Ben Handley
Private Clients and OMB, Tax Partner
Autumn Budget Webinar 2024
Watch the latest webinar where our tax experts breakdown what the Budget announcement means for you and your business.
WATCH NOWThe UK’s first female Chancellor Rachel Reeves MP delivered the new Labour government’s first Budget today. She confirmed that this Budget represents a tax raise of £40 billion to “restore financial stability” and to rebuild Britain.
We have broken down announcements from the Autumn Budget into sections – you can find in depth on Personal Taxes. Corporate Taxes, Indirect Taxes, Employment Taxes and Other Taxes below.
From 6 April 2025, the late payment interest charged by HMRC on personal tax liabilities will increase by 1.5% from 7.5% to 9%. This includes late payment of income tax, capital gains tax and national insurance contributions.
Income tax and national insurance contribution thresholds will remain unchanged up until April 2028.
Annual subscription limits for ISAs, Lifetime ISAs and Junior ISAs will remain unchanged until April 2030.
The higher rate of Air Passenger Duty which applies to private jets will rise by 50% from 5 April 2026.
As expected, the Budget announcements contained a number of changes to the taxation of carried interest. In the short term, the tax rate on carried interest will increase to 32% from 6 April 2025. However, this is just the first step in a wider series of reforms.
More widespread reform will be implemented in April 2026. The Government plans to introduce a revised tax regime for carried interest which sits wholly within the income tax framework, with all carried interest treated as trading profits and subject to income tax and Class 4 NICs. The amount of ‘qualifying’ carried interest subject to income tax and Class 4 NIC will be adjusted by applying a 72.5% multiplier, giving an effective tax rate of 34.075%.
Non-qualifying carried interest will be taxed under the income based carried interest (IBCI) regime, and a consultation running until 31 January 2025 has been introduced by the Government to consider additional qualifying conditions (beyond the average holding period requirement). The options for additional qualifying conditions are a minimum co-investment commitment, or a minimum period of time between the award of carried interest to an individual and its receipt by that individual. Importantly, the IBCI rules will also be amended to remove the exclusion for employment-related securities, ensuring the rules apply to all recipients of carried interest.
The rules for people leaving the UK or arriving in the UK are more complex, and we suspect will be very bespoke to individuals’ circumstances. The application of the new foreign income and gains (FIG) rules will be important, as will the ability to utilise double tax treaties for those who fall within multiple tax regimes.
The key messages on the rules have been simplification and fairness but, in the short term, there will be a lot of change for PE managers to get to grips with.
There were several changes made to inheritance tax (IHT) in the Budget. Although there was anticipation of fundamental changes to IHT, there were no amendments made to lifetime gifts, IHT taper rates or capital gains tax on inherited property.
The changes that have been announced are not effective on 30 October. Business relief and agricultural relief reforms apply from April 2026 and pension reform from April 2027.
The inheritance tax threshold provides a tax-free allowance of £325,000 - the Chancellor extended the freeze of the threshold from April 2028 to April 2030. Together with the residential nil rate band of up to £175,000 this provides a total tax-free allowance up to £500,000, which combines to £1m for spouses and civil partners. This will result more taxable estates as asset values continue to rise with inflation and property values still increasing.
Inheritance tax business relief and agricultural relief reforms
IHT reforms under Labour include significant changes to agricultural and business relief, which are currently uncapped.
From 5 April 2026, the first £1 million of combined agricultural and business property will continue to receive 100% relief, with 50% relief on amounts over £1 million.
Business relief for shares that are not listed on a recognised stock exchange, which includes AIM shares, will reduce to 50%. The £1m allowance does not apply to these shares.
Assets that receive 50% relief are subject to an effective IHT rate of 20%, as opposed to the main rate of 40%.
The £1m will effectively be a ‘lifetime allowance’, covering the estate on death, failed gifts in the 7 years before death and lifetime transfers into trust. Any unused allowance will not be transferable between spouses.
Trusts will receive a combined £1million allowance. However, where a settlor has settled multiple trusts before 30 October 2024, each of those trusts will have its own £1million allowance.
Inheritance tax on pensions
The key announcement for pensions was the effective abolition of the IHT exemption from 6 April 2027. This is perhaps not surprising, given the prevalence of defined contribution schemes (which can be inherited), and the recent abolition of the lifetime allowance charge.
The Chancellor’s stated aim is to prevent pensions from being used as a tool for avoiding IHT. However, if the deceased dies on or after their 75th birthday, withdrawals from the pension by beneficiaries is subject to income tax at their marginal rate, meaning that funds could be subject to overall effective taxes of up to 67% before reaching the beneficiary. The published Budget documents do not mention this fact, but a consultation has been announced during which it will almost certainly be raised - watch this space.
Where IHT is payable, it is paid by the pension fund to prevent withdrawals being required (and possibly taxed) to pay the IHT.
There were several changes made to capital gains tax in the Budget. Taking effect from 30 October, the main rates of capital gains tax (CGT) have increased to 18% for standard rate taxpayers and to 24% for higher rate taxpayers (up from 10% and 20%). This re-aligns the main rates and rates on residential property. Second property owners and landlords will be relieved that the rates for residential property have not been increased. For trustees and personal representatives, the main rate has been increased from 20% to 24% also applying from 30 October. For shareholders, the increased main rates apply unless they qualify for a relief.
For both business asset disposal relief (BADR) and investors’ relief (IR), the 10% rate remains for the rest of this tax year, but will increase to 14% from 6 April 2025and then to 18% from 6 April 2026.
