Chancellor’s Budget Statement 30/10/2024

Wow! We were expecting a big budget and that is exactly what we got! The new Labour Government presented its first budget and set out their stall for how they will operate over the term of this parliament. They have been warning us for months that tax rises were coming and come they have.

Rachel Reeves (the first female Chancellor) delivered one of the most leaked budgets in history. It not only brought us tax rises but also some of the largest budget increases for Government Departments in years. Public services have been struggling for some time, but it is now up to the Government to deliver on its promises and improve things for the better, something I’m sure we all want to see.

The sheer volume of tax changes and announcements were staggering. Some of the measures announced are technical and complicated and will take time (and in some cases Government clarification) to understand the full implications. In this update we bring you the headlines. Be aware that the impact for some of you will be more considerable than others.

The headline announcements are:

• Minimum Wage – Increases that come into effect in April 2025 were announced
  o Those aged 21 and over will rise from £11.44 to £12.21 per hour, a 6.7% increase
  o Rate for 18-20 year olds to go up from £8.60 to £10.00 per hour, a 16.3% increase
  o The rate for apprentices increases from £6.40 to £7.55 per hour, an 18% increase
  o The Government also announced that the long-term plan is to move towards a ‘single adult rate’ i.e. 18-20 year olds will be brought in line with the 21 and over rate
• National Insurance
  o Employees – No change
  o Employers – Some massive increases for employers
  – Rate to rise from 13.8% to 15% from April 2025
  – The secondary threshold (the amount were employers start to pay National Insurance) will be cut from £9,100 to £5,000. For any employees that you pay more than £9,100 per year this change will result in an extra £615 Employers National Insurance being payable
  – As an example, these 2 changes combined mean that an employee on a £30,000 salary will cost employers an additional £865 a year, prior to any employment allowance relief
  – Employment Allowance will rise from £5,000 to £10,500 to help small businesses with the rises. This will for some mean that there is no increase in costs from these rises, but for others this will not cover the additional costs. From a simple analysis, if you have 9 or more employees earning over £9,100 your business will be a loser because of these changes
  – These increases are massive. I have just done calculations on Smarter Accounting Employers National Insurance and the overall costs will increase by over £12,000 per annum
• Capital Gains Tax
  o Residential based capital gains tax rate remains unchanged at 18% lower rate and 24% higher rate
  o Non-residential capital gains tax rates to increase in line with residential tax rates with immediate effect
  o Business Asset Disposal Relief – This relief has changed name many times. It used to be called retirement relief and more recently entrepreneurs’ relief. It gives a lower rate of capital gains tax for business owners selling their businesses
  – Lifetime limit remains at £1m
  – Current rate of tax is 10% but this will rise to 14% from April 2025 and 18% from April 2026
  o Government will provide transitional relief for contracts entered prior to 30 October 2024
• Inheritance Tax
  o Threshold remain at £325,000 until 2030
  o Inherited pensions will be brought into inheritance tax from April 2027. Currently these are excluded if the deceased was under the age of 75
  o Business & Agricultural Property Relief – Full 100% relief will be restricted to the first £1 million of qualifying assets from April 2026, assets over this level will receive 50% relief
• Personal Taxes
  o No change to income tax rates, employee national insurance rates or VAT. Government has kept its manifesto pledge
  o Income Tax threshold freeze is maintained until April 2028 but after this point will be increased in line with inflation
  o No change to dividend tax rates
• HMRC Improvements
  o The Chancellor announced a major programme to improve efficiency, compliance and debt collection
  – Commitment to hiring additional 5,000 compliance officers and 1,800 debt recovery officers
  – Investment into digital infrastructure to improve efficiency and compliance
  – Increase in HMRC interest rate on late payments. Current interest rate is 2.5% above the Bank of England Base Rate (currently 5%). This will be increased but no figure has yet been released
  o Many of you will have received our invitation to our Tax Investigation Insurance Service over the last day or so. Apologies that it was later than usual due to a mailing error. These measures suggest that we will see an increase in enquiries by HMRC and even over the last few months we have started to see a rise compared with previous numbers
• Business Rates – This is another area that will have a massive impact on some businesses
  o Small Business multiplier will be frozen for 2025/26 at 49.9p
  o Currently retail, hospitality and leisure businesses enjoy a 75% reduction in business rates. This was a temporary measure that was due to end in March 2025
  o Government have announced a 40% reduction for these sectors from April 2025 to March 2026. This will mean that from April 2025 hospitality, retail and leisure businesses that are paying business rates will see them increase by 140%!
  o From April 2026 business rates will be reformed.
  – This will include permanently lowering multipliers for retail, hospitality and leisure businesses with rateable values under £500K
  – Increasing the multiplier for properties with a rateable value of £500,000 and over. This includes large distribution warehouses used by online giants
• Corporation Tax
  o Main rate will remain at 25% for the duration of the Parliament
  o Small Profits Rate (19%) and marginal rate relief to be maintained at current rate and thresholds
  o Research and Development and Annual Investment Allowance remain unchanged
  o The government published a corporate tax roadmap which confirms the above
• Stamp Duty
  o Stamp Duty surcharge, paid on second home purchases, to go up from 3% to 5%, with effect from 31 October 2024
• Pensions
  o State Pensions to increase by 4.1% from April 2025. Analysis suggests that those on normal state pension only will find that tax will be payable on this sum from April 2027. How HMRC and Government will cope with that issue will be interesting to watch!
  o No other mention of changes to pensions, which will come as a relief to many
• Transport
  o Fuel duty and 5p cut maintained for another year to March 2026
  o £2 cap on single bus fares to rise to £3 from January
  o Various increases to Air Passenger Duty
• Drinking and Smoking
  o Tax on non-draft alcoholic drinks to increase by RPI measure
  o Draft drinks duty cut by 1.7%!
  o Sugar Tax on soft drinks. Government to review the thresholds and consider extending it to ‘milk-based’ drinks
  o Tobacco tax to increase by 2% above inflation, 10% above for hand rolling tobacco
  o New tax of £2.20 per 10ml of vaping liquid from October 2026
• Other measures
  o Non-Dom tax status to be abolished and tax system changed from domicile based system with a residence based system
  o VAT will be added to private school fees from January 2025. Private schools will lose charity status and will therefore be required to pay full business rates from April 2025
  o Double cab pickups are to be treated as cars on purchases from April 2025, for Capital Allowances & Benefit In Kind purposes, a measure that you may recall appeared & quickly disappeared 18 months or so ago
  o Commitments made to continue with Making Tax Digital for Self-Assessment, we will bring more detail on this in due course

