Client Update November 2024

Chancellor Rachel Reeves pledged to ‘invest, invest, invest’ to drive growth and ‘restore economic stability’ in the Autumn Budget.

The Budget, which was Labour’s first in over 14 years and the first ever delivered by a female Chancellor, saw £40 billion in tax announcements.

Ms Reeves repeated her claims that the Government had inherited a £22 billion ‘black hole’ in the public finances from the Conservatives.

Pre-Budget speculation had centred on the likelihood of increases to employers’ National Insurance contributions (NICs), Capital Gains Tax (CGT) and Inheritance Tax (IHT).

The Chancellor announced an increase to the rate of employer NICs by 1.2 percentage points to 15% from 6 April 2025. However, the Secondary Threshold – the level at which employers become liable to pay NICs on each employee’s salary – will reduce from £9,100 per year to £5,000 per year.

CGT on non-residential assets will increase from 10% to 18% for those paying the lower rate, and 20% to 24% for those paying the higher rate for disposals from 30 October 2024. These new rates will match the residential property rates. The CGT rates applicable to assets qualifying for Business Asset Disposal Relief (BADR) and Investors’ Relief will remain at 10% this year, before rising to 14% from April 2025 and 18% from April 2026.

The IHT nil rate band remains unchanged at £325,000 although from April 2027 inherited pension pots will be brought into the IHT net. The government says this will remove a distortion which has led to pensions being used as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement.

From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR)will be reformed. The Government state that the highest rate of relief will continue at 100% for the first £1 million of combined business and agricultural assets on top of the existing nil rate bands, fully protecting the majority of businesses and farms. The rate of relief will reduce to 50% after the first £1 million. Old Mill rural adviser and accountant, Phil Kirkpatrick, discusses this in more detail in his article Practical steps to mitigate agricultural Autumn Budget.

The Chancellor also confirmed that VAT will be in on private school fees and abolishment of the non-dom tax regime.

Ms Reeves said she would protect living standards by unfreezing the thresholds on Income Tax and NICs from 2028 while she extended the cut in Fuel Duty for another year.

Reeves said: ‘The choices I have made today are the right choices to restore stability to our public finances, to protect working people, to fix our NHS and to rebuild Britain. That does not mean that these choices are easy, but they are responsible.’

Internet link: GOV.UK

Business groups have reacted to Chancellor Rachel Reeves’ Autumn Budget speech.

The Confederation of British Industry (CBI) said that the Chancellor ‘had difficult choices to make to deliver stability for the economy’.

Rain Newton-Smith, Chief Executive of the CBI, commented:

‘A more balanced approach to our fiscal rules which prioritises capital investment should help to unlock private sector investment in our infrastructure and net zero transition over the long-term.

‘While the Corporation Tax Roadmap will help create much needed stability, the hike in National Insurance contributions (NICs) alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.’

Meanwhile, Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), labelled the fiscal event a ‘tough Budget for business’. She continued:

‘While some protection for smaller firms is welcome, the increase in employer NICs will place a further cost burden on business. This, coupled with a 6.7% increase in the National Living Wage (NLW) means many firms will find it more challenging to invest and recruit in the short-term.

‘But the Chancellor has looked to offset the upfront hit on firms by outlining a longer-term framework to provide stability for the economy.’

The Institute of Directors (IoD) branded the Autumn Budget as offering ‘short-term pain for the business community’.

Roger Barker, Director of Policy at the IoD, said: ‘The government has chosen to impose a significant new tax burden on business as a means of achieving an immediate boost to its public sector spending priorities. The risk is that this will exert a negative impact on business confidence, with worrying implications for the economy’s future growth trajectory.’

Internet links: CBI website BCC website IoD website

Following on from the changes to pension funds, the Chancellor also made further changes to Inheritance Tax. Click here for full article:

Capital Gains Tax (CGT) has seen several changes in the last few years. The annual allowance being the amount of gains that can be made each year without paying any tax, has been falling. The allowance was £12,300 in 2022 before falling to £6,000 in 2023 and since 6 April it is lower again at £3,000. Click here for full article:

Pensions policy was turned on its head last week with the announcement that from April 2027, pension funds will be included in estates for Inheritance Tax purposes. Click here for full article:

Some key ‘takeaways’ from the Budget for food and drink businesses and the hospitality industry. Click here for full article:

Over three million workers will receive a pay boost after Chancellor Rachel Reeves confirmed the National Living Wage will increase from £11.44 to £12.21 an hour from April 2025.

The 6.7% increase is worth £1,400 a year for an eligible full-time worker. The National Minimum Wage for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour. This £1.40 increase will mean full-time younger workers eligible for the rate will see their pay boosted by £2,500 next year.

The government says this is the first step towards aligning the National Minimum Wage and National Living Wage to create a single adult wage rate.

The minimum hourly wage for an apprentice is also boosted next year, with an 18-year-old apprentice in an industry like construction seeing their minimum hourly pay increase by 18%, a pay rise from £6.40 to £7.55 an hour.

Ms Reeves said: ‘This government promised a genuine living wage for working people. This pay boost for millions of workers is a significant step towards delivering on that promise.’

Internet link: HMRC press release

The extra costs of the increase in employers’ NICs could cause businesses to respond in ways the government did not intend, the Chartered Institute of Taxation (CIOT) has warned.

At the Autumn Budget, Chancellor Rachel Reeves announced an increase to the rate of employer NICs by 1.2 percentage points, to 15% from 6 April 2025.

The CIOT says that the increase extends the differential in the burden of tax and NICs borne by those in employment compared to those engaged as self-employed.

The higher employers’ NICs go, the greater the likelihood employers may seek ways to mitigate or absorb the burden, which could include potential alternative arrangements to taking on people as employees, adds the CIOT. Alternatives could include outsourcing or offshoring services and reducing the number of employees.

Eleanor Meredith, Chair of CIOT’s Employment Taxes Committee, said:

‘While employers must pay employer NICs on their employees’ earnings, no employer NICs are due where someone is genuinely self-employed.

‘We are concerned that the increase in employers’ NICs could lead to an increase in ‘false self-employment’, where businesses trying to save money turn to arrangements where the worker is not directly employed by them, without necessarily appreciating the rules and risks of such arrangements.

‘A worker’s employment status for tax is notoriously difficult to judge, as we have seen from recent complex litigation involving some TV presenters. HMRC will need to be sufficiently resourced to tackle potential increases in ‘false self-employment’.’

Internet link: CIOT website

HMRC has warned taxpayers that the countdown to the Self Assessment deadline is now underway, with less than 100 days to go.

Self Assessment taxpayers must file and pay their Self Assessment tax return before the 31 January 2025 deadline.

The tax authority says more than 12 million people need to file a tax return for the 2023/24 tax year and pay any tax owed by the deadline.

Over 3.5 million taxpayers have already beaten the clock and submitted their returns, it adds.

HMRC is reminding others that starting their Self Assessment early means they are more likely to complete an accurate tax return, avoid any last-minute panic plus they will know what they owe sooner and can budget.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: ‘The countdown to the Self Assessment deadline has begun but there is still time to thoroughly prepare and file an accurate tax return by 31 January. You can access online help and support to help you file.’

Internet link: HMRC press release

You have until 5 April 2025 to fill gaps in your National Insurance records for all years from 6 April 2006 to 5 April 2018, which could boost your State Pension if eligible. After the deadline, you will only be able to make voluntary contributions for the previous 6 tax years, in line with normal time limits.

HMRC’s online service and app enables most customers to check if they have gaps in their National Insurance record, calculate if making a payment would increase their State Pension, and then make a payment if they wish to do so.