For assets qualifying for BADR, the lifetime limit of £1,000,000 of gains has not changed. BADR applies to the disposal of certain business assets, including the sale of a business or the sale of a qualifying shareholding (5% or qualifying enterprise management incentive shares) in a trading company/holding company of a trading group.
However, for assets qualifying for IR, the lifetime limit of £10,000,000 has been reduced to £1,000,000 from 30 October. This applies to qualifying investor gains on newly issued ordinary shares of an unlisted trading company bought by individuals from 17 March 2016 and held for at least three years starting from 6 April 2016.
Other changes applying from 30 October include anti-avoidance rules to tax partners in LLPs that are liquidated on chargeable gains that would have accrued to them at the time they contributed an asset to the LLP. This will apply if the asset is subsequently disposed of in the liquidation to the partner (or a person connected to them).
If someone wishes to use alternative finance to raise capital using an asset they already own, a tax charge will not arise. This commonly impacts properties that do not qualify for Capital Gains Tax Private Residence Relief, such as rental properties, second homes and commercial properties.
The Government has followed through on their plans to abolish the current rules for UK resident non-domiciled individuals from 6 April 2025. As expected, the existing regime will be replaced with a residence-based test that sees the introduction of a four-year foreign income and gains (FIG) regime and a ten out of twenty years residence regime for inheritance tax on non-UK assets.
Four-year FIG regime
From 6 April 2025, the current remittance basis regime will be replaced with a new residence-based test. The new regime will be available for four years starting from 6 April 2025 or the first tax year in which the individual becomes UK resident if later. It will be available to any individuals who have been non-UK resident for at least the previous ten tax years.
Qualifying individuals who have been tax resident in the UK for less than four tax years by 6 April 2025 will be able to use the FIG regime for any remainder of the four-year term. This means that the regime will be available to former UK residents who have been non-UK resident for ten years or more.
During these four-years, new arrivals to the UK will not be subject to tax on their foreign income and gains, nor on distributions from non-resident trusts - these can be brought into the UK freely without attracting a tax charge. Once the four-year period is over, individuals will be taxed on their worldwide income and gains in accordance with the normal tax rules for UK residents.
A claim needs to be made by 31 January of the second tax year following the relevant tax year and it is necessary to nominate all sources of FIG that you wish the rules to apply to. Separate claims must be made for income and gains, although a claim for either or both means that those opting into the four-year FIG regime will lose their entitlement to income tax personal allowances and annual exempt amounts for capital gains tax.
Temporary Repatriation Facility (TRF)
With the introduction of the four-year FIG regime there will be some transitional provisions for existing non-doms.
UK resident individuals who have previously claimed the remittance basis and have unremitted FIG arising before 6 April 2025 can elect to designate all or part of the FIG, and pay tax at a reduced rate to bring these amounts to the UK. The rate of tax is 12% for the tax years 2025/26 and 2026/27 and then 15% for the tax year 2027/28, and it is not necessary to physically move the funds to the UK during this time period. The TRF will also apply to unremitted FIG invested in assets. It is possible to designate amounts where the source cannot be ascertained. Stringent record keeping will be required to comply with HMRC compliance checks.
The TRF will be available to individuals who have previously claimed the remittance basis.
The TRF is also available to UK resident individuals (settlor or beneficiary) who receive a benefit from an offshore trust structure during the same time period, where the benefit is matched to pre- 6 April 2025 FIG. This should mean easier access to trust income and gains which previously may have been subject to punitive tax rates on extraction from trusts.
The TRF can also apply to FIG where a claim for business investment relief (BIR) has been made. From 6 April 2028 when the TRF period ends, it will no longer be possible to claim BIR on any new investments, or reinvestments.
Rebasing
A capital gains tax rebasing of non-UK sited assets will be available to those who have historically claimed the remittance basis for any tax from 2017/18 onwards but cannot benefit from the four-year FIG regime. Assets will be rebased to their market value as at 5 April 2017.
These rebasing provisions will not be available for individuals who became UK domiciled or deemed domiciled prior to 6 April 2025. Rebasing will also not be available to assets held in trusts or companies.
For historic remittance basis users who have relied on the previous rebasing provisions, it will still be possible to rebase assets on disposal to 5 April 2017, provided they remained non-UK domiciled under general law in the period to 5 April 2025. This does, however, leave a group of non-UK domiciled taxpayers who became deemed domiciled at some point between 6 April 2017 and 6 April 2025 who will not benefit from any rebasing regime.
Offshore Trusts
From 6 April 2025 the protection from taxation on income and gains within settlor-interested trust structures will be removed for those who do not qualify for the four-year FIG regime. Instead, FIG arising in these settlements will be taxed on the UK resident settlor/transferor on an arising basis. This will also include FIG within underlying companies but subject to whether any commercial motive defences apply under the transfer of assets abroad provisions.
Non Dom Inheritance Tax
The UK will move to a residence-based system from 6 April 2025 that will see IHT being charged on worldwide assets for individuals who have been UK resident in ten out of the last twenty tax years. Such individuals will remain within the scope of IHT for up to ten years following exit from the UK, and the IHT ‘tail’ will depend on how long they were resident in the UK.
For example, if an individual has been UK resident for between ten and thirteen years, they will remain within the IHT net for three tax years. This is then increased by one year for each additional year of residence. Those who have been UK resident for twenty years will be subject to IHT for ten years after exit.
