UK: Autumn Budget 2024

Halloween budget spooks business

£40bn of tax rises, falling mainly on employers, entrepreneurs and dead people.

It took the new Labour government more than 100 days to produce its first budget. Many people felt they had nothing more to learn about the first Labour budget for 14 years, given the stories leaked over the weekend. However, the Chancellor spoke for 75 minutes and managed to deliver a few surprises, not least her early announcement that she would be raising £40bn more in tax.

As set out in detail below, the majority of the tax revenue will come from employers through the increase in employer NICs, capital gains taxpayers through the increase in rates, and inheritance taxpayers.

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Business tax

Employers’ national insurance contributions (NICs)

By far the biggest revenue raiser for the Treasury will be the changes to NICs. The rate of employers’ NICs will increase by 1.2% to 15% from 6 April 2025. But equally expensive for employers will be the reduction in the threshold above which employers are required to pay NICs. At the moment, they only pay employer NICs on earnings above £9,100. From 6 April 2025, they will pay employer NICs on earnings above £5,000, representing an additional cost of £615 per employee.

To soften the blow, the Employment Allowance has been increased from £5,000 to £10,500 and widened in its availability. This is the amount that can be offset against a business’s overall employer NICs liability. It used to be only available to businesses with an employer NICs bill of less than £100,000 in the prior tax year. That limit will be removed, so it should be available to most (non-public sector) employers.

Capital gains tax (“CGT”)

The government will introduce legislation to increase the main rates of CGT. From 30 October 2024, where an individual is:

• a basic rate taxpayer (taxable income of up to £50,270 per annum), the rate will be increased from 10% to 18%;
• a higher rate or additional rate taxpayer (taxable income of over £50,270 per annum), the rate will be increase from 20% to 24%.

No changes will be made to the 18% and 24% rates of CGT that apply to residential property gains.

Business Assets Disposal Relief (“BADR”), which allows officeholders and employees to benefit from a reduced rate of CGT where certain conditions are met, will continue to apply up to a lifetime limit of £1,000,000 of chargeable gains. BADR will remain at the current 10% rate until April 2025. It will then be increased to 14% for disposals made in the 2025/26 tax year and 18% for disposals made on or after 6 April 2026. From 6 April 2026, where no BADR has been used the maximum benefit of the relief would be £60,000, compared to the current £100,000, as a result of the reduced difference between the basic rate and higher rates of CGT.

Investors’ Relief (“IR”) is a relief which works in a similar way to BADR to reduce the rate of CGT where certain criteria are met but for investors. The government has reduced the lifetime limit from £10,000,000 to £1,000,000 for qualifying disposals made on or after 30 October 2024. Gains benefiting from IR are currently taxed at 10% and will increase at the same rate as BADR rates.

Carried interest

One of Labour’s manifesto pledges was to “close the carried interest loophole”. The party claimed that in 2028-29 this would raise £565m which would be used to fund a variety of new expenditure including the recruitment of 8,500 new mental health staff. Today’s budget document predicts that the taxes raised in 2028-29 by the changes to the carried interest regime will be just £80m.

As the changes are very technical, and require further consultation, the government has announced a temporary rise in the CGT rate for carried interest to 32% for the 2025/26 tax year.

This will be replaced from April 2026 by a new regime, bringing all carried interest into the income tax regime (rather than the current system where some carried interest is taxed as dividend and/or interest income, and some is taxed as capital gains). All carried interest will be treated as trading profits and subject to income tax and class 4 NICs. For "qualifying" carried interest, a multiplier (72.5%) will be applied effectively to reduce the amount of income subject to income tax. This would result in an effective income tax rate of 32.625% for additional rate income taxpayers (plus class 4 NICs). In addition, the income-based carried interest (IBCI) rules will be amended to remove the exclusion for employment related securities.