Smarter Opinion

The country had been full of uncertainty about the inevitable tax increases, a subject that has dominated the news for so many months. It is a budget that has set out the stall for the new Labour Government. They have made big promises to turn the country around and it is now time for them to deliver. The tax take is now the biggest in history and this Government will be judged on the improvements they make to our public services. They probably won’t get another chance to push through such big tax rises.

The tax rises within this budget will have a significant impact on some and should not be underestimated. There are some significant losers. The tax increases mainly fall on businesses and some of the wealthier in society. I am particularly concerned about the impact this will have on the hospitality, leisure and retail industries. They will have to face significantly increased costs due to minimum wage, business rates and employers’ national insurance, and in turn those costs have to go somewhere. Either profits will reduce for business owners, or alternatively will we see significantly increased prices for the consumer, all so that businesses can maintain the status quo.

If the country is in that much of a hole financially then the burden should have been more equally spread. Cynically the Employer National Insurance increases seem a convenient way to fill a £25 billion black hole. The National Insurance paid by employers has increased hugely over the last decade and that bill has got even bigger with this budget. Meanwhile employee contributions have seen an increase in the threshold where National Insurance becomes payable and a 33% reduction the National Insurance Rate. Perhaps the fairer thing to have done would’ve been to break the manifesto pledge on this occasion, and simply increase Income (& related) Taxes by 1% or 2%, so that everyone contributes according to what they earn.

Also don’t be fooled that the Labour Government isn’t increasing tax revenues for working people. The continued threshold freeze will push approximately 2 million more into the higher rate tax band, as well as bringing more into the basic rate tax band with the personal allowance threshold freeze. These are continued tax increases for the ordinary person, even though they are not headline changes. It remains to be seen what impact the changes will have on wages, with so many increased costs, will employers be able to afford to give pay rises other than those that are a legal requirement.

This Government has made promises about growth and the only way out of continuing tax increases is to get Britain back to decent growth levels. Even the Office for Budget Responsibility are forecasting a short-term upward spike, but medium and longer term forecasts are, quite frankly, disappointing.

As per previous budget commentaries the tax system is unfair and many things in the tax world need to be balanced. The current political establishment seeks to serve based on what wins votes and not what is right for the country. I fear this is not about to change any time soon.

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