This should mean that individuals with a domicile in the UK (such as British expats) will be outside the scope of IHT on non-UK assets if they have not been UK resident for ten out of the last twenty tax years.
UK assets will remain within the scope of IHT for all individuals irrespective of residence status.
Transitional rules
Special rules will apply to individuals who are non-UK resident for the 2025/26 tax year. They will be treated as long term-resident only if, on 6 April 2025, they are deemed domiciled under the existing 15/20 rule and are resident for one of the four tax years following exit.
Excluded Property Trusts
Though the concept of domicile is said to be abolished, it will still have relevance when considering the inheritance tax implications for assets held in trusts.
From 6 April 2025, trusts created by a non-UK domiciled individual under common law before 30 October 2024 (and who was also non deemed domiciled under the existing 15 out of 20 year regime when the trust was established), will have non-UK situs assets within the trust treated with features from the existing excluded property regime, and features of the relevant property regime which would normally apply to UK domiciles.
In broad terms, the gift with reservation of benefit rules which usually deem trust assets to be within the Estate of a settlor upon death, will not apply for non-UK domiciled settlors with pre-existing trusts holding non-UK situs assets. Instead, the trust will be subject to ten-yearly periodic and exit charges (at a rate of 6%), depending on whether the settlor is a long-term resident under the new ten out of twenty-year rule. It would appear this rule can apply even if the settlor is no longer resident as at 6 April 2025. When the settlor ceases to be long term UK-resident, the trust will be subject to an exit charge up to 6% of the value of the trust assets.
The Chancellor has introduced the Labour Government's Corporate Tax Roadmap, aiming to provide stability and predictability to businesses and investors. The aim is to rebuild confidence, support long-term planning, boost UK growth, and maintain the UK's competitive edge among major economies.
The Corporate Tax Roadmap sets out a number of commitments for the course of this parliament including:
The headline rate of Corporation Tax will be capped at 25% with the Small Profits Rate and marginal relief remaining at their current rates and thresholds.
For Capital Allowances, full expensing will be maintained along with the £1m Annual Investment Allowance, current writing down allowances rates and Structures and Buildings Allowance. The Government will also consult on the tax treatment of pre-development costs and following a previous consultation will explore the extension of full expensing to assets bought for leasing, when fiscal conditions allow.
For R&D, the current rates for the merged R&D Expenditure Credit scheme and enhanced support for R&D intensive SMEs will be kept and the Government will consult in the Spring on widening the use of advanced clearances in the R&D reliefs.
The Patent Box regime will be maintained as will the UK's competitive regimes for Intangible Fixed Assets (IFAs). Audio visual and video game expenditure credits will also be preserved.
To recognise the importance of increased building and of prioritising the use of previously used land wherever possible, the government also intends to launch a consultation on the effectiveness of land remediation relief in Spring 2025.
On International Corporation Tax issues, the Government is committed to encouraging cross-border trade. It is maintaining its support for a territorial UK Corporation Tax regime underpinned by the substantial shareholding exemption, dividend exemption and a flexible approach to foreign branches.
The government also considers it essential that profit attributable to UK activities are effectively taxed in the UK under the corporation tax regime. To ensure this objective is realised, it will continue to monitor the legislation already introduced to support this including the Pillar two rules; controlled foreign companies’ regime and the hybrid mismatch rules.
The government will consult on changes to the transfer pricing legislation, potentially lowering exemption thresholds and requiring multinationals to report cross-border related-party transactions to HMRC. The UK will continue to support international agreement on a multilateral solution under Pillar One and commit to repealing the UK's Digital Services Tax once that solution is in place. The UK will ensure its domestic rules reflect internationally agreed updates to Pillar two.
Finally, an update will be published in the Spring on modernising the technology the Corporation Tax system relies on. The Government will develop and consult on a new process that will give investors in major projects increased advance certainty about the tax that will be applied.
OECD Pillar Two Implementation
The Pillar Two rules are part of the international OECD BEPS agreement addressing profit shifting and aggressive tax planning by multinational enterprises. The rules affect multinational groups with annual global revenues exceeding €750 million that have business activities in the UK.
It was previously announced that the government would extend the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) in the UK to give effect to the Undertaxed Profits Rule (UTPR). The changes will apply to accounting periods beginning on or after 31 December 2024 and legislation will be included in an upcoming Finance Bill 2024-2025.
The UTPR is the backstop rule in Pillar Two that brings a share of top-up taxes that are not paid under another jurisdiction’s income inclusion rule or domestic minimum top-up tax rule into charge in the UK.
Other proposed GloBE revisions
The government will also provide technical amendments to the MTT and DTT rules which are the UK’s adoption of the income inclusion rule and domestic minimum top-up tax rule in the Global Anti-Base Erosion (GloBE) Rules per the OECD BEPS project.
Part 3 and Part 4 of Finance (No.2) Act 2023 will be amended to effectively implement the GloBE rules, commentary and administrative guidance.
These amendments pertain to a number of revisions, including the following:
Repeal of Offshore Receipts in respect of Intangible Property (ORIP)
As announced in the Autumn Statement 2023, the government will repeal the Offshore Receipts in respect of Intangible Property (ORIP) rules by legislating in the Finance Bill 2024 – 2025.
The ORIP rules discourage multinational enterprises from placing intangible property in low tax jurisdictions, particularly where income will be subject to low or no tax. This is subject to certain exemptions. For instance, if the group’s UK turnover is £10m or less. Or if, substantially, all of the Intangible Property’s related business activity has always been undertaken in the resident territory, and/or if foreign tax is at least 50% of the ORIP tax charge.