Employee incentives and benefits

The general feeling is one of gratitude with only small changes to the employee benefits and incentives landscape after the Budget: taxation structures remain the same with only the rates being massaged to the lower end of the range of what had been estimated and reported more widely in the media beforehand.

The new 24% CGT rate remains well below CGT rates in Europe and so equity incentives remain an attractive remuneration choice for UK workforces, especially in light of the 1.2% employer NICs increase for cash incentives. Company Share Option Plan (CSOP) options and growth shares arrangements are expected to continue as popular incentivisation tools, attractive to both companies and employees. However, Enterprise Management Incentive (EMI) options keep their place as the incentives crown jewel for UK early stage companies: BADR and the special rules for EMI options has been retained.

In the listed sphere, the government also announced that, from 6 April 2026, it will reduce the rate of business property relief to 50% in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange. This includes AIM shares and so potentially makes a listing on the UK Alternative Investment Market (AIM) less attractive to companies due to the tax impact on AIM investors.

A consultation on employee benefit trusts (EBTs) and employee share ownership trusts (EOTs) has been announced but only on specific aspects to tackle known tax loopholes.

Umbrella companies

The government has pledged to “clamp down” on non-compliant umbrella companies, aiming to raise £6.5 billion to narrow the tax gap.

Under the new measures, recruitment agencies and ‘end clients’ will be held accountable for ensuring that umbrella companies make accurate PAYE deductions on payments to workers. If no agency is involved, this responsibility will fall to the end client business. This initiative targets significant tax avoidance and fraud within the umbrella company market.

Additionally, the government will introduce stricter reporting requirements for umbrella companies, mandating more detailed disclosures on their tax compliance and worker payments.

These changes will take effect from April 2026.

Corporation tax

The government has published a “Corporate Tax Roadmap” with the stated aim of reassuring businesses that the UK remains a competitive place to do business.

It does this by committing to retain for the duration of parliament:

• the current 25% main rate of corporation tax – this is expressed to be a ‘cap’ implying it could go down;
• the small profits rate (19%) and associated marginal relief and thresholds;
• territorial tax exemptions for UK holding or headquarter companies (such as the substantial shareholdings exemption, dividend exemption and optional branch exemption election) and deductibility of borrowing costs;
• existing capital allowances for capital expenditure (such as full expensing and the £1M annual investment allowance); and
• the patent box and existing R&D relief rates.

The report also highlights a number of consultations for possible improvements to the UK corporation tax rules, such as:

• addressing concerns in the renewables and infrastructure sector following a recent decision where certain pre-development costs for a windfarm were held to be neither deductible nor eligible for capital allowances;
• removing domestic (UK-to-UK) transfer pricing; and
• creating a new process to provide investors advance clearance for major projects.

On the other hand, the report notes the government’s commitment to protect the UK tax base,

and that it proposes to explore in particular:

• lowering the SME threshold so as to bring medium sized business within the transfer pricing rules (TP);
• reviewing whether land remediation relief (relief for capital expenditure acquiring contaminated or derelict land) is effective and value for money;
• introducing a new requirement for multinationals within the scope of TP to report crossborder related party transactions; and
• reviewing the TP treatment of cost contribution arrangements.

Late payment interest

With effect from 6 April 2025, the rate of interest that HMRC charges on late payments of tax will increase by 1.5% (from 7.5% to 9%) but will not be matched by a corresponding increase in the rate of interest that HMRC pays on tax repayments (remaining at 4%).

