UK budget and tax implications

Yesterday, the Chancellor delivered her Autumn Budget, sharing proposals to stabilise public finances and bolster public services. Here’s a breakdown of key announcements relevant to contractors, freelancers, and small businesses.

Employment Taxes

The budget introduces several changes to Employment Taxes, affecting both employers and employees:

1. National insurance contributions increase
   Employers’ National Insurance Contributions will rise by 1.2%, from 13.8% to 15%, starting in April 2025.
2. Reduced secondary threshold
   The threshold for employers to start paying National Insurance will decrease from £9,100 to £5,000.
3. Increased employment allowance
   Employment Allowance increases from £5,000 to £10,500. Employers with up to eight employees won’t see a change in their NI contribution.

UK budget implications and analysis

How does this affect contractors, freelancers, and small business owners? For sole directors with a salary of £12,570 in the 2023-24 tax year, employers’ NI will increase from £478.86 to £1,135.50 by April 2025. Keep in mind that employers’ NI is also tax-deductible, so it will attract Corporation Tax relief of between 19% and 25%, depending on your overall profit. In essence, your net cost increase may be lower than it appears.

For businesses with multiple employees, the raised Employment Allowance will help offset the additional costs from the lowered threshold—especially if your team has fewer than eight employees. However, the 1.2% NI increase will still add to overall costs and may impact hiring and growth plans. This change could affect the broader economy, so planning your personal tax and salary strategy is now more crucial than ever.

Capital Gains Tax (CGT)

Several CGT changes take effect immediately from October 30, 2024:

• Lower rate increase: The basic CGT rate jumps from 10% to 18%.
• Higher rate increase: The higher CGT rate rises from 20% to 24%.
• Residential property rates unchanged: CGT rates on residential property remain at 18% and 24%.

CGT changes that take effect from April 2025 onwards:

• • Business asset disposal relief (BADR): The lifetime limit remains at £1m, with no change for the current tax year but rates are set to increase to 14% in April 2025 and to 18% in April 2026.
    

UK budget implications and analysis

For those planning asset sales, consider the increased tax liabilities. For instance, if a basic-rate taxpayer sells shares at a £10,000 profit after exemptions, they now owe £1,260, up from £700. Higher-rate taxpayers will see their CGT rise from £1,400 to £1,680.

For those holding business assets, selling sooner rather than later may be beneficial. Closing a company with £250,000 in profits will incur £25,000 in tax if done this tax year, but this increases to £35,000 in April 2025 and £45,000 by April 2026. With higher CGT rates, many owners may choose to distribute profits gradually instead of winding down their companies. Careful tax planning is highly recommended.

Umbrella Compliance

To combat tax non-compliance within umbrella companies, HMRC is implementing stricter rules. Now, any unpaid taxes from non-compliant umbrella companies can be reclaimed from the agency or even the end client. New rules will make agencies and clients responsible for ensuring correct tax payments when using umbrella companies, protecting workers from unexpected bills and improving tax compliance across the sector. 

UK budget implications and analysis

Starting in 2026, these changes aim to close loopholes and promote fair competition. This move effectively places agencies and clients in a policing role to enforce umbrella compliance. HMRC estimates it loses up to £500 million annually from non-compliance. This legislation may encourage agencies to promote the PSC model, potentially leading to more IR35-compliant contracts for contractors.

Inheritance tax (IHT)

Two key changes to Inheritance Tax:

• Threshold freeze: The inheritance tax threshold will remain at £325,000 until 2030.
• Inherited pensions: Starting in April 2027, inherited pensions will be included in the IHT scope, addressing previous gaps in the Lifetime Allowance.

UK budget implications and analysis

The freeze on IHT thresholds is effectively another “stealth tax”. 

Funds held in pensions were not subject to IHT previously but from April 2027. The inherited pensions are a real kick in the teeth for those who have been choosing to pay into their pensions over paying off mortgages and are now incurring more mortgage interest and still going to have IHT deducted from their pension pot before being passed over to their loved ones.

Corporation Tax

Corporation Tax will stay capped at 25% until 2029, and the £1m Annual Investment Allowance will remain in place, alongside existing Research and Development relief rates.

UK budget implications and analysis

Although we had hoped for further investment incentives, like the super deduction, no new changes were announced. This might affect businesses hoping for additional incentives to fuel growth.

Stamp duty land tax (SDLT)

Effective immediately, the surcharge on additional property purchases increases by 2%, bringing the rate to 5%. For a £400,000 property, buyers will now pay an additional £8,000.

UK budget implications and analysis

This immediate hike impacts those completing transactions imminently, adding a financial strain to anyone seeking investment properties. Planning will be essential.

How Accrue Accounting can assist

Our team of dedicated accountants is here to help manage your tax affairs, both personal and business. Contact us to discuss tailored strategies that optimise your tax efficiency. Find out more on how we can help

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