If the entity was an off-shore entity, and not resident in a full double-treaty territory with the UK, ORIP imposes an income tax charge on the ‘UK-derived amounts’ that arise in the tax year.
The ORIP repeal will take effect for income arising on or after 31 December 2024, in tandem with the introduction of the Pillar Two Undertaxed Profits Rule, as the Pillar Two rules act to comprehensively discourage aggressive tax-planning arrangements previously targeted by the ORIP regime.
Advance Pricing Agreements for certain financing arrangements
The government will introduce technical amendments in Finance Bill 2024-25 to provide certainty that Advance Pricing Agreements are available for financing arrangements covered by the Transfer Pricing rules in line with HMRC’s existing Statement of Practice 1 (2012). This is retrospective and aligns the legislation with how the rules had always operated in practice.
This note provides a round-up of other key business tax changes announced in the Autumn budget.
The Government will amend legislation to prevent shareholders from extracting untaxed funds from close companies (known as the S455 charge). This change, effective from 30 October 2024, will close loopholes that allow tax avoidance through a chain of new loans and repayments.
The Government will also support the UK's transition to clean energy by increasing the Energy Profits Levy (EPL) rate from 35% to 38%, removing the EPLs investment allowance and extending the levy until 31 March 2030. The rate of the Decarbonisation Investment Allowance will be adjusted to 66% to maintain its cash value following the EPL rate increase. A consultation in early 2025 will address how the oil and gas tax regime should handle price shocks post-2030 once the EPL ends.
The Budget confirms funding for Investment Zones and Freeports across the UK, including the East Midlands Investment Zone for advanced manufacturing and green industries. It also confirmed that five new customs sites will be designated in existing Freeports shortly.
In 2025, the Government will consult on proposals to simplify the tax structure for remote gambling to make it future-proof and close loopholes. The proposal is to consolidate it into a single tax.
The government will amend tax rules for alternative finance to further align them with conventional financing. Following a consultation on tax simplification, these changes will apply across the UK from 30 October 2024 and will be legislated in Finance Bill 2024-25. Currently, certain alternative finance arrangements arguably lead to capital gains disposals on a refinancing which is not the case for conventional financing, particularly affecting properties not eligible for Capital Gains Tax Private Residence Relief. The new rules are intended to prevent this by ensuring that refinancing a property to raise finance through alternative means will no longer trigger a capital gain and so will have similar tax outcomes to conventional financing.
This measure aims to create a level playing field between conventional and alternative finance – it is, however, disappointing that these changes will not have retrospective effect as we requested in our response to the consultation.
The Chancellor confirmed a range of tax measures to support the UK’s creative sector that were previously announced the Spring Budget 2024.
A new Independent Film Tax Credit (IFTC) has been introduced as part of the Audio-Visual Expenditure Credit (AVEC) provisions, effective for films commencing principal photography from 1 April 2024. The credit will be 53% of qualifying expenditure incurred on films with budgets under £15 million that receive the new British Film Institute accreditation and will be available from 1 April 2025. This has now been legislated.
Under the IFTC, qualifying expenditure will be capped at 80% of core expenditure, meaning it could be worth up to £6.36m for a qualifying film.
From 1 April 2025, visual effect costs for film and high-end TV will receive an increased tax credit rate of 39%, up from 34%, under the AVEC provisions, as well as the removal of the 80% cap on qualifying expenditure incurred after 1 January 2025. This will be legislated in the Finance Bill 2024-25.
From 1 April 2025, the rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief will be set at 40% for non-touring productions and 45% for touring productions and all orchestra productions. These rates apply UK-wide. This measure has been legislated.
R&D Compliance Action plan
The Government introduced its Corporate Tax Roadmap in their Autumn Budget Statement with the intention of providing stability and certainty to businesses. The roadmap includes the future of the R&D and Patent Box regimes over the next parliament. The good news is that it suggests no major changes to either regime following the numerous changes that have been made to the R&D scheme in the last 12 to 18 months. Instead of any radical changes, the Government will continue to consider longer term simplifications and incremental improvements to the effectiveness of the reliefs.
Technical correction to intensity ratio definition in R&D Small or Medium Sized Enterprise (SME) rules
At Spring Budget 2023, enhanced support for R&D intensive loss-making SMEs was announced, applying from 1 April 2023. The relief is available where R&D intensity, the ratio of qualifying R&D expenditure to total expenditure in a period, was 40% (now 30%) or more.
In the legislation, the R&D intensity calculation does not take account of any qualifying expenditure of the company for which it is entitled to R&D Expenditure Credit (RDEC), only qualifying SME R&D expenditure.
The correction published today noted that it was always intended that RDEC expenditure should be included in the calculation of R&D tax and, therefore, the legislation will be amended to include RDEC qualifying expenditure in the R&D intensity calculation. The measure is retrospective and will take effect from 1 April 2023 and for accounting periods that began before 1 April 2024.
HMRC’s R&D compliance approach
The Government has outlined a significant reduction in their estimated level of fraud and error in R&D tax credits from their Mandatory Random Enquiry Programme (MREP). Overall, fraud and error has fallen significantly from 17.6% in 2021/2022 to 7.8% in 2023/24. Fraud and error in SME claims, where HMRC believe fraud and error is higher, has fallen from 25.8% to 14.6%.
