Autumn Budget 2024: Tax implications and insights
The Autumn Budget 2024 introduces sweeping tax increases and significant policy adjustments, sparking concern among business owners, investors, and family enterprises. With increases in employer’s National Insurance, Capital Gains Tax, and new Inheritance Tax measures, these changes could reshape the tax landscape for years to come.
Here, Dow Schofield Watts’ tax experts weigh in on the potential impacts for taxpayers and the strategies available to navigate this complex fiscal environment.
Employer’s National Insurance and minimum wage increases: Weighing on business owners
Amidst a Budget dominated by tax hikes, the government announced a 1.2% increase in employer’s National Insurance (NI) contributions, coupled with a reduction in the secondary threshold from £9,100 to £5,000. Tax partner Andrew Robinson explains the combined effect of these changes:
“The increase in employer’s NI contributions alone may seem minor, but when combined with the reduced secondary threshold, the burden on small businesses grows significantly. These announcements will hit businesses the hardest, especially as many won’t be able to pass these costs on fully to their customers, which could lead to cuts in headcount or slower wage growth.”
Adding to this pressure, the above-inflation rise in the minimum wage by 6.7% creates additional expenses that many small businesses may struggle to absorb.
Corporate finance partner Roger Esler points out that rising costs could dampen job creation, with long-term impacts still unfolding:
“This will likely deter job creation, meaning lower margins and less cash for reinvestment. It might, however, encourage productivity gains, particularly if businesses invest more in skills and technology. Incentives for this kind of investment are vital.”
Capital Gains Tax changes: Unexpected but manageable for many
One of the biggest surprises was the immediate change to Capital Gains Tax (CGT) rates, which took effect on 30 October instead of the expected 6 April 2025 date. Basic rate taxpayers now face a substantial increase, with the rate on CGT rising to 18% for those earning up to £50,270, while the top rate has moved from 20% to 24%. Robinson comments on the immediate impact:
“The rise to 24% isn’t as drastic as initially feared, though it will increase liabilities for many. The change hits basic-rate taxpayers hardest, as they’ll see a significant rise in CGT if they decide to sell chargeable assets. Small businesses that qualify for Business Asset Disposal Relief have a brief window before their rate rises from 10% to 14% in April 2025.”
The broader implications of this increase could be a deterrent to investment. Robinson highlights:
“This is a blow to investors and companies reliant on investment, who have already seen their CGT allowances slashed. The immediate implementation was unexpected, and a mid-year tax rise is highly unusual. Businesses and investors would have benefitted from the opportunity to adjust their plans by April 2025.”
Inheritance Tax reforms: Challenges for family businesses and farmers
From 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) face changes that may disrupt succession planning for family businesses, especially multi-generational farms. Robinson explains the gravity of these new rules:
“Farmers will likely feel aggrieved with these changes. Multi-generational farms that have been passed down through families may now face unexpected IHT liabilities, potentially forcing families to sell land to meet these obligations. This could impact food stability and the country’s reliance on British produce for future generations.”
Adding to the pressure, inherited pensions will fall under the IHT scope from 2027, eliminating a tax-efficient vehicle for wealth transfer. Robinson remarks:
“With inherited pensions now in IHT, retirees may be encouraged to spend rather than save. In addition to this, pension payments received after death are subject to income tax when received by beneficiaries. There was no mention of this in the Budget documents, which potentially exposes beneficiaries to an overall tax liability of between 60 and 85% on inherited pensions. A key point which I’m sure will be raised in consultation.”
Stability in R&D Tax Reliefs: Supporting innovation amidst change
While many areas of tax policy saw increases, the Budget offered stability for R&D incentives, with R&D tax relief and the Patent Box left unchanged. Tax partner Shenal Wijetunge notes the importance of this consistency for businesses driving innovation:
“Maintaining R&D tax relief is crucial for UK businesses looking to invest in growth. However, businesses must ensure they accurately identify and quantify qualifying R&D activities to make the most of these reliefs.”
With NI set to rise, accurate identification of employees involved in qualifying R&D activities, including their NI and pension contributions, becomes essential to maximise claims. Wijetunge highlights the support available from Dow Schofield Watts:
“We assist businesses in navigating R&D tax claims with a strong focus on compliance. Ensuring all NI and pension contributions related to R&D staff are captured will be critical to optimising these reliefs amidst changing regulations.”
Navigating a challenging tax environment
The Budget has introduced significant tax increases, particularly for employers and investors, while offering some support for innovation through stable R&D reliefs. Dow Schofield Watts’ experts emphasise the importance of proactive tax planning to mitigate these challenges and adapt to the changing fiscal landscape.
Robinson summarises the broader sentiment:
“This Budget has the potential to stall growth among small and medium businesses. It imposes more expenses at every turn, restricting planning options for family businesses and farmers. Only time will reveal if these changes will drive the growth intended, but first impressions suggest they will create considerable strain.”
With a complex fiscal environment ahead, Dow Schofield Watts stands ready to support businesses and investors with tailored guidance and tax-efficient strategies.