Autumn Budget 2024 – what can we expect?

On Wednesday, 30th October 2024, Chancellor Rachel Reeves will deliver the Autumn Budget, the first from the new Labour Government. Facing a £22 billion fiscal shortfall, Reeves has pledged not to raise income tax, National Insurance, or VAT for employees. However, other tax changes are widely anticipated as Labour seeks to fill the gap while maintaining its commitment to economic growth. Here’s a look at what we might expect.

Personal Taxes

Pensions: There are rumours that pension tax relief for higher earners could be capped, potentially introducing a flat-rate relief system. This would reduce the benefits for higher-rate taxpayers making large pension contributions. Individuals in higher tax bands should consider maximising contributions before any changes are introduced.

Capital Gains Tax (CGT): There is speculation that CGT rates could be aligned with income tax rates, which would mean a significant rise from the current top CGT rate of 20%. This change would impact investors and business owners who are planning asset sales. If implemented, it could take effect immediately after the Budget announcement. Those looking to sell assets should act before the 30th October to lock in current rates.

Inheritance Tax (IHT): Reforms may target Business Property Relief (BPR) and Agricultural Property Relief (APR), key tools for reducing IHT on assets like shares and farmland. Potential changes to the seven-year rule for gifts made during a person’s lifetime could also affect inheritance planning. 

Rise in Employers’ National Insurance?

A potential rise in employers’ National Insurance Contributions (NICs) has been one of the hottest topics of speculation ahead of the Autumn Budget. While Labour’s manifesto pledge explicitly ruled out increasing NICs for employees, no such guarantee was made for employers. In recent interviews, Business Secretary Jonathan Reynolds suggested that Labour’s pledge applies only to “taxes on working people,” leaving the door open for an increase in employer NICs.

The current employer NIC rate is 13.8%, and any rise would increase business costs, potentially impacting hiring decisions and wage growth. Critics, including Shadow Work and Pensions Secretary Mel Stride, have warned that increasing employer NICs could be seen as a breach of Labour’s broader tax promises and may hurt economic growth by discouraging job creation. However, given Labour’s need to raise revenue without breaking its key manifesto commitments, employers’ NICs remain a possible target.

Business Taxes

Roadmap for Business Taxation: Labour’s manifesto promised to release a comprehensive roadmap for business taxation within six months of the election. Chancellor Rachel Reeves has confirmed that this roadmap will be unveiled on Budget day. This will provide much-needed clarity on the government’s long-term plans for businesses, which are expected to include several key commitments.

Labour has pledged to freeze the corporation tax rate at 25% and retain full expensing for capital allowances, supporting businesses that invest in machinery and equipment. The roadmap may also outline plans for replacing business rates, offering a timeline for this crucial reform, and confirming the promised changes to the UK’s planning system. In addition, simplification measures could be introduced, such as increasing the SME size threshold, reducing administrative burdens—a policy that was previously proposed by the Conservative government.

Corporation Tax:  As mentioned above, the government is expected to maintain the corporation tax rate at 25% for the rest of the parliamentary term. Labour has emphasized the importance of a stable tax environment for businesses, with a focus on supporting economic growth through full expensing for plant and machinery.

Non-Dom Rules: The Autumn Budget will likely confirm sweeping changes to the non-domiciled (non-dom) regime. A 10-year residence test for UK Inheritance Tax (IHT) and the abolition of excluded property trusts are expected, bringing long-term residents’ global assets into the UK tax net. These changes are scheduled to take effect from April 2025.

Sector-Specific Changes

Energy Profits Levy: A rise in the Energy Profits Levy (EPL) to 38% will take effect from 1st November 2024, with the levy extended until 2030. Investment allowances for qualifying capital expenditure will also be reduced, impacting energy companies’ tax liabilities.

Furnished Holiday Lets (FHL): From April 2025, reforms will impact the taxation of furnished holiday lets, including reduced interest relief and changes to pension relief. These adjustments could significantly reduce profitability for property owners in this sector.

Stay informed with Liquid Friday

Labour faces a challenging balancing act in its first Budget, attempting to address the fiscal shortfall without breaking key tax promises. While income tax and employee National Insurance will remain untouched, businesses could face increases in NICs, CGT, and other taxes. The full impact of these changes will become clearer once the Budget is unveiled.

As always, we’re committed to keeping our contractors and agency partners up-to-date on any changes that may impact them, especially those resulting from the Budget, including shifts in tax regulations, employment law, and compliance requirements.

After the upcoming Budget, we will publish a comprehensive summary highlighting the key announcements that could affect you. Additionally, we’ll be hosting a special webinar for recruitment agencies, led by our COO, Joe Taffurelli, to discuss the implications of the Budget in detail. Invitations will be landing in inboxes soon or you can register here.