HMRC’s ongoing approach to managing the R&D tax reliefs is to prevent error and fraud by promoting compliance standards and responding to non-compliance where it happens- it aims to:
Compliance checks
HMRC has responded to increasing levels of error and fraud in the R&D reliefs by increasing the number of compliance checks. In 2023/24 9,700 out of 61,000 claims were subject to a check - this represents 16% compared to 9% in 2022/23. However, the number of complaints, and the numbers upheld, show that HMRC’s service has fallen short of the standards it aims for.
HMRC currently has over 500 people working on R&D compliance, compared with around 100 people in 2020/21. This additional resource, alongside the targeted risk-based approach, has enabled HMRC to undertake more compliance checks into claims for R&D reliefs, especially those made by SMEs, reflecting the higher error and fraud rates in the SME population.
HMRC will continue to use the Additional Information Form and aims to use the data claimants provide to more accurately identify claims requiring a compliance check. They hope this will accelerate the opening of enquiries.
The Government is focused on providing certainty to businesses to make the investments that are critical to growth. As had been expected, the Chancellor confirmed the UK’s generous system of permanent full expensing and the £1 million Annual Investment Allowance will be retained throughout this Parliament.
In setting out a Corporate Tax Roadmap, the Government is focused on how to provide greater clarity on what qualifies for different capital allowances and simplification of the existing legislation. This will not involve fundamental change and Full expensing, Annual Investment Allowances, normal writing down allowances and Structures and Buildings Allowances will all be retained.
In addition, a consultation will be issued shortly on the tax treatment of predevelopment costs following uncertainty because of the Gunfleet Sands Ltd and others v HMRC Upper Tier Tribunal decision. The Government is keen to encourage investment in renewables and major infrastructure projects and to consider the impact of tax rules on these investments. If the consultation results in more clarity and certainty, it should be welcomed by businesses.
The last Budget announced the potential extension of full expensing to assets that are bought for leasing or hiring. The leasing industry will be disappointed that following discussions with stakeholders over the Summer, the Government is still exploring options and that the date of introduction will not be announced until fiscal conditions allow.
Other capital allowances announcements included the extension of 100% first year allowances for qualifying expenditure on zero-emission cars and electric vehicle charge points by a further year to 31 March 2026. Double cab pick-up vehicles with a payload of one tonne or more will be treated as cars for capital allowances from 1 April 2025 following a Court of Appeal judgement. The existing capital allowances treatment applies for any purchases prior to this date.
Land Remediation relief which was first introduced in 2001 to provide enhanced tax relief for cleaning up contaminated or derelict land in preparation for redevelopment will be subject to consultation in Spring 2025. This is to determine whether LRR is still meeting its purpose of boosting development on brownfield land and achieving value for money.
The primary announcements in relation to transfer pricing show a continuation of the process of enhanced risk assessment and monitoring by HMRC, as recently seen with the release of Transfer Pricing Guidelines for Compliance and the consultations undertaken in 2024.
Specifically, further consultations will be undertaken in Spring 2025 which will cover:
Alongside the consultation, the Government will review the transfer pricing treatment of cost contributions arrangements to ensure that the rules are certain and do not act as a deterrent to investment that brings benefits to the UK.
No mention has been made of the previously proposed Summary Audit Trail (SAT). It is possible that the SAT will form an internal benchmark or information request list within HMRC, used in conjunction with the Guidelines for Compliance to review taxpayers’ adherence to transfer pricing rules rather than as a separate formal documentation requirement.
A change will be made to correct an oversight in legislation for Advance Pricing Agreements with retrospective effect.
The government is freezing fuel duty rates for a further year. The temporary 5p cut in fuel duty rates will also be extended by 12 months and will expire on 22 March 2026. The planned inflation increase for 2025-26 has also been cancelled.
The current freeze in fuel duty was due to expire in March 2025.
The Government will adjust all APD rates in 2026-27, adding £2 for those flying economy to short-haul destinations. The higher rates for private jets will increase by 50% and the government is consulting on extending the higher rate to include more private jets.
The CBAM is intended to ensure that highly traded, carbon-intensive goods imported from overseas face a carbon price that is comparable to that payable had they been produced in the UK.
The Government has confirmed that a UK CBAM will be introduced on 1 January 2027 in its response to the March 2024 consultation on introducing a UK CBAM. The UK CBAM will start one year after the EU scheme. The regime will work by putting a carbon price on goods at risk of ‘carbon leakage’ imported to the UK from the aluminium, cement, fertiliser, hydrogen and iron and steel sectors.
The Government has concluded that products from the glass and ceramics sectors will not be in scope of the UK CBAM from 2027 as previously proposed. The proposed scheme is intended to exclude most micro, small or medium sized businesses.
Following consultation, a new excise duty will be introduced from 1 October 2026 on vaping products, at a flat rate as opposed to variable rates depending on the nicotine level. There will be an equivalent one-off increase in Tobacco Duty to maintain the financial incentive to switch from tobacco to vaping. A further technical consultation has been launched ahead of the duty starting.
The Government will increase the PPT rate in line with CPI inflation to £223.69 per tonne for 2025-26. The Government has also responded to a consultation on a Mass Balance Approach. To encourage use of, and investment in, advanced chemical recycling technologies, businesses will be permitted to use a mass balance approach to evidence recycled content in chemically recycled plastic for PPT.
The Government will increase the Soft Drinks Levy to take account of CPI inflation over the past 6 years. Annual rate increases will take place on 1 April with the standard rate rising to 19.4ppl and the higher rate 25.9ppl from April 2025.
