On 30 October 2024 the UK Government delivered its Autumn Statement, setting out its taxing and spending plans. We prepared this article as a newsletter for our clients. Click here if you want to find out more about what we do for our clients.
WHAT IS THE CONTEXT?
It’s the same old fiscal problem for the Government (of any stripe) – high levels of government debt on which interest needs to be paid at high levels, increased cost of delivering public services, and sluggish economic growth not keeping up to speed with inflation.
£1.25 trillion is the annual spending budget of the UK Government. That is 1,250 billion pounds. 1 billion is 1,000 million. Or to give it some other contextual meaning, if you counted to 1 billion at the rate of one number per second, it would take you 31.7 years to count to 1 billion!
In this budget, the Chancellor announced measures to raise an additional £40 billion. Some of it is from tax rises, whilst other measures such as providing more funding to HMRC, so they have more resources – serves as a way to collect more lost revenues.
During Covid it felt like billions were being thrown around like they were millions! Well, it is Halloween 2024 - orange is the new black, and a billion is the new million.
To keep things as clear as possible, we’ve split this newsletter into sections for businesses/employers and for employees/self-employed. There were other announcements that would affect the country as a whole, for example increased funding on the NHS, which we have not included in this newsletter.
ANNOUNCEMENTS FOR BUSINESSES AND/OR EMPLOYERS
Corporation Tax Rates
Prior to the announcement the Government pledged to not increase corporation tax beyond 25%. They have met this commitment to hold this tax for the duration of this parliament.
Remember, if your company’s profits are less than £50k, there is a concessional tax rate of 19%.
Planning opportunity – if your company profit is greater than £50k, consider making an employer pension contribution into your pension pot. This reduces the company’s profit, therefore saves tax. If the company’s profit is just over £50k, it may be even more meaningful because it not only gets money into your pension pot but might reduce the company’s profit to lower than £50k, therefore taking it to a lower tax rate of 19%.
Employer National Insurance
The Government famously claimed they would not increase taxes for ‘working people’, a claim they would perhaps later rue, forgetting that small businesses owners (such as many of you) are working very hard growing your businesses while taking a minimal salary. In this sense, you are business owners AND working people.
The rate of national insurance for employers will increase from 13.8% to 15%, effective from 6 April 2025. In addition, the earnings level at which the charge starts has been reduced from £9,100 to £5,000.
To offset this, and support smaller employers, the employment allowance will increase from £5,000 per year to £10,500. The employment allowance is a credit from HMRC on employer national insurance, up to the new £10,500 limit.
Below we set out the additional annual cost for your business to employ someone at these different salary levels:
£12,570 – £656.60
£25,000 – £805.80
£50,270 – £1,109.00
Planning opportunity – if you’d like to understand how it will affect your employment costs, if at all, get in touch.
National Living Wage (NLW) and National Minimum Wage (NMW)
From 1 April 2025 the new minimums are as follows:
Aged over 21 - £11.44 to £12.21 per hour
Aged 18-20 - £8.60 to £10.00 per hour
Aged 16-17 - £6.40 to £7.55 per hour
As employers, it’s your responsibility to ensure your employees meet these minimum per-hour requirements. We will also be conducting sense-checks for our clients on 1 March 2025.
Business Asset Disposal Relief ('BADR')
BADR is a concessional rate of tax that small business owners pay on gains they make on disposals of their business. Typically business owners might start their company ‘from scratch’ at a cost of £nil or close to it, and sell their business down the line to a third-party and pay only 10% tax on this.
For example, you could build the business and sell it for £500,000, and pay £50,000 on it – not a bad return.
The rates of BADR will increase as follows:
6 April 2025 – 15%
6 April 2025 – 18%
The lifetime limit remains unchanged at £1m.
This might not affect many of you, because not everyone goes into business to come out with a gain that is taxed only at 10%. However, a large sector of the investment community do create these businesses and exit to benefit from the 10% rate, so this could affect overall investment levels in the UK start-up community.
ANNOUNCEMENTS FOR EMPLOYEES / SELF EMPLOYED
Income Tax Rates and Thresholds
The Government has not increased personal income tax rates, which was a manifesto commitment.
