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  • Autumn Budget 2024: Chancellor Rachel Reeves increases Employers’ National Insurance as part of £40bn tax rise package

Autumn Budget 2024: Chancellor Rachel Reeves increases Employers’ National Insurance as part of £40bn tax rise package

In delivering her first Budget, Chancellor of the Exchequer Rachel Reeves promised to “protect working people” from rises in income tax, National Insurance Contributions (NIC) and VAT – but hiked employers’ NICs to 15% in a fiscal event that will raise £40bn in tax.

by | 1 Nov, 2024

Chancellor of the Exchequer Rachel Reeves raises a hand in front of a screen reading "Change begins"

The chancellor pledged that “there will be no return to austerity” after policies implemented by 14 years of Conservative government, which Reeves said left a £22bn “black hole” in the UK public finances. However, the tax rises announced meant she could “make an injection of immediate funding over the next two years to stabilise and support our public services.

Employment taxes

Employers’ NICs will increase by 1.2 percentage points to 15% from April 2025, while the secondary threshold – the annual level at which employers pay NIC on each employee’s salary – was cut to £5,000 from around £9,100. Reeves said these two measures will raise £25bn per year by the end of the forecast period.

Roger Barker, director of policy at the Institute of Directors, said the employers’ NICs increase “is a major blow for most businesses”, despite an increase in the employment allowance from £5,000 to £10,500 from April 2025 that would “alleviate the hit for the smallest enterprises”.

In promising not to increase the taxes that affect ‘working people’, Reeves promised an end to the fiscal drag caused by the previous government’s threshold freezes for income tax and National Insurance, declaring that from 2028/29, personal tax thresholds will be uprated in line with inflation “once again”.

Christine Cairns, PwC tax partner, said this was “the closest we got to a tax giveaway”. However, Ben Caswell, senior economist at the National Institute of Economic and Social Research (NIESR), said the government’s decision to keep tax thresholds unchanged until 2028/29 “is, in fact, a tax on working people”.

Capital Gains Tax (CGT)

Reeves announced that, from the Budget date (30 October), the lower rate of CGT will rise from 10% to 18%, and the higher CGT rate will rise from 20% to 24% – taking these to the same CGT rates as for residential property disposals, which remain unchanged. With individual savings accounts (ISAs) remaining unchanged, some commentators said the CGT rate rises highlighted the continuing importance of using ISAs to shelter from tax.

The CGT rate applying to Business Asset Disposal Relief and Investors’ Relief will increase to 14% for disposals made on or after 6 April 2025, and to 18% for disposals made on or after 6 April 2026. However, for disposals made on or after 30 October 2024, the lifetime limit for share disposals qualifying for Investors’ Relief falls from £10 million to £1 million – and the main CGT rate applying to trustees and personal representatives rises from 20% to 24%.

The 18% and 28% rates of CGT that apply to carried interest will be consolidated and raised to 32% arising on or after 6 April 2025. HM Revenue & Customs says that from April 2026 “carried interest will be subject to a revised regime within the income tax framework”.

The government also said that, as an anti-avoidance measure, it will change the way capital gains are taxed when a Limited Liability Partnership (LLP) is liquidated.

Inheritance tax (IHT)

Reeves announced that from April 2027, defined contribution pension pots will be subject to IHT at the death of the pension-holder. The supporting Budget document confirmed that the current nil-rate thresholds for IHT are due to be frozen until April 2028, and the government is extending these threshold freezes for a further two years to April 2030. The government will also “invest £52m to digitalise” the IHT service from 2027/28.

As part of the abolition of the tax regime for non-domiciled individuals (or ‘non-doms’), the government will introduce a new residence-based system for IHT from 6 April 2025. It will end “the use of offshore trusts to shelter assets” from IHT, and will scrap “the planned 50% tax reduction for foreign income in the first year of the new regime”.

An elderly couple walking
Defined pension pots will be subject to inheritance tax.

From April 2026, Agricultural Property Relief and Business Property Relief on IHT will be reformed. Assets above £1m will attract 50% relief, but there will be no threshold for this 50% relief for shares listed on the alternative investment market (AIM). Nicholas Hyett, Wealth Club investment manager, said that business relief is “crucial to the long-term future of many small family-owned businesses,” and hailed the reforms as being “less draconian than feared, with full relief capped at a still fairly generous £1m and IHT falling to 20% thereafter”.

However, Toby Tallon, tax partner at Evelyn Partners, said that business owners will be “feeling the pain given the significant changes confirmed to CGT, IHT and employers’ NIC”.

Business and corporate taxes

Paul Falvey, BDO tax partner, said the corporate tax roadmap published with the Budget provides “some predictability,” with confirmation that the headline rate of corporation tax will be capped at 25% for the duration of this Parliament. There is also a commitment to maintain full expensing and the £1m annual investment allowance. The government has also committed to maintaining the small profits corporation tax rate, R&D relief rates, and the patent box.

Reeves confirmed that private schools would be subject to VAT from 1 January 2025 and no longer be eligible for relief from business rates (charitable rates relief) from April 2025.