The Government will also review, with the sector, the current sugar thresholds and the exemption for milk-based drinks such as milkshakes. Depending on the outcome, the Government would enact any changes following the 2025 Budget.
As proposed when announced on 29 July 2024, the Government has announced that, from 1 January 2025, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20%. This will also apply to boarding services provided by private schools. However, there are exclusions such as nursery classes and some ‘closely related’ supplies and the arrangements can be impacted depending on whether such services are included as a package or separately.
Any fees paid from 29 July 2024 relating to the term starting in January 2025 onwards will be subject to VAT. Schools are now allowed to apply for VAT registration, to prepare for the regime. Schools who have to pay VAT will be able to reclaim VAT on purchases and, therefore, the Government expects most schools to increase prices by less than the full 20% VAT rate.
Following consultation and lobbying, the Government has made a number of technical changes to the legislation. For example, nursery classes which have a few pupils who are over the age of 5 in England will no longer ‘taint’ the whole class as was originally proposed.
The Government has also announced the regime will from 1 January 2025 be extended to Non-Maintained Special Schools (NMSS), but Higher Education will be excluded, as well as Independent Training Providers and Independent Learning Providers. Finally, Teaching English as a Foreign Language (TEFL) courses taught by private schools, or connected persons, will remain exempt.
Despite extensive lobbying, the Government has declined to limit the changes to small faith schools, international schools, and military/diplomatic personnel. However, military and diplomatic staff will receive extra funding under the Continuity of Education Allowance (CEA) scheme to compensate them for increased costs.
This remains a complex issue for education providers with many practical issues to resolve before 1 January.
In a widely trailed measure expected to raise £25bn, the Chancellor has announced a 1.2% increase in employers Classes 1, 1A and 1B National Insurance, raising the rates to 15%. This will apply from April 2025.
The Class 1 NIC secondary threshold will reduce from £9,100 to £5,000 per annum. This will take effect from 6 April 2025 until 5 April 2028 and will then increase in line with CPI.
This measure will represent an increase of just under £900 Class 1 NIC per employee on an average worker’s total pay as published by the ONS on 1 October 2024. Together with the uplift in the National Living Wage, this represents a significant rise in employment costs for employers.
The Employment Allowance will increase in April 2025 from £5,000 to £10,500. Employers will no longer need to have incurred a secondary Class 1 NIC liability of less than £100,000 in the prior tax year in order to claim. The allowance will benefit larger businesses even if the saving will only offset a very small fraction of the increased overall cost to employers.
The increase in NIC makes salary sacrifice arrangements more attractive for employers as part of their overall remuneration packages for employees. This is especially true as the employer’s NIC charge on pension contributions did not materialise and the reduced BIK charge for Electric Vehicles is being extended to 2030.
The Chancellor has announced significant increases to National Living Wage (NLW) and National Minimum Wage (NMW) rates.
From April 2025:
Impact on employers
The new National Minimum Wage represent a substantial financial cost for employers with large numbers of lower paid workers. However, compliance with NMW rules is much broader than rate of pay alone. For employers who pay everyone the top NMW rate regardless of age, the buffer for NLW/NMW rates has been reducing year on year. This reduction means that employers need to be more vigilant in ensuring compliance with NMW regulations.
Cost of underpayment
If a worker aged 18-20 was underpaid by £1 in 2023, correcting this underpayment after April 2025 could cost £3.34. This is due to the rules regarding underpayments being paid back at the rate in the year it is paid, rather than the year it occurred. Most underpayments are due to errors or misunderstandings so employers should carefully review their policies and processes.
Electric vehicles (EVs) are a cost-effective way of providing a company car and the following announcements aim to demonstrate Government support for their use:
The chargeable percentage (of the vehicle value) for zero emission and electric vehicles will increase by 2% per year in 2028/29 and 2029/30, rising to 9% in 2029/30
The percentages for all cars with emissions of 1 to 50g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in tax year 2028/29 and 19% in tax year 2029/30
This contrasts with the percentages for all other vehicle bands, which will increase by 1% per year in tax years 2028/29 and 2029/30, to a maximum of 38% for 2028/29 and 39% for 2029/30. This will mean that the cost of the benefit of an EV remains substantially lower for the company car driver.
Legislation will also be introduced in Finance Bill 2024/25 to extend the 100% first-year allowances for zero-emission cars and EV charge-points until:
The beneficial rates for EVs together with NIC increases mean that salary sacrifice schemes for electric cars are highly cost-effective benefits for employees and will remain attractive solutions for employers with company car fleets.
There has been confusion for some time over whether a vehicle that most observers would see as “van” is a van for tax purposes or a company car. The definition has proved hard to pin down and before the Court. In the Court of Appeal (Payne & Ors (Coca Cola) v R & C Commrs [2020]) HMRC was successful in having the vehicles in question deemed to be company cars.
The Government announced that it will classify double cab pickups as company cars. This will mean significantly higher tax, and Class 1A NICs liabilities will arise for individuals who choose double cab vans as a company vehicle from 6 April 2025 onwards.
Certain types of umbrella companies and associated schemes are the subject of a substantial proportion of the Spotlights and named tax avoidance schemes, promoters, enablers and suppliers published by HMRC.
Clearly, tackling tax non-compliance in the umbrella company market has become a high priority for the Government. Its next step will be to introduce legislation in a future Finance Bill to make agencies responsible for accounting for PAYE on payments made to workers that are supplied using umbrella companies. If there is no agency, this responsibility will fall to the end client. This will take effect from April 2026.
