After lots of rumours in the last few weeks, Rachel Reeves delivered her first Budget Speech, from the outset saying the Budget will raise taxes by £40bn.
As well documented, the Chancellor and the Prime Minister have already announced their aim was to protect "working people". However, given their definition of a "working person" does not seem to include small business owners and self-employed, this has frustrated many of our clients.
The Chancellor proudly stated that for "working people", there would be no increases to their income tax, national insurance or VAT……..so where is the £40bn going to be raised?
Income Tax
The were no major changes or announcements to income tax. The basic income tax rate will remain at 20% (on income up to £50,270), with higher rate tax remaining at 40%.
The additional rate tax of 45% also remains on income in excess of £125,140.
As a reminder, the tax-free personal allowance is reduced by £1 for every £2 of income over £100,000. This results in an effective tax rate of 60% on earnings between £100,000 and £125,140.
The Chancellor did say that the government will uprate personal tax thresholds on income tax and national insurance from 2028/29.
With the continued freeze on personal allowances and tax thresholds, this will result in more people being brought into taxation and higher tax rates as their income increases, hence the stealth tax on income moving forward.
National Insurance
As expected, the rate of employers' national insurance will increase from 13.8% to 15%, as from April 2025.
In addition to this, the threshold at which employers' national insurance is payable will decrease to £5,000 (from £9,096).
Clearly these changes will result in more costs for employers, in addition to the increase in national minimum wage rates (outlined below).
Indeed, this was the Chancellor's big hitter in the budget, raising £25bn per year by the end of the parliament.
In a bit of good news for employers, the employment allowance will increase to £10,500, an increase from the current allowance of £5,000. This means the first £10,500 of employers NIC will be covered by the allowance.
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 rates by September CPI of 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.
Dividend Allowance
There were no further announcements with regards to the taxation of dividends and the allowance of £500.
Unfortunately for a lot of business owners who are often paid by a mix of salary and dividends, there was no reduction to the tax rate on dividends.
Child Benefit
As a reminder, the threshold at which the High-Income Child Benefit Charge applies was increased to £60,000 in April 2024.
Furthermore, the rate at which HICBC is charged will halve, so that child benefit is not withdrawn in full until an individual's income exceeds £80,000.
Capital Gains Tax
Another main change to help raise the £40bn were the increases to CGT rates.
As from 30 October 2024, the lower rate of CGT will be increased to 18% (from 10%), and the main rate being increased to 24% (from 20%).
These new rates are inline with the CGT rates on residential property, which will remain at 18% and 24% respectively.
There was some bad news for people disposing of assets that qualify for Business Asset Disposal relief. Although the lifetime limit of £1m will remain, the gain will continue to be taxed at 10% only until April 2025.
From April 2025, any gains qualifying for BADR will be taxed at 14%, and then 18% on gains from April 2026.
Corporation Tax
The government has published a Corporate Tax Roadmap, including a commitment to cap the Corporation Tax Rate at 25%; maintain the Small Profits Rate and marginal relief at current rates and thresholds; and maintain key features as such as Full Expensing, the Annual Investment Allowance, R&D relief rates, and the Patent Box.
Companies with profits of below £50,000 will continue to pay tax at 19%.
Although these are the headline rates, the effective tax rate on profits between £50,000 and £250,000 is actually 26.5%.
Minimum Wages
The minimum wage will again increase substantially from 1 April 2025.
| Rate from April 2024 | Current Rate | Increase | |
| National Living Wage (21 and over) | £12.21 | £11.44 | 6.7% |
| 18-20 year old | £10.00 | £8.60 | 16.3% |
| 16-17 year old | £7.55 | £6.40 | 18.0% |
| Apprentice rate | £7.55 | £6.40 | 18.0% |
Given the large increase and therefore additional costs to employers, we recommend businesses consider the increases coming into effect from April 2025.
On top of the changes to national living wage, this will increase the cost of an employee on national living wage (working 35 hours per week) to just under £2,270 per employee from April 2025.
VAT
From 1 January 2025, to secure additional funding to help deliver the government's commitments relating to education and young people, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20%. This will also apply to boarding services provided by private schools
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 government will lay secondary legislation to freeze the small business multiplier. The standard multiplier will be uprated by the September 2024 CPI rate to 55.5p.
A discussion paper has been published setting the direction of travel for transforming the business rates system and inviting industry to a dialogue about future reforms.
Inheritance Tax
The Inheritance Tax Nil Rate bands (including the residential property nil rate band) will be frozen until 5 April 2030.
In unwelcome news, the government will bring unused pension funds and death benefits payable from a pension into a person's estate for inheritance tax purposes from 6 April 2027.
There were also major changes announced to APR and BPR. The government will reform these inheritance tax reliefs from 6 April 2026. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property. The rate of relief will be 50% thereafter (so effectively 20% IHT tax).
SDLT
From 31 October 2024 the Higher Rates for Additional Dwellings surcharge on Stamp Duty Land Tax (SDLT) will be increased from 3% to 5%. This surcharge is also paid by limited companies, and non-UK residents purchasing additional property.
This is clearly an extra cost that those looking to invest in property will need to take into consideration.
The single rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporate bodies will also be increased by 2 percentage points from 15% to 17%.
Other Announcements
In welcome news, the Chancellor announced there would be a Covid Corruption Commissioner, who's aim is to ensure any fraudulently claimed money is repaid.
There was also an announcement there will be a crackdown on Umbrella Companies and Promoter of Tax Avoidance schemes.
The government will legislate to abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler and internationally competitive residence-based regime, which will take effect from 6 April 2025. Individuals who opt-in to the regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence. From 6 April 2025 the government will introduce a new residence-based system for Inheritance Tax (IHT), ending the use of offshore trusts to shelter assets from IHT, and scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime.
For Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met.
The government will freeze fuel duty rates for 2025- 26, a tax cut worth £3 billion over 2025-26 which represents a £59 saving for the average car driver. The temporary 5p cut in fuel duty rates will be extended by 12 months and will expire on 22 March 2026. The planned inflation increase for 2025- 26 will also not take place. Extended the alcohol duty freeze until February 2025.
Summary
In contrast to Jeremy Hunt's spring Budget, which saw cuts to national insurance, this Budget takes us in reverse with NIC increases on employers, which will feed through to employees via an impact on wage rises and recruitment.
With the increase in costs to run a business, increase in minimum wage rates, etc, employers are likely to once again feel aggrieved with the lack of support.
On top of the increase in costs announced today for business owners, there were increases in corporation tax rates and increase in dividend tax announced in the past few years. It seems small business owners who operate via a limited company are being "forgotten about" with no equivalent cuts.
If you want to know how the Budget Statement affects you, get in touch with one of our tax advisers, who will be happy to assist.