Business rates

Earlier this month, the British Retail Consortium co-ordinated a letter to the government, signed by 71 chief executives in the retail sector, urging the Chancellor to cut business rates for retail properties by 20% from April 2025, arguing that the sector pays a disproportionate share of business taxes compared with its contribution to the economy. However, high street business rates are a major source of revenue for local councils. The government’s response today indicates that while it agrees the system needs significant reform, this will take time to implement. Today’s announcements include:

• replacing the temporary 75% business rates discount for retail, hospitality and leisure (RHL) businesses, available since 2020/21 but due to expire in April 2025, with a 40% discount, up to a cash cap of £110,000 per business for 2025/26. This still means that many businesses will see their business rates nearly double next year;
• freezing the small business multiplier for 2025/26;
• an intention to introduce permanently lower multipliers for RHL properties with a rateable value (RV) under £500,000 from 2026-27, paid for by a higher multiplier for properties with RVs above £500,000 to include the majority of large distribution warehouses such as those used by large online businesses; and
• publication of a discussion paper to invite dialogue with businesses and stakeholders on priority areas of reform to achieve a fairer system and incentivise investment.

VAT on cab rides

The previous government published a consultation in April this year on the potential adverse impacts of recent High Court judgments on private hire vehicle (PHV) sector businesses and their passengers including ways in which the government could change transport, or VAT, legislation to enable operators to act as agents for PHV bookings and account for VAT accordingly. In July this year, the Court of Appeal has held that, from a licensing perspective, PHV operators outside of London do not have to contract directly as principal with passengers to operate lawfully, retaining the agency business model. The government has said it is considering the responses to the April 2024 consultation, as well as the impact of the recent Court of Appeal judgment and will respond to the consultation in due course.

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Personal tax

VAT on private school fees

As expected, fees for education services and vocational training provided by a UK private school will be subject to 20% VAT, including boarding services. This will take effect from 1 January 2025. However, 20% VAT will also apply to pre-payments made on or after 29 July 2024 of private school fees for terms starting on or after 1 January 2025. The government will also remove business rates charitable rate relief from private schools in England from April 2025. There will be some carve outs, for example for further education colleges and funding measures to compensate local authorities that fund places for pupils with special educational needs. Together, these policies are expected to raise £1.8 billion per year by 2029-30. The government’s response document issued today warns that HMRC will be carefully scrutinising pre-payment schemes used ahead of the policy being formally announced in July to ensure all users of private schools pay their fair share.

Non-domiciled tax status

The previous government announced that the remittance basis of taxation of non-UK domiciled individuals was to be replaced with a residence-based regime from 6 April 2025. In order not to disincentivise short term visitors to the UK, the government introduced an exemption for new arrivals to the UK who will not be required to pay any UK tax on foreign income and gains (“FIG”) for their first four years of residency in the UK.

The government is now also proposing a new residence-based system for inheritance tax.

Inheritance tax

Amongst a number of changes announced to inheritance tax rules, the inheritance tax nil-rate bands will now be frozen until 5 April 2030. However, from 6 April 2027, any unused pension funds and death benefits from the deceased's pension will be included in their estate for inheritance tax purposes. Pension scheme administrators will now also be required to report and pay the related inheritance tax on these amounts.

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Innovation

R&D

As part of the Corporate Tax Roadmap, the government confirmed that it will maintain the current rates for R&D reliefs (the merged R&D expenditure credit (RDEC) and the enhanced R&D intensive support (ERIS)) as well as enhancing administration by establishing an R&D expert advisory panel, an R&D disclosure facility by the end of the 2024, and launching a consultation on widening the use of advance clearances.

E-invoicing

A consultation in early 2025 will be published to explore electronic invoicing and how to establish standards and increase the adoption of e-invoicing in the UK. The impact of implementing e-invoicing (particularly if made mandatory for certain sectors) will need to be closely monitored.

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FinTech

Cryptoasset reporting framework

The government signed the November 2023 Joint Statement on “Collective engagement to implement the Crypto-Asset Reporting Framework (CARF)”, declaring its intent, along with its international partners, to deliver the CARF in time for exchanges of information in 2027. The CARF will apply in the UK from 1 January 2026, with the first reports being filed by 1 May 2027.

The government has decided to extend the CARF to cover reporting on UK customers by UK Reporting Cryptoasset Service providers (RCASPS), so HMRC will (from 2027) receive information on cryptoassets held and traded by UK customers on UK platforms. There was also a proposal to extend the Common Reporting Standard to domestic transactions. This would impose a similar obligation on financial institutions, but this has been deferred and the government will continue to examine the position.