It is important to note that many umbrella companies are legitimate, and enable end clients to engage with temporary off-payroll workers. Umbrella companies operate payroll for the workers and, going forwards, compliant umbrellas will need to demonstrate to agencies that PAYE is being operated correctly. This may result in a growth in accreditation/checking platforms.
Some agencies might shy away from the risks, but it is more likely that most will simply improve their due diligence on umbrella companies. It is important that end clients also use reasonable care when checking the compliance of their labour supply chains.
The response to the consultation on Employee Ownership Trusts (EOTs) tightens the rules and aims to drive best practice in relation to the sale of businesses to EOTs.
The following changes apply to sales from 30 October 2024:
All EOTs (irrespective of when established) can now exclude directors from receiving tax-free bonusses of up to £3.6k per annum.
Three announcements were made in relation to EBTs:
These changes are intended to clamp down on abuse of the rules. However, for the majority of transactions, selling a business to an EOT remains a practical and cost-effective option for owners – particularly with the CGT rate increase and reduction in business asset disposal relief.
Mandatory payrolling of benefits in kind (BiK) for income tax and Class 1A NIC purposes will go ahead from April 2026 as proposed by the previous government.
The reporting process for BiKs will be through the Full Payment Submission (FPS), the same process as currently used to report salary etc. to HMRC. Key points to note include:
Businesses will need to report extra data than is currently required from April 2026 to provide a more granular breakdown of the BiKs being reported through payroll, and to reflect the introduction of Class 1A NIC being payrolled
Employment related loans and accommodation cannot currently be payrolled. From April 2026 payrolling these BiKs will be voluntary, with a timetable to mandatory payrolling being published in due course. Until then, forms P11D and P11D(b) should be used to report loans and accommodation, but cannot be used for any other BiK
An “end of year process” will be used if the value of BiKs isn’t known during the year, for example, if the benefits were provided by 3rd party suppliers. We await details of this and rules for special categories like globally mobile employees.
Specifications for software developers will not be available until mid/late 2025, leaving little time for employers to get processes for extra data collection and payroll solutions in place before needing to go live, but HMRC will expect high levels of accuracy from day one.
Two capital gains tax changes affecting the sale of shares by employees were announced: the increase in the rate of capital gains tax on shares and a future reduction in business asset disposal relief.
Given the increase in NIC, it is important to remember that no NIC charge arises on share awards when employees receive shares in their employing company (or group) that are not “readily convertible assets”. Broadly, shares are not classed as readily convertible assets if there is no market in place, or planned, and are not in a company under the control of another company (unless that company is listed on a recognised stock exchange) and not close. This, together with the potential tax savings and alignment with shareholder interests make employee share plans a very attractive incentive arrangement.
No changes were announced affecting the taxation NIC treatment of the four tax advantaged schemes for employees (EMI, CSOP, SIP and SAYE).
Despite the abolition of the non-dom regime, Overseas Workdays Relief (OWR) will remain available for internationally mobile employees (IMEs) beyond 6 April 2025. The draft legislation for the relief aligns it with the same 4-year period that the Foreign Income and Gains (FIG) regime can be accessed.
New IMEs arriving in the UK after 6 April 2025 will be eligible if they have not been resident in the UK for 10 prior UK tax years, even if they are repatriating Brits. Gone is the core requirement to have sufficient earnings paid and retained offshore to claim OWR, but an annual financial limit will apply: the lower of 30% of qualifying employment income or £300k per tax year. Transitional reliefs will apply for those who arrived pre-April 2025 but are only part way through the previous 3-year period of OWR eligibility.
Although employers are assured by HMRC of a ‘simpler’ process to notify HMRC that they wish to operate PAYE only on the portion of UK workdays for employees claiming OWR, there are new complexities. The change to a ‘process now, check later’ approach means HMRC could direct employers to amend the portion of earnings to which PAYE is applied. Also, the new financial limit, and the way this limit applies to incentive payments for performance periods spanning earlier UK tax years, may require employers to simultaneously monitor current and prior tax year limits. ‘Trailing income’ (equity and bonus) part earned prior to the new rules will still need to be paid offshore into a qualifying account to benefit from OWR.
The exemption to travel costs incurred by non-dom employees that are funded by employers when they come to the UK, and periodic travel back to their home country will be reduced from its current 5 years to 4 tax years after 5 April 2025.
Employers should now start to consider how these changes will impact their payroll processes, global mobility policies, and how to communicate the changes to your IME population.
In the Autumn budget the Government took its first steps in reforming the business rates regime. The overall reform is designed, over the course of the parliament, to create a fairer system that protects the ‘High Street’, supports investment and is fit for the 21st century.
The measures announced in the budget included:
The business rates multiplier for small businesses has been frozen for 2025/2026 at 49.9p with the standard multiplier being uprated by inflation to 55.5p. The charitable rate relief from business rates for private schools will be abolished for most private schools from April 2025 with some schools for students with special educational needs continuing to qualify for this relief.
Since the Covid-19 pandemic, business rates relief has been given, and extended on an annual basis, to businesses in the retail, hospitality and leisure sectors. This is further extended for 2025/2026 providing 40% relief from business rates liabilities up to a maximum value of £110,000 per business. The temporary nature of the relief has caused significant uncertainty for businesses. It is therefore the intention that the relief will become permanent from April 2026.
This will be implemented by way of permanent lower multipliers for retail, hospitality and leisure properties (RHL) with a rateable value under £500,000. The biggest cuts will be applied to RHL properties currently paying the small business multiplier – those with a rateable value less than £51,000. This is to be funded by a higher multiplier for all properties with a rateable value above £499,999 including distribution warehouses.
