Delving into the UK 2024 Autumn Budget – our summary of the tax implications

What were the key tax points from the UK 2024 Autumn Budget and how do they affect Businesses?

Before diving into the specifics of the recent budget and its implications for you and your business, a good first step is to book a call with us to discuss the impact of this budget on your payroll, profitability, 2025 business plan and cash forecast and eventual exit plans for your business.

Let’s get into the details of the Budget:

Key Details:

National Minimum Wage Changes: On October 29th, Rachel Reeves announced updates to the National Minimum Wage, effective April 1, 2025:

• National Living Wage (21+ years): Increased by 77p to £12.21/hour
• 18–20-Year-Old Rate: Increased by £1.40 to £10.00/hour
• 16–17-Year-Old and Apprentice Rate: Increased by £1.15 to £7.55/hour

For example, an employee working 40 hours a week at the National Living Wage will have an annual salary of £25,396.80, plus associated National Insurance (NI) and pension costs.

Employer National Insurance Contributions

The new Labour government is also raising Employer NI contributions from 13.8% to 15%, and lowering the threshold for payments from £9,100 to £5,000.

To mitigate this impact, the Employment Allowance is being increased from £5,000 to £10,500, providing potential relief for micro and small businesses.

What does Higher Employer NI Mean?

For example if your monthly payroll is £10,000 with all employees above £5,000 threshold your NI payments could reduce by over £3,000 per year with the Employment Allowance. But single director companies with no other employees are not eligible for this allowance. Directors with a £12,570 monthly salary will see their Employer NI contributions increase from £39.90 to £94.63 from April.

Recommended Actions:

• Review Wages: Ensure you are compliant with the new minimum wage rates and check if you need to make any adjustments to other employees wages to maintain wage fairness.
• Evaluate Costs and Business Model: Consider restructuring such as changing the mix between contractors and permanent employees or switching from a limited company to sole trading.
• Enhance Operational Efficiency: Look at technology and streamlined practices to avoid hiring new permanent staff.

Director Compensation: Historically, it was more tax-efficient for directors to receive minimal PAYE and take dividends, but this landscape has changed. No adjustments were announced for income tax, employee NICs, or dividend tax for 2025/26. Basic income tax remains at 20%, while dividend tax is 8.75%. It is crucial to reassess whether PAYE or pension contributions provide better tax efficiency in light of rising Capital Gains Tax (CGT), impacting the net proceeds from business sales.

Capital Gains Tax Increases with immediate effect

he budget includes increases in CGT rates:

• Lower rate: From 10% to 18%
• Higher rate: From 20% to 24%

Rates for Business Asset Disposal Relief and Investors’ Relief will gradually increase to 14% by April 2025 and align with the lower rate of 18% by April 2026. The lifetime limit for Investors’ Relief will be reduced to £1 million from October 30, 2024. These align with unchanged residential property rates.

Implications: Higher taxes will apply to asset sales, shares, business holdings, and other gains. Consulting with a tax professional is more important than ever for strategic planning.

Inheritance Tax (IHT): Current IHT thresholds will be frozen until April 2030. From April 2027, unspent pension funds will be subject to IHT. Agricultural and business property reliefs will see changes in 2026, capping the 100% relief to £1 million combined, with a 50% rate thereafter. The rate for non-listed business shares will also reduce to 50%.

Business Rates Relief: Retail, hospitality, and leisure sectors will continue benefiting from a frozen small business multiplier at 49.9p. After the current 75% reduction ends, a 40% reduction up to £110,000 will apply.

Fuel Costs and Company Car Tax: The 5p fuel duty cut extends into 2025/26. Company car tax for electric vehicles will rise, with a BIK of 7% by 2028/29. Hybrid and petrol/diesel vehicles will see increased BIK rates up to 18%.

Stamp Duty: Stamp duty on second homes and buy-to-let properties rises from 3% to 5%. Purchases over £500,000 by companies will see a rate increase to 17%.

End of Non-Dom Tax Regime: From April 2025, the non-dom tax regime will be replaced with a residence-based system. For the first four years, foreign income and gains will be exempt from UK tax. Additional changes include abolishing the offshore trust benefits for IHT.

Addressing the Tax Gap: The government plans to recruit 5,000 additional compliance staff and allocate resources to modernize HMRC systems, enhance productivity, and combat tax fraud.

For tailored advice on navigating these updates, plus mandates around Making Tax Digital, contact us to discuss your specific business situation. At JML Accountancy, we are ready to help you today.