enterprises (SMEs) are likely to feel a more significant impact as payroll expenses grow.
Capital Gains Tax and Inheritance Tax Reforms
Capital gains tax is also subject to adjustments, with the lower rate increasing from 10% to 18% and the higher rate rising from 20% to 24%. Property rates will remain at 18% and 24% for lower and higher categories, respectively.
Additionally, inheritance tax will include inherited pensions from April 2027, impacting legacy inheritance planning. This budget also reaffirms a freeze on IHT until 2030, affecting estates nearing the current £325,000 threshold.
Abolition of the Non-Dom Tax Regime
A significant change in this budget is the abolition of the non-dom regime. From April 2025, the UK tax system will switch to a residence-based approach. This shift may impact high-net-worth individuals with international ties but is aimed at creating fairer tax obligations for all residents.
Unfreezing of Personal Tax Thresholds
Contrary to pre-budget speculation, personal tax thresholds will unfreeze by 2028, with adjustments aligned to inflation. This change provides some relief for individuals, as tax brackets will adjust to inflation rates after years of freezing.
Changes in Business Asset Disposal Relief
The Budget keeps business asset disposal relief at a 10% rate for now, but plans are in place to raise it to 14% in April 2025 and 18% by 2026. This gradual increase could impact business owners looking to sell assets, as future profits may face higher taxes.
Updates to VAT and Living Wage
The national living wage will increase from £11.44 to £12.21 starting April 2025, directly impacting payroll costs for businesses. Retail, hospitality, and leisure businesses, however, will benefit from a 40% relief on business rates, capped at £110,000. Additionally, VAT on private school fees is confirmed, potentially increasing private education costs
Impact on the Energy Sector
The energy profits levy for oil and gas companies rises to 38%. These changes reflect a broader focus on taxing sectors with significant profit margins.
HMRC Modernisation and Compliance Efforts
The government plans significant investment in HMRC. This will include technology upgrades and additional staff to ensure taxpayers meet obligations. A clampdown on umbrella companies and stricter interest on unpaid tax debts is expected to close the tax gap and raise £6.5 billion.
Long-Term Economic Stability
With this Budget, the Chancellor aims to bring stability, offering businesses time to adjust before the next fiscal event. By implementing only one tax-changing budget annually, the government hopes to provide certainty for long-term planning.
Outlook
Budget 2024 introduces tax changes to help address the public finance deficit and bring stability to the UK economy. Businesses, particularly in sectors facing new levies, will need to prepare for increased costs. The emphasis on fair taxation and stable growth may take time to impact the economy, but businesses have a year to adapt before further tax changes. Budget 2024 is an opportunity for businesses to adjust financial plans, strategies and prepare for a new economic landscape.
Sources
https://www.morningstar.co.uk/uk/news/256633/autumn-budget-2024-what-to-expect-.aspx