Chancellor Rachel Reeves delivered her Budget on Wednesday 30 October 2024. She pledged to ‘invest, invest, invest’ to drive growth and ‘restore economic stability’. In this article, we will discuss the announcements and how they will affect businesses.
Some of these changes are very narrow in the scope of their application, whilst others, such as the changes to Employers' NIC rates and reliefs and Business Asset Disposal Relief, will be of broader interest.
Billions in tax risesMs Reeves said the Budget will raise £40 billion in taxes to fund the existing spending commitments and additional investment. Employers’ National Insurance contributions (NICs) will be increased from next April while Capital Gains Tax rates will also rise. Inherited pensions will fall within the Inheritance Tax net from April 2027 while reliefs will be reformed on the passing down of agricultural and business assets. The Chancellor also confirmed the introduction of VAT on private school fees and the abolishment of the tax regime for non-UK domiciled individuals. Protecting living standardsMs Reeves said she would protect living standards by unfreezing the thresholds on Income Tax and employee NICs from 2028, and she extended the cut in Fuel Duty for another year. The Chancellor also pledged a decade of ‘national renewal’ with increased funding for schools and the NHS. Further spending announcements included housing, transport and the aerospace and automotive sectors. |
Business Taxes
Corporation Tax rates
The government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2025, the rate will stay at 25% for companies with profits over £250,000. 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 the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.
CommentThe government has published a Corporate Tax Roadmap which outlines their longer term plans for for corporate tax. Within this they committed to capping the main rate of Corporation Tax at 25% for the duration of the Parliament. This is currently the lowest in the G7. |
Capital allowances
The Full Expensing rules for companies allow a 100% relief 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%. The government will explore extending Full Expensing to assets bought for leasing or hiring, when fiscal conditions allow.
The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% relief on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.
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.
Furnished Holiday Lettings
As announced in the Spring Budget the Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. The effect of abolishing the rules will be that FHL properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses. This will apply to individuals, corporates and trusts who operate or sell FHL accommodation.
There are a number of implications from 2025/26 which are detailed below.
- Pensions - individuals will no longer be able to include this income within relevant UK earnings when calculating maximum pension relief.
- Dwelling-related loans - the amount of income tax relief landlords can receive on residential property finance costs is restricted to the basic rate of income tax of 20%.
- Replacement of domestic items - capital allowances will no longer be available for expenditure on new plant and machinery (subject to transitional rules) but instead businesses may claim relief on the replacement of certain items.
- Capital gains - the rules which allowed FHL to be treated as a trade for various capital gains tax reliefs are withdrawn in relation to disposals made on or after 6 April 2025 (1 April 2025 for Corporation Tax). Roll-over relief on the replacement of business assets will no longer apply to acquisitions which take place on or after those dates. However, there are a number of detailed transitional rules to preserve certain reliefs such as Business Asset Disposal Relief in specific situations.
- Losses - broadly, any unused losses can be carried forward to set against future years’ profits of either the UK or overseas property business as appropriate.
Multinational
The government will introduce the Undertaxed Profits Rule, being the final part of the G20-OECD Global Minimum Tax agreed by over 135 countries and jurisdictions. It will take effect for accounting periods beginning on or after 31 December 2024. The government confirmed that the Offshore Receipts in Respect of Intangible Property rules will be abolished in respect of income arising from 31 December 2024.
Additional amendments will also be made to the Multinational Top-up Tax and Domestic Top-up Tax legislation.
Energy Profits Levy
The Energy Profits Levy (EPL) (the temporary levy on profits arising from the upstream production of oil and gas) will increase from 35% to 38% and the end date of the levy will be extended to 31 March 2030. The EPL’s Investment Allowance will be removed and the Decarbonisation Investment Allowance reduced to 66%. These measures will take effect from 1 November 2024. The government will publish a consultation in early 2025 on how it will respond to price shocks once the EPL ends.
CommentThe purpose of the EPL is to ensure that oil and gas companies contribute more to the energy transition; one of the government’s key missions is to make the UK a clean energy superpower. |
Business rates
For 2025/26, eligible retail, hospitality and leisure (RHL) properties in England will receive 40% relief on their business rates liability. RHL properties will be eligible to receive support up to a cash cap of £110,000 per business.
For 2025/26, the small business multiplier in England will be frozen at 49.9p. The standard multiplier will be increased to 55.5p.
Creative industries
From 1 April 2025, film and high-end TV productions will be able to claim an enhanced 39% rate of Audio-Visual Expenditure Credit (AVEC) on their UK visual effects (VFX) costs. UK VFX costs will be exempt from the AVEC’s 80% cap on qualifying expenditure. Costs incurred from 1 January 2025 will be eligible.
UK films with budgets under £15 million and a UK lead writer or director will be able to claim an enhanced 53% rate of AVEC from 1 April 2025. This is known as the Independent Film Tax Credit.