Alongside the changes to the multipliers announced in the Budget, there will be consultation on wider reform of business rates. This includes obtaining views on business rates reliefs and how these impact investment decisions, especially for properties near rate thresholds. The Government intends to make further progress in tackling avoidance. It will publish a consultation on a general anti-avoidance rule for business rates in England to ensure that reliefs are applied for their intended purpose.
The Government will work with businesses to assess the potential costs and benefits of shortening the gap between the Antecedent Valuation Date and the valuations coming into effect (currently two years) and of having more frequent valuations. Any reform in these areas would mean that business rate liabilities will be more responsive to movements in property valuations. Reform would also require businesses to provide better quality information to the valuation office about their properties and a duty to provide information is expected to be implemented using a phased approach from 1 April 2026 and becoming fully mandated for all businesses by 1 April 2029.
To support these reforms, business rates processes are to be digitalised by March 2028.
The existing higher rates of Stamp Duty on the purchase of an additional residential property in England or Northern Ireland by an individual will increase from 3% to 5% for transactions with an effective date (normally completion) on or after 31 October 2024. This will also apply to the purchase of a residential property by a company that is not liable to the single rate of SDLT.
The single rate of SDLT that applies to the purchase of a residential property for more than £500,000 by a company in England or Northern Ireland and which is not intended to be used for certain commercial purposes will increase from 15% to 17%.
If contracts are exchanged before 31 October 2024 but are completed on or after that date, transitional rules may apply.
In addition to generating more SDLT, the changes are intended to discourage the purchase of second homes and buy-to-let properties and encourage the purchase of family homes.
A new consultation has been published on modernising some areas of tax administration, following a broader consultation earlier this year that considered aligning enquiry, assessment, penalty and appeal powers across taxes.
The latest consultation explores whether HMRC’s approach to correcting mistakes by large numbers of taxpayers could be improved. It focuses on the proportionality and efficiency of HMRC’s current correction powers and considers the potential for a new power requiring taxpayers to self-correct their returns.
In particular it puts forward these proposed changes:
HMRC will consult in Spring 2025 on how it can make better use of third-party data to make it easier for taxpayers to pay the right tax. They will also review opportunities to reform HMRC’s use of behavioural penalties to increase their effectiveness and simplify the rules, as well as ways to improve taxpayer access to alternative dispute resolution and statutory review. The latter will aim to resolve more disputes before they reach the Tax Tribunal.
The UK Government is intensifying efforts to address offshore tax non-compliance in the Budget.
HMRC is extending the Crypto-Asset Reporting Framework (CARF) to UK users, ensuring that transactions involving digital currencies are transparent and properly reported. This move aims to curb tax evasion and improve compliance in the rapidly growing crypto market. The Budget documents confirm that the first reporting under the CARF will be in May 2027 for the 2026 calendar year. In addition, the Government is amending the Common Reporting Standard to enhance the exchange of financial information between countries. These amendments will help HMRC identify and address offshore tax evasion more effectively, ensuring that individuals and businesses cannot hide assets abroad to avoid paying their fair share of tax.
It was also confirmed today that HMRC will press ahead with adopting the OECD’s Reporting Rules for Digital Platforms. The first data transfer will be in January 2025, providing HMRC with information about UK individuals who sell goods and services via online platforms to be used to check those people are paying their UK taxes correctly.
To further bolster offshore tax compliance, HMRC is allocating additional resources to tackle serious non-compliance, including fraud by wealthy customers and intermediaries, corporates they control, and other connected entities.
These measures are part of a broader strategy to ensure that all taxpayers meet their obligations, regardless of where their assets are held.
The UK Government is taking significant steps to close the tax gap in the Budget by enhancing HMRC’s capabilities. HMRC estimated the overall tax gap - the difference between the amount of tax paid and the amount HMRC thinks should be paid - as being £39.8 billion for 2022/23 and the 2023/24 VAT gap as £9.5 billion, or 5.3% of total theoretical VAT liabilities, an increase of £1.4 billion on the estimate for 2022/23.
From 6 April 2025, late payment interest rates will increase by 1.5 percentage points so, if the base rate remains unchanged, the late payment interest rate will be 9% p.a., up from 7.5% p.a. today.
Another key part of this initiative is the recruitment of 5,000 additional compliance staff over the next five years, backed by a £1.4 billion investment. This move is expected to boost annual revenue by £2.7 billion by 2029-30.
Additionally, £262 million will be allocated over five years to hire 1,800 debt management staff, with an expected annual revenue increase of £2 billion by 2029-30. To modernise HMRC’s systems, £154 million will be invested in updating debt management IT systems. A further £12 million will be spent on acquiring more credit reference agency data, improving the targeting of debt collection. The HMRC app will also see a £16 million investment to facilitate voluntary Self-Assessment pre-payments.
The Government will also publish a consultation on whether to make the renewal of further public sector licenses conditional on applicants demonstrating they are appropriately registered for tax.
This consultation suggests expanding the existing tax conditionality check across the UK to specific sectors which HMRC believes would be suitable for tax conditionality to be applied. These are:
These measures reflect a robust approach to tax collection, ensuring that HMRC has the resources and tools needed to enforce compliance and collect unpaid taxes effectively. However, the increased late payment interest rates will be challenging for some taxpayers and increase the differential between the rates for repayments (currently 4% pa) and late payment.
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