December 04, 2024
Article
It’s been widely reported that the recent budget will have a significant impact on the business community and that businesses will be bearing the brunt of the £40 billion in additional taxes that Rachel Reeves is looking to raise.
In this article we have highlighted some of the key changes that will impact owner managed businesses and we have given our thoughts on how to manage these changes.
Corporation Tax Rates
The government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2025, the rate will stay at 25% for companies with profits over £250,000.
The 19% small profits rate will be payable by companies with profits of £50,000 or less.
Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.
Comment - Whilst we were hoping to see a reduction in the headline rate of corporation tax instead we got confirmation that the government will cap the main rate of Corporation Tax at 25% for the duration of the Parliament. This does at least give us certainty and allow planning and investment decisions to be made.
Many people also don’t realise that the £50-250k thresholds must be shared if there are any associated companies.
Capital Allowances
The Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long life assets at a rate of 50%.
The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.
The 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle charge points have been extended to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes.
Comment - It’s helpful to have a stable capital allowances regime and a reasonably generous one as this gives businesses certainty and enables more long-term planning for capital expenditure. However, given higher interest rates and increasing day to day business costs, longer term investments may have to be put on hold.
National Insurance Contributions
The government announced that it will increase the employer rate from 13.8% to 15% from 6 April 2025. The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings and is currently set at £9,100 a year. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter.
The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. From 6 April 2025 the government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NIC bills.
Comment - This on top of national minimum wage rate increases is going to have a significant impact on many owner managed businesses. The decrease in the NIC threshold alone will cost employers £615 per employee per annum. The increased Employment Allowance will help businesses who are eligible to claim this, but thiswill only cover the first 10 employees. For business with high staff numbers, this could have a significant impact. If you haven’t done so already, now is maybe the time to look at alternative remuneration packages and consider salary sacrifice arrangements and NI free benefits. Such schemes won’t be suitable for all, but there could be some savings to be made for both employer and employees if structured correctly.
Taxable Benefits for Company Cars and Double Cab pick-ups
The rates of tax for company cars have been amended for 2025/26 with the maximum benefit of 37% being retained. Whilst these changes were minimal, the more impactful announcement that wasn’t given much coverage was that the treatment of double cab pick-up vehicles is changing.
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.
Comment - This was not announced in Rachel Reeve’s speech. This measure was announced earlier this year but lobbied against and U-turned on very quickly. In real terms, this may impact the short-term supply and prices of these vehicles as businesses rush to buy ahead of the changes. If you have a double cab pick-up vehicle and were planning to change this soon, you need to ensure this is done before 1/6 April 2025. After this date, alternative types of vehicles should be considered. The difference in the tax and NI payable on a car compared to a van are significant so please do consult before making any changes.
Business Asset Disposal Relief and Investors' Relief
The rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025. The rate will increase again to 18% for disposals made on or after 6 April 2026. In addition, the lifetime limit for Investors’ Relief will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. This limit takes into account any prior qualifying gains where the relief was claimed.
Comment - The expected changes to CGT has driven many disposals/solvent liquidations over recent months, which arguably does not contribute towards growth and succession. Whilst some form of recognition fothe risk that business owners take is welcomed, it is disappointing that the rates have been increased and we will expect to see more owners trying to benefit from the lower rates in the coming months.
Unused Pension Funds and Death Benefits
The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027
Comment - Whilst there were concerns before the budget about changes to tax relief on money going into pensions, this didn’t arise. However, bringing pension funds into estates for Inheritance Tax is undoubtably a blow and may well disincentivise savers from putting money into their pension pots.
Agricultural Property Relief & Business Property Relief
From 6 April 2026, agricultural and business property will continue to benefit from the 100% Inheritance Tax relief but only up to a limit of £1 million. The limit is a combined limit for both agricultural and business property.
Property in excess of the limit will benefit from a 50% relief, as will, in all circumstances, quoted shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM.
Comment - Whilst many expected these relief to be withdrawn in their entirety, the changes are still harsh and arguably do not support the continuation of businesses, with executors and beneficiaries possibly facing some harsh decisions on how to meet IHT liabilities where previously there would not have been any. It is disappointing this was not consulted on as the impact on families will be significant.