From 1 April 2025, the rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief will be set at 40% for non-touring productions and 45% for touring productions and all orchestra productions, applying UK-wide.
Other business tax announcements
The government will ensure shareholders cannot extract funds untaxed from close 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 support charitable giving by legislating to prevent abuse of the charity tax rules, ensuring that only the intended tax relief is given to charities. These changes will take effect from April 2026 to give charities time to adjust to the new rules.
From 30 October 2024, alternative finance tax rules will be amended to put certain tax consequences of alternative and conventional financing arrangements on a level playing field.
Employment Taxes
National Insurance Contributions
Employees and NICs
From 6 April 2024 the main rate of Class 1 employee NICs is 8%. The employer rate is 13.8%.
The government announced that it will increase the employer rate from 13.8% to 15% from 6 April 2025.
The Secondary Threshold 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. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter.
The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. 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.
The self-employed and NICs
From 6 April 2024 the rates of Class 4 self-employed NICs are 6% and 2%. These rates remain the same from 6 April 2025.
For Class 2 NICs from 6 April 2024:
- Self-employed people with profits of £6,725 and above get access to contributory benefits, including the State Pension, through a National Insurance credit, without paying Class 2 NICs.
- Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension will continue to be able to do so.
Other changes for 2025/26
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 2025/26. For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs by 1.7% in 2025/26.
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.
Employer NICs relief for veterans
The government is extending the employer NICs relief for employers hiring qualifying veterans for a further year from 6 April 2025 until 5 April 2026.
This means that businesses will continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for the first year of a veteran’s employment in a civilian role.
National Living Wage and National Minimum Wage
The government has announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2025. The 18-20 NMW increase is much higher than inflation, with the stated aim being that it will be progressively increased to ultimately match the NLW which applies to employees aged 21 and over. 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 under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.
CommentFor an NLW worker working 37.5 hours per week, the increases announced today will increase their annual gross pay by £1,505.54 and their monthly gross pay by £125.46. |
Taxable benefits for company cars
The rates of tax for company cars are amended for 2025/26:
- The charge for zero emission cars rises from 2% to 3%.
- The charge for other cars increases by 1%.
- The maximum benefit of 37% remains.
The government has confirmed increases to the benefit in kind rates for company cars for tax years up to and including 2029/30.
Car fuel benefit charge
The government will uprate the car fuel benefit charge by CPI from 6 April 2025.
Treatment of double cab pick-up vehicles
The government will treat double cab pick-up vehicles (DCPUs) with a payload of one tonne or more as cars for certain tax purposes.
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.
Company vans
The government will uprate the Van Benefit Charge and the Van Fuel Benefit Charges by CPI from 6 April 2025.
Mandating the reporting of benefits in kind via payroll software
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.
Tackling tax non-compliance in the umbrella company market
To tackle the significant 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. The measure will protect workers from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.
Ending contrived car ownership schemes
The government will publish draft legislation relating to loopholes in car ownership arrangements, through which an employer or a third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period.
This arrangement means those benefiting don’t pay company car tax, which other employees pay, and so this measure will seek to level the playing field.
The changes will take effect from 6 April 2026.
Taxation of Employee Ownership Trusts and Employee Benefit Trusts
The government is introducing a package of reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts.
These reforms will prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees.
The changes will take effect from 30 October 2024.
Clarification of taxable status of Statutory Neonatal Care Pay
The government will legislate to clarify the Income Tax treatment of Statutory Neonatal Care Pay. This will ensure the payment is liable to Income Tax and ensure consistency with the tax treatment of other statutory maternity and paternity pay schemes.
Other Matters
The VAT registration threshold
From 1 April 2025 the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.
Removal of VAT exemption for private school fees
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.
Stamp Duty Land Tax changes
Individuals who purchase additional residential properties, such as second homes or buy-to-let properties, in England and Northern Ireland, generally pay Stamp Duty Land Tax (SDLT) at 3% above the standard SDLT rates. This rate is increased to 5% for transactions with an effective date (usually the date of completion) on or after 31 October 2024.
Similar changes are made for companies and other non-natural persons purchasing residential property in England and Northern Ireland.
In addition, there is also an increase in the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, from 15% to 17%, from the same date. Existing reliefs from this rate which apply to many common scenarios will continue to apply.
Making Tax Digital for Income Tax Self Assessment
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.
Business Asset Disposal Relief and Investors’ Relief
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.
Other changes
HMRC has announced a variety of compliance initiatives, which include the following:
- investing in additional HMRC compliance staff and debt management staff
- modernising HMRC debt management IT systems
- pre-populating tax returns with Child Benefit data (for the purposes of the High Income Child Benefit Charge)
- increasing the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5%.
Scott Burkinshaw
Scott is Tax Partner at Shorts, specialising in providing strategic corporate and personal tax advice.
View my articlesTags: VAT, Business Taxes, Autumn Budget 2024
