The Autumn Budget 2024: A Balancing Act for British Businesses

As the leaves fall and we approach Halloween, this year's Autumn Budget has unveiled a series of significant changes to the UK's tax landscape that are likely to send ripples of concern through the business community.

Chancellor Rachel Reeves, bound by the government's manifesto pledges to avoid raising income tax, national insurance, and VAT for "working people," has had to look elsewhere to find the £40 billion needed to stabilise public finances.

Tax Hikes on Employers and Investors

One of the most talked-about changes is the increase in employer national insurance contributions, which is set to rise by 1.2 percentage points to 15% starting April 2025. Coupled with a reduction in the threshold of employer’s national insurance from £9,100 to £5,000, this move aims to raise an estimated £20 billion, positioning it as the most significant source of revenue from the new measures.

On the capital gains tax front, significant hikes have been announced as well. The higher rate will jump from 20% to 24%, while the lower rate will increase from 10% to 18%. Additionally, the government plans to close loopholes in inheritance tax and reform agricultural property relief, directly impacting wealth accumulation strategies for many families and investors.

Reeves also confirmed the scrapping of the non-domicile tax regime in 2025, introducing a more competitive residence-based scheme designed to attract temporary residents to the UK.

Inheritance Tax Update: Freeze Extended and New Rules

Chancellor Rachel Reeves has announced that the inheritance tax (IHT) freeze will be extended until 2030. This allows individuals to inherit up to £325,000 tax-free, rising to £500,000 for estates that include a residence passed to direct descendants, and up to £1 million when passed to a surviving spouse or civil partner.

Reeves also plans to close existing loopholes in the tax system by including inherited pensions in inheritance tax starting from April 2025. These changes aim to create a fairer inheritance tax framework.

A Shift in Tax Threshold Policies

In a surprising twist, the Chancellor decided against extending the freeze on personal tax thresholds, which had been a major point of concern leading into the budget. Instead, from 2028 to 2029, personal tax thresholds will be adjusted based on inflation, providing some respite to individuals in a tightening economic landscape.

List of Tax measures

Among the comprehensive list of changes announced in the 90-minute-plus Autumn Budget speech are:

• Increasing employer’s national insurance by 1.2 percentage points to 15% from April 2025.
• Reducing the secondary threshold on each employee’s salary from £9,100 a year to £5,000.
• Increasing the employment allowance from £5,000 to £10,500.
• Further investment and modernisation for HMRC to ensure compliance and gap closure.
• Freezing fuel duty at 5p for another year.
• Increasing the lower rate of capital gains tax (CGT) from 10% to 18%, and the higher rate from 20% to 24%.
• Business asset disposal relief will remain at 10% this year, before rising to 14% in April 2025, and to 18% from 2026/27.
• Confirmation of VAT on school fees.
• No extension to the personal tax threshold freeze.
• An increase to national living wage from £11.44 to £12.21 an hour from April 2025.
• Confirmation that VAT on private-school fees will go ahead.
• Increasing the energy profits levy on oil and gas companies to 38%.
• Increasing alcohol duty rates on non-draft products in line with RPI from February.
• Removing the outdated concept of domicile from the tax system from April 2025.
• Increasing the rate of air passenger duty by a further 50%.
• Increasing capital gains rates on carried interest to 32% from April 2025.
• Increasing the stamp duty land tax surcharge for second homes to 5%.

What’s in the Budget for Businesses?

Prior to the Budget announcement, the government dedicated considerable time to addressing the needs of working individuals. This focus ultimately restricted their options for tax increases without breaching manifesto commitments, leading to the inevitable conclusion that businesses would bear the weight of any tax burdens.

The expected hike in employer national insurance contributions could prove detrimental for small and medium-sized enterprises (SMEs) and self-employed professionals, particularly as these firms now face the additional challenge of a 6% rise in the national living wage coming next year.

The Budget did not unveil substantial new incentives for businesses, apart from the Chancellor’s prior assurance to uphold full expensing and the £1 million annual investment allowance.

On a brighter note, there was some relief for high-street businesses. Acknowledging the significant anxiety surrounding business rates beginning in 2026/27, Reeves announced plans for two permanent lower tax rates targeted at the retail, hospitality, and leisure sectors. She remarked, “I will provide 40% relief on business rates for the retail, hospitality, and leisure industry in 2025/26, with a cap of £110,000 per business. Additionally, the small business tax multiplier will remain unchanged next year." These initiatives aim to support sectors that are still recuperating from recent economic challenges.

Strengthening HMRC: A Commitment to Closing the Tax Gap

In a decisive move to enhance tax compliance, Chancellor Rachel Reeves has announced further investments in HMRC as part of a broader strategy to close the tax gap. With Exchequer Secretary to the Treasury, James Murray, leading the initiative as chair of HMRC, the government is taking significant steps to bolster its tax collection capabilities.

Reeves emphasized that any potential changes to tax rates or thresholds must be predicated on ensuring that individuals and businesses pay what they already owe. “Before a government could consider any change to a tax rate or threshold, it must ensure that people pay what they already owe,” she stated, underscoring the importance of tax compliance.

The Chancellor revealed that this latest investment will build on previously announced funding for an additional 5,000 compliance officers at HMRC, aimed at reinforcing the department’s capacity to enforce tax regulations effectively.

Modernisation efforts will also include the integration of cutting-edge technology into HMRC systems. “We will invest to modernise HMRC systems using the very best technology, and recruit additional HMRC compliance and debts personnel,” Reeves assured.

Additionally, the government is introducing measures to address the issue of umbrella companies, which have been a significant concern in tax avoidance schemes. The Chancellor announced increased interest rates on unpaid tax debts, stating that these initiatives will not only ensure timely payments but also target those promoting tax avoidance strategies. The goal of these reforms is to significantly reduce the tax gap and is projected to generate an impressive £6.5 billion by the end of the forecast period.

With these strategic investments and reforms, the government is signaling its commitment to a more efficient tax collection system and a fairer fiscal landscape for all.

A Brazen Acknowledgment of Economic Strain

At the heart of Reeves's speech was a sobering acknowledgment of the precarious state of the UK's public finances. She expressed that the formidable fiscal challenges faced today stem largely from the previous government's policies, emphasizing the need for a complete overhaul to restore stability. According to the Office for Budget Responsibility (OBR), the country's real GDP growth is projected to show gradual improvement, promising optimistic but cautious economic forecasts for the coming years.

Reeves is aware that the consequences of these fiscal changes may be 'tricks' rather than 'treats' for many business owners. However, her strategy aims to set the groundwork for future growth, even as firms brace for challenges in the short term.

Looking Ahead

As we step into uncertain times, the government's promise to conduct future budgeting only once a year — with no biannual fiscal events — is intended to provide businesses with a degree of predictability. This extended wait between budgets could serve as a double-edged sword; while it allows businesses time to plan for tax changes, it may also amplify the anxiety surrounding potential future reforms.

The Autumn Budget of 2024 promises substantial shifts that will challenge both businesses and individuals. Whether these measures will lead to long-term stability and growth remains to be seen, but one thing is clear: the road ahead will require careful navigation through the evolving fiscal landscape.