It is sometime since a Budget was as hotly anticipated as today’s – the first under a Labour Government in 14 years, and against a backdrop of what is claimed to be a large “black hole” in the nations finances, of £22bn or £40bn depending which report you read.
Our Associate Accountancy Manger Susan Albest brings you first thoughts on today’s announcements, including the small print not announced in the speech. As always the devil is in the detail and further information, nuances and ramifications will evolve over coming weeks.
A usual its a first review, and more detail will doubtless come to light over coming weeks. Additionally, as always, it is not a comprehensive review – the focus is on the policies that are likely to be of interest and relevance to our clients.
Rachel Reeves, the first ever female Chancellor of the Exchequer (as she was keen to make clear, and rightly so) has been a bit of an enigma, with nobody really knowing how she would perform during her first, and very eagerly anticipated, budget delivery.
Well she didn’t disappoint did she? Rachel’s performance was powerful, riveting, convicting – in fact, everything one could expect from what was clearly a very eloquent and commanding public speaker. Whatever the content of the budget speech, and whatever political party anyone supports, it’s a massive “Bravo” for this brilliant performance. Her boss must be rightly very proud of his right hand (wo)man.
For weeks and weeks the British public have been warned by the media to expect a painful and expensive budget. As it turns out, there were as many pleasant surprises as there were unpleasant – substantial financial commitment promises to public services, from schools to the NHS; local government to Defence, both at home and overseas (Ukraine got a £3bn/year commitment). There were financial promises to fix past injustices e.g. £11.8bn for victims of the infect blood scandal, and £1.8bn for victims of the Post Office Horizon scandal. The Chancellor claims to be able to raise £40bn from this budget and it was clear that she has mapped out how it is to be spent.
Business Taxation
The Chancellor confirmed that, as promised in Labour’s election manifesto, there would be no increase to income tax, employees NI, or VAT.
National Insurance – The big news of the day, although largely anticipated, was the announcement around employer NI, which will increase from April 2025, on two counts:
(a) The headline rate of employer NI will increase by 1.2% (up from 13.8% to 15%)
(b) The employer NI threshold (the annual earnings level above which eer NI kicks in) will be reduced from £9,100 to £5,000. This will catch a lot of smaller limited company yoga and other mind body employers, especially those with only 1 employee (usually themselves in the case of company directors). At current levels, an employee needs to earn at least £6,396/annum in order to qualify for state pension contribution credits. Most Whitefield Tax clients earn quite a bit more than this, but even at this minimum level, employer NI would cost £209/annum. On the face of it, if yoga teachers want to continue funding their state pension through their director salary, it seems inevitable that they will be £200-£300 a year worse off. These changes don’t come in until April 2025, so there is plenty of time to plan for it and consider whether there are other options; for example a sole trader yoga teacher who also runs a studio through a limited company may find that their sole trader profits are high enough to qualify for class 2 NI, which by itself will fund the state pension credits..
Businesses with 2 or more employees (including themselves if applicable) won’t have to worry about this, because the Employer NI allowance is increasing from £5,000/annum to £10,500/annum. On the face of it therefore, it feels like it will be the very smallest employers who will be worse off, and most likely the very largest (Whitefield Tax doesn’t act for very large employers, so I don’t have the urge to work this out).
Corporation Tax – A corporate road map to be published “today”. We’ll post this to our website when received from ACCA. No changes announced for corporation tax rates or thresholds, although the Chancellor did announce that there were no plans to increase the upper CT rate “during this government” beyond the current 25%. Even at this rate, the Chancellor announced, the UK still has one of the lowest CT rates in Europe.
The £1m Annual Investment Allowance remains unchanged.
Business Asset Disposal Relief – the Chancellor acknowledged the need to continue encouraging entrepreneurship in the UK, so she appeared cautious in her treatment of BADR, the prinicpal relief used by entrepreneurs. The £1m lifetime allowance remains in place. The 10% CGT rate enjoyed by entrepreneurs using BADR will remain at 10% until April 2025, following which it increases to 14%, and from April 2026 it increases again, to 18%. (More on other, non BADR, CGT rates below).
