Today saw the first Budget from a Labour Government in 14 years and the first delivered by a female Chancellor. Chancellor, Rachel Reeves has pledged “more pounds in people’s pockets” and improved living standards. The aim of her budget is to drive economic growth through investment. But what does all this mean to you?
Income Tax
- The Chancellor has kept the Governments manifesto pledge and has confirmed that there will be no increase to Income Tax rates or thresholds.
- Income tax rates remain unchanged from those previously announced with basic rate tax remaining at 20%, higher rate at 40% and the additional rate at 45%.
- Currently the personal allowance, the level of income you can earn before tax has to be paid, is £12,570. The Chancellor has confirmed that this will be the case until 2028, when thresholds are due to increase by inflation on an annual basis.
- Remember if your income is more than £100,000 per annum your personal allowance starts to be restricted by £1 for every £2 you earn over that amount. This means for income levels above £125,140 no personal allowance is available.
- Higher rate tax will continue to be payable on income over £50,270 and the additional rate applies to income over £124,140.
National Insurance
Today’s worst kept secret was the Chancellor’s announcement that whilst there is no increase in the rate of Employee’s National Insurance (8%), Employers National Insurance contributions are to rise from 13.8% to 15% from April 2025.
Currently, Employers National Insurance Contributions are paid on any earnings over £9,100. With effect from April 2025, this reduces to £5,000.
The impact of this change is significant. Many directors of Limited companies, currently pay themselves a tax efficient salary of £12,570 per year. This level of salary currently results in a monthly Employers National Insurance bill of £39.90. From April 2025, this will rise to £94.63 per month.
Employers Allowance
Under current rules, small businesses with an Employers NI bill of £100,000 or less, can claim an allowance of up to £5,000 against their Employers National Insurance bill. The Employment Allowance is increasing too £10,500 from April 2025, meaning more small businesses will not be paying Employers National Insurance.
Employers Allowance specifically excludes any small business that has just one director on the payroll and therefore this increase in Employers National Insurance will carry a heavy burden for sole director/shareholder businesses.
There are no changes to Class 4 National Insurance rate of 6% for sole traders.
National Minimum Wage
Already announced before today’s budget were the increases in National Minimum Wage from April 2025.
The National Minimum wage for over 21’s, will increase by 6.7% to £12.21 per hour and there will be a phased approach to introducing a single adult rate with the rate for 18–20-year-olds increasing to £10 per hour from next year.
This alongside the increase in Employers National Insurance is a significant increase for many small employers and one that will need careful financial planning.
VAT
The VAT registration limit remains at £90,000 from 1 April 2024.
The de-registration threshold for VAT is £88,000.
Corporation Tax & Capital Allowances
No changes to Corporation tax were announced in today’s budget. Limited Companies continue to be taxed on profits at two rates.
- The small company’s rate of Corporation tax applies to profits under £50,000 in any year and is charged at a rate of 19%.
- The main rate of Corporation tax is 25% and applies to Company profits more than £250,000. For companies with profits between the two thresholds, marginal relief is applied.
- The effective rate of tax between these two thresholds is 26.5%
Careful tax planning is required where profits are at or around these levels.
Full deduction for the purchase value of qualifying assets will remain at 100% under the Annual Investment Allowance rules. This is good news for those looking to buy equipment.
Capital Gains Tax
Where individuals sell assets (other than residential properties) the Capital Gains Tax rates are currently 10% for a basic rate taxpayer and 20% for a higher rate taxpayer.
Capital Gains Tax rates on the sale of residential properties are 24% for higher rate taxpayers and 18% for basic rate.
In today’s budget the Chancellor announced increases to Capital Gains Tax rates with immediate effect.
The basic rate of Capital Gains Tax on assets other than property will increase from 10% to 18% and the higher rate from 20% to 24%.
Residential Property Capital Gains Tax rates will remain at 18% and 24% respectively.
The Annual Capital Gains tax free allowance is £3,000 per person from 6 April 2024 as previously announced. This remains the case for 2025.
Business Asset Disposal Relief
Before today there was much speculation as to the future of Business Asset Disposal Relief. The Chancellor has confirmed that the relief will remain, along with the £1million lifetime limit, as she wants to continue to encourage entrepreneurs to build successful businesses.
Business Asset Disposal Relief applies to any gain made where you sell a qualifying asset, i.e. your business. Assuming you meet the criteria, any gain on the sale of your business is currently taxed at a reduced rate of Capital Gains tax, 10% under these rules.
The rate of Capital Gains Tax that will apply to business asset disposals is increasing. The rate will rise to 14% in 2025 and 18% in 2026/27.
If you are considering closing your company down or selling your business, you have a window until April 2025, to complete the transaction and take advantage of the current 10% rate.
Company Vehicles
There is some good news for anyone looking to purchase or lease an electric vehicle though their company. The Chancellor has committed to maintaining the 100% First Year Allowances for electric cars and charge points for a further year.
Company car tax rates will continue to strongly incentivise the take-up of electric vehicles, while rates for hybrid vehicles will be increased to align more closely with rates for internal combustion engine (ICE) vehicles.
The benefit in kind rate for zero emission and electric vehicles is currently 2%, rising to 3% in April 2025 and then it will increase by 2 percentage points per year in 2028-29 and 2029-30, rising to 9% in 2029-30.
Benefit in kind rates on non-electric vehicles are significantly higher and are set to increase. Seek advice before purchasing any vehicle through your company.
And if you are considering looking to acquire a Double Cab pick-up, following a Court of Appeal judgement, the government will treat double cab pick-up vehicles (DCPUs) with a payload of one tonne or more as cars for certain tax purposes.
From 1 April 2025 for Corporation Tax, and 6 April 2025 for income tax, DCPUs will be treated as cars for the purposes of capital allowances, benefits in kind, and some deductions from business profits. The existing capital allowances treatment will apply to those who purchase DCPUs before April 2025. Transitional benefit in kind arrangements will apply for employers that have purchased, leased, or ordered a DCPU before 6 April 2025. They will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.
Stamp Duty
With effect from tomorrow, 31 October 2024, the Stamp Duty paid on the purchase of second homes, increases by 2% to 5%. This 5% rate is in addition to the normal rate of stamp duty applicable on the property.
Over the coming days we will digest the detail behind the deadlines and share what we learn and how you can mitigate the impact. Do reach out if you have any immediate questions.
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