However, Reeves said, from April 2025, eligible business properties in England in the retail, hospitality and leisure sectors will receive business rates relief of 40%, up to a cap of £110,000 per business. She also announced that the small business tax multiplier will be frozen next year. The government says it intends to bring in “permanently lower multipliers for retail, hospitality and leisure,” and is also consulting on business rates reform.

The government also confirmed there is to be a further independent review of the loan charge.

Reforms will begin from 30 October 2024 to the taxation of Employee Ownership Trusts, Employee Benefit Trusts and close companies, to prevent abuse. “The government will ensure shareholders cannot extract funds untaxed from close companies by legislating to remove opportunities to side-step the anti-avoidance rules attached to the loans to participators regime,” it said. A close company is one with five or fewer shareholders or directors (also known as ‘participators’).  

The government confirmed that in Spring 2025 it will publish a further consultation on reforms to the UK’s rules on transfer pricing, permanent establishments, and the Diverted Profits Tax – which will include the potential removal of UK-to-UK transfer pricing. Further details on the implementation of the OECD’s Pillar Two measures has also been published.

Stamp Duty Land Tax (SDLT) and motoring taxation

Reeves announced that she was reforming SDLT by increasing the additional homes surcharge by two percentage points, to 5%, coming into effect from tomorrow i.e. 31 October 2024, in order to raise revenue while supporting those buying their first home.

Reeves announced that fuel duty will be frozen for another year. The Budget supporting documents confirm the temporary 5p cut in fuel duty rates will be extended by 12 months and will expire on 22 March 2026, while the planned inflation increase for 2025/26 is cancelled.

The government has also set rates for tax on company cars for 2028/29 and 2029/30, and changed rates for vehicle excise duty. Reeves said she was doing so to “maintain incentives for electric vehicles”. Further details are in the Budget supporting documents.

HMRC investment

The government will invest “to modernise HMRC’s systems using the very best technology and recruit additional HMRC compliance and debt staff,” said Reeves. HMRC will increase the interest rate on unpaid tax debt to ensure that people pay on time, while the supporting documents confirmed that from 6 April 2025, the interest rate on unpaid tax liabilities will rise by 1.5 percentage points.

As well as the above, Reeves also said that clamping down on umbrella companies and tackling promoters of tax avoidance schemes will help to “raise £6.5bn by the end of the forecast” period, thus reducing the tax gap.

A total of £1.4bn will be invested over the next five years to recruit an additional 5,000 HMRC compliance staff, “raising £2.7bn per year in additional revenue by 2029/30,” according to the government.

It also confirmed a £36m investment to “modernise HMRC’s tax adviser registration services”. Tax advisers who interact with HMRC on behalf of their clients will need to register with the service from April 2026 and will need to provide an ‘advanced electronic signature’ for certain income tax repayment claims from 6 April 2025.

The government will expand the rollout of Making Tax Digital (MTD) for income tax self-assessment (ITSA) to “those with incomes over £20,000 by the end of this Parliament, and will set out the precise timing for this at a future fiscal event”.

The government also said it is publishing a consultation on reforming HMRC’s correction powers, exploring changes to HMRC’s existing powers and processes, and a potential new power to require taxpayers to correct mistakes themselves. It will also seek to introduce measures to simplify the tax administration system and will consult on how HMRC acquires and uses third-party data to help taxpayers get their tax affairs right.

Other taxes and duties

The government confirmed that from 6 April 2025, it will uprate Qualifying Care Relief, the amount of income tax relief available to foster carers and shared lives carers, by the September 2024 consumer prices index rate of 1.7%. The tax-free allowances for married couples and the blind persons will be uprated by the same rate from the same date.

Reeves confirmed that alcohol duty rates on non-draught products will increase in line with the retail price index from February 2025. However, she added, since “nearly two-thirds of alcoholic drinks sold in pubs are served on draught… instead of uprating these products in line with inflation, I am cutting draught duty by 1.7%, which means a penny off a pint in the pub”.  

Reeves announced that the rate Energy Profits Levy (EPL) will rise by three percentage points to 38% from 1 November 2024, and the EPL will end on 31 March 2023. She also announced the removal of the investment allowance and that the decarbonisation allowance rate will be 66%.

Reeves confirmed that rates of Air Passenger Duty (APD) will increase from 2026/27, particularly for private jets, which will see its rate rise by a further 50%.

Reeves also confirmed that from 6pm on 30 October 2024, the tobacco duty escalator will be set at the retail price index plus 2%, while hand-rolling tobacco will see its rate increase by 10%. Vaping liquid will see a flat-rate excise duty introduced from 1 October 2026.

The government confirmed that the main rates of the Climate Change Levy (CCL) for gas, electricity, and solid fuels will be uprated in line with the Retail Price Index in 2026/27. It also confirmed the UK carbon border adjustment mechanism (CBAM) will be introduced on 1 January 2027.


The IFA will hold an Autumn Budget update on 19 November. More information HERE

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