The previous Government had frozen any movement in tax thresholds until April 2028. It was not known whether this Government would extend the freeze or not. In the budget they announced the freeze will end, and the thresholds will increase with CPI in the 2028/29 year for the first time since the 2020/21 year. “EASE THE FREEZE!”, she said.
Why is this significant? Each year salaries increase with inflation. If the thresholds don’t increase, more income gets taxed at higher rates. This is called “Fiscal Drag” and sounds like a fun drag queen name – but it raises serious cash. By 2028, more incomes are to be dragged into higher tax rates such that annual tax takings will be £7bn per year higher because of it.
Planning opportunity – for all that have incomes approaching the next tax bracket, but especially for those with income approaching £100,000, you should consider contributing into a private pension either as a lump sum contribution or by sacrificing salary into pension. This gets money into the pension, and avoids the higher tax.
Capital Gains Tax
A ‘capital gain’ is when you sell an asset for a value higher than you acquired it. The most common forms of gains are on property, shares and crypto assets. Your main residence is exempted.
Previously the rate of tax on a capital gain on assets (not including residential property) was 20%. This rate increases to 24% on disposals after 30 October 2024. For those earning under £50k, the rates increase from 10% to 18%.
Good news for residential property, where the tax rate on capital gains remains unchanged at 24% (18% for those earning under £50k).
Property Tax
The tax squeeze on those owning second homes continues, with stamp duty land tax increasing by 2% on:
Purchases of second homes
Buy-to-let properties
Companies buying residential property
Inheritance Tax ('IHT')
IHT is paid by the estate of a deceased individual on the value of the assets being passed to the beneficiaries. The IHT tax rate is 40%, and that remains unchanged.
Pension pots are not currently in scope of IHT. Effective from 2027 they will be brought into scope.
Further, the current threshold levels will be frozen until 2030. This is an ‘effective’ increase in tax-taking, because the value of assets increase over time, and if exemption thresholds don’t increase then more asset value gets taxed under IHT.
Planning opportunity – if you’re reading this, you might not be in a position where you are thinking about passing on your assets before you pass away – hopefully you have some years in you yet! However, you may have parents who are in this position. The 7-year rule still applies, so it might be worth a discussion. Although, it can be an awkward issue to raise – tread lightly!
On this note, it’s an opportune time to remind you to get a will in place, so that you can decide where your assets pass. If you have no married or civil partner, your estate will pass to eligible relatives and if there are none, it goes to the state!
Reform of Domicile
If your domicile is not British, and you use the remittance basis for taxation (made famous by Rishi Sunak’s wife) then you should know the “non-dom regime” will be replaced with a residence-based scheme from April 2025. This is quite a unique area of tax law, so you should get in touch with us to understand more.
Making Tax Digital (MTD) for ITSA
MTD for ITSA is the metaphorical can that keeps getting kicked down the road. Under this regime, all sole traders will be required to make digital filings to HMRC every quarter, in addition to an annual self assessment – so 5 filings per year.
The rollout dates are proposed to be:
6 April 2026 – sole traders earning greater than £50k, and property income greater than £50k
6 April 2027 – sole traders earning between £30k-£50k
6 April 2028 – sole traders earning between £20k-£30k
I would tell you more, but to be honest it’s best left here. It was originally meant to be rolled out on 6 April 2024 but the Government of the day (previous Government) delayed it to 2026 “because Covid”.
Therefore, this is a case of “don’t contact us, we’ll contact you” – when we find out more. But if you want to contact us, please do so.
SUMMARY
This budget announcement closed a lot of loopholes. Thresholds frozen, scope widened, tax rates increased – without being unbearable, yet it raised £40 bn.
However, those tax payers on a salary of £87,000 or lower did not see their tax increase, which is approximately 95% of “working people”.
The knock-on effect of the employer national insurance rises on pay rises and growth of businesses will be seen in time. Medium-to-large enterprises were most negatively affected.
If you would like to discuss anything mentioned above in more detail, please contact your Sadler Advisory contact directly.
Kind regards,
John Sadler
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