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Real Estate

Stamp duty land tax (“SDLT”)

Since April 2016, there has been a higher rate SDLT “surcharge” that generally applies to

residential property transactions by individuals where they already own at least one dwelling, unless they are replacing their main residence.

The government has announced that, from 31 October 2024, the surcharge for purchasers of additional dwellings will be increased from 3% to 5%. The surcharge applies on top of the standard residential rates. This means a non-UK resident, who is purchasing a second residential property and not replacing their main dwelling, will have a top rate of SDLT of 19%.

Additionally, the government has increased the single rate of SDLT payable by companies and non-natural persons acquiring dwellings for more than £500,000 from 15% to 17%.

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Media, Entertainment and Sport

Creative reliefs

As previously announced at the Spring Budget, the government has confirmed that from April 2025 film and high-end TV productions will be able to claim an enhanced 39% rate under the AVEC on visual effects costs with the 80% cap on qualifying expenditure being removed for visual effects. The government also confirmed the introduction of the Independent Film Tax Credit for UK films with budgets under £15m at an enhanced 53% rate of AVEC.

Gambling sector

Remote gambling duty reform remains on this government’s agenda. The government has announced it will consult next year on earlier proposals to bring remote gambling (meaning gambling offered over the internet, telephone, TV and radio) into a single tax regime, with the stated aim to simplify, future-proof and “close loopholes” in the system. Uncertainty therefore continues for the gambling industry including the prospect of general betting and pool betting duties being increased in line with higher remote gaming duty rates.

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Energy

Energy profits levy (EPL)

The government has announced significant changes to the EPL. As of 1st November 2024, the windfall tax on North Sea oil and gas producers will increase from 35% to 38%, raising the headline tax rate on oil and gas activities to 78%, one of the highest in the world.

In addition to the rate increase, the government will eliminate the 29% investment allowance, which previously allowed companies to offset tax from reinvested capital. The revenue generated from these changes will be directed towards funding renewable energy projects, supporting the government’s commitment to green energy.

The duration of the levy will also be extended by one year, now set to end in March 2030. The government intends to launch a consultation on handling price shocks post-EPL in early 2025.

Carbon capture usage and storage (CCUS) decommissioning funds

CCUS Decommissioning Funds are financial reserves established by oil and gas companies to cover the costs of safely decommissioning infrastructure used in CCUS activities. To encourage investment in sustainable energy projects and ensure the safe decommissioning of infrastructure, new legislation will provide tax relief for payments made into these decommissioning funds. This measure treats qualifying payments into a decommissioning fund as though they were incurred on actual decommissioning, thus qualifying for tax relief.

Additionally, it exempts related receipts from the EPL, ensuring parity of treatment with actual decommissioning expenditure.

The measure will have effect on and after the date of Royal Assent to the Finance Bill 2024-25.

UK carbon border adjustment mechanism (CBAM)

Starting 1 January 2027, the government has confirmed it will implement the CBAM, which will place a carbon price on imported goods from sectors at risk of carbon leakage, including aluminium, cement, fertiliser, hydrogen, and iron and steel. However, the glass and ceramics sectors will remain outside the scope of CBAM. Legislation in the Finance Bill 2024-25 will enable HMRC and the UK Emissions Trading Scheme Authority to prepare for CBAM’s introduction. The government’s response to the March 2024 consultation confirms the scope and sets the registration threshold at £50,000, which will ensure that over 99% of imported emissions are covered while exempting over 80% of smaller businesses, particularly helpful to micro, small, and medium-sized enterprises.

And finally….

To celebrate the end of 2025’s Dry January, the government has announced a cut in alcohol duty on draught products from February 2025. All draught pints will be a penny cheaper. Look out for the price cuts in City locals.