Personal Taxation
No increase to personal tax rates, as mentioned above.
Personal allowance – The personal allowance of £12,570, which was frozen to 2028 by the Tory Chancellor, will be “unfrozen” (i.e not extended) from April 2028. Rachel Reeves seemed quite pleased with herself over this announcement, treating it as some kind of give away. We’ll never know what Jeremy Hunt’s plan was beyond 2028.
Investments – VCT and EIS relief extended until 2035.
Non Doms – the Non Dom tax regime is to be abolished and replaced with a new resident status scheme. No doubt details of that will emerge in due course.
VAT
The only mention of VAT was to confirm that VAT on public school fees would be introduced from January 2025. It was also announced that public schools would not be able to claim Business Rates Relief from April 2025.
VAT Registration thresholds unchanged, as are VAT rates.
Business Rates
The existing 40% business rates for the retail, hospitality and leisure industries will continue in 2025/6 up to a cap of £110,000 per business. “Leisure industry” does of course extend to yoga and Pilates studios, so this will be welcome news for our YogaTax clients who operate out of their own, or a rented, studio.
Capital Taxes – IHT and CGT
Capital Gains Tax – the CGT basic rate on asset sales increases from 10% to 18%, and the higher rate increases from 20% to 24%. CGT on property sales remains unchanged.
Inheritance Tax – The current £325k threshold is frozen until 2030. Inherited pensions to be brought into IHT from April 2027.
Duties and Excise
Fuel duty frozen for 2025/26.
Tobacco duty to increase in line with Retail Price Index. Also a new duty to be levied on vaping liquid.
Small rises to duty on soft drinks and non draught alcoholic drinks, but draught beer will cost 1p a pint less (much cheering in the house to this announcement).
Air Passenger Duty increases – £2 for economy Europe flights; no mention of duties for long haul or other flight classes. 50% increase for flights involving private jets.
Benefits, Pensions and Social Security
State pension increase for 2025/26 set at 4.1%, under the Triple lock (no mention of removing this lock). Pension credits will also rise by 4.1%.
Carers’ allowance – From April 2025 carers will be permitted to work for 16 hours/week at National Living Wage rates, without losing their allowance. Government will also be looking at the “cliff edge” overpayment issues facing some carers.
Private pensions – Surprisingly, but also unsurprisingly, no mention of pensions in the budget. It was widely anticipated that there would be changes to the lifetime allowance, tax free drawdown, pension tax relief, but it was not to be so.
Government Spending
There was the usual promise of additional funding for HMRC to tackle tax avoidance and late payers; also a newly appointed “Covid Corruption Commissioner”. Also a renewed commitment to tackle welfare fraud. Lots of tackling being planned it would seem.
Plenty of talk around financial support for public services – £2.3bn for education/£3m for further education/£3m extra for school breakfast clubs/A tripling of SEN funding/£1bn to enhance the already established household support scheme.
Additional £22.6bn funding for the NHS.
Usual financial commitments to defence, and a commitment to support Ukraine to the tune of £3b/year “for as long as it takes”.
Some happy news for victims of the infected blood and Post Office Horizon scandals. The Government has pledged £11.8bn and £1.8bn respectively to fund compensation for those affected.
The headline message from the Government was the need to “restore economic stability” and there are very solid plans being made for what they hope will be an increase in UK investment. There is the promise of a £70bn investment in a National Wealth Fund..
Other Measures & Announcements
Stamp Duty Land Tax (SDLT) – SDLT on Buy to Let and second homes increased from 3% to 5% effective from 31 October 2024.
National Minimum Wage – The national minimum wage for adults 22 years and over will rise in April 2025 to £12.21 per hour. The government plans to move towards a single national rate for all adult ages, and the first step will be an enhanced 16.3% rise for 18-21 year olds from April 2025.
Electric cars and P11d benefits – no changes this side of 2028.
Unfair dismissal and bullying in the workplace – the government is, said the Chancellor, committed to tackling this.
Council right to buy discounts to be reduced, meaning council properties will cost more to purchase.
