Autumn Budget 2024: Industry reactions

“Today’s rise in capital gains tax rates adds yet more uncertainty to an already stagnant M&A market, which will have wider implications for the UK business landscape. Changing interest rates and volatile inflation have been holding the market back for some time, but this tax hike presents another hurdle to transactions, starved of the investment and energy they need to thrive, just when they need it most. Overnight, thousands of business owners have seen the value of their hard work over many years drastically reduced as tax rates jump.”

“While the prospect of tax increases has prompted some buyers to accelerate their acquisition plans and sellers to show a little more flexibility, it hasn’t been enough to turn the M&A landscape around. The risk of disenfranchised, often aging, owners holding onto businesses longer — while reducing investment to recoup value lost to increased tax rates — seems counterproductive at a time when encouraging economic activity should be a focus.”

 

“Rumors of an increase to CGT rates drove a surge in M&A activity in the run-up to today’s announcement, so we expect transaction volumes will fall off in the coming months as those that didn’t beat the deadline reassess their options. Vendors are often looking to achieve a certain level of post-tax consideration when selling a business, and many could opt to delay disposals and focus on future growth to achieve this, rather than cash out now for a reduced amount.”

“CGT has become somewhat of a political football in recent weeks, with many arguing that a rate rise will stymie M&A activity in the long run. Whilst we are likely to see a hiatus whilst the markets assess this tax change, there will always be appetite amongst vendors to dispose of their assets, and the change of rate is not so material that it is likely to affect the market over the long term.”

 

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Schellion Horn, Head of Economic Consulting at Grant Thornton UK LLP

Inheritance Tax (IHT) and Reliefs Changes

“The Chancellor has announced significant restrictions to Business Property Relief and Agricultural Property Relief. To the extent that an individual’s combined value of their business or agricultural assets exceed £1m, Inheritance Tax (IHT) will be charged at 20%.”

“Previously these reliefs meant that businesses and farms could often be passed down a generation without any IHT. The Chancellor saw these reliefs as ripe for abuse. However, they protect the UK’s numerous business owners and farmers from having to sell up to pay for the tax. As such, this change could see tax-motivated lifetime giving or exits, when this may not be the best outcome for the business.”

“Certain AIM-listed stocks can also qualify for Business Property Relief. The Chancellor has announced a blanket 20% IHT rate on these shares where again they used to be IHT-free.”

“The biggest blow will be to the change in business relief on inherited assets. Family businesses have been secure in the knowledge that on death 100% of the value of their businesses were protected from IHT, but that will now change. For businesses valued at over £1m, only 50% of the value will be available for relief creating an effective rate of IHT of 20%. This withdrawal of relief will also apply to shares in AIM portfolios.”

“In addition, the Chancellor removed relief from IHT on pension funds in their entirety from 2027. Again, previously a significant tax-free asset for beneficiaries. These changes mean that families will need to revisit their plans for intergenerational wealth protection. It will also change future succession strategies, given that capital gains tax and IHT rates for business assets will be much more closely aligned.”

Will Johnstone, Tax Director at accountants MHA

The technical note published alongside today’s budget announcement has confirmed the fears of many non-doms living in the UK that now is the time for them to pack up and go.

The new rules will impose UK inheritance tax on worldwide assets not just while the taxpayer remains in the UK but also for ten years after their departure. Non-doms have until April 2025 to become non-UK resident to avoid being caught by the new ten-year tail. Delaying their departure by just one year will prolong their UK inheritance tax exposure by seven years, so elderly non-doms at risk of surviving until 6 April 2028 but not until 6 April 2035 have a particularly strong incentive to leave the UK within the next five months.

In 2018, Japan repealed a similar inheritance tax tail on former residents just one year after it had been introduced.

Pension Reforms and Tax Efficiency

“More detail is to follow, but the Chancellor has removed the IHT-free status of defined contribution pensions from April 2027, which will mean that the proportion of estates subject to IHT will grow from the current 6%.”

“Retirees and savers have 18 months to review their long-term plans. As defined contribution pension funds could now be subject to up to 40% IHT on death, we will probably see greater withdrawals from pension pots. Pension withdrawals are subject to income tax, so some savers in drawdown will have an eye on the frozen £50,270 threshold at which point their overall income from all sources will be taxed at 40%.”

 

Ian Bell, national head of pensions and partner at RSM UK

“Whilst the pensions industry may breathe a sigh of relief that the Chancellor has left it largely untouched in the Budget, it does beg the question on what wriggle room may be left to improve the savings culture in the UK during the remainder of this parliament. Was this a missed opportunity to build on the Mansion House Reforms and encourage wider pensions saving that could be put to good use in UK investments?

If there are any recommendations to increase auto enrolment rates and pension savings incentives in the forthcoming Pensions Bill, can the Chancellor pile more pressure on employers to deliver on top of the dramatic increase in employer’s National Insurance contributions (NICs) that she has announced today? Many CFOs across the UK will now be working on a strategy to restrict that additional NIC burden as far as possible, with likely impacts on employee numbers, forthcoming salary reviews and pension contributions. The knock-on impact of pension savings will ultimately follow in years to come.”

 

Alex Nicholson, VAT and Indirect Tax Partner at Johnston Carmichael: 

“From a VAT and Indirect Tax perspective, it’s fair to say that as predicted, there is both little of huge note or significant surprise. VAT rates and registration thresholds remain unchanged; Fuel Duty is frozen; Alcohol Duty is uprated in line with RPI (subject to some draught relief) whilst smoking and vaping products were hit hard by Duty rises.

The removal of the VAT exemption for private school education and boarding services will take effect from January 1^st 2025. Importantly, local authorities covering VAT costs for pupils with special educational needs in private schools will receive full reimbursement. Additionally, the Government has pledged support for families of diplomatic staff and military personnel by covering the increased education costs through an uplift in the Continuity of Education Allowance.

Meanwhile, increases in Employer National Insurance and the National Minimum Wage are likely to drive up company costs, squeezing profit margins further. The changes will create uncertainty, so it’s essential for business owners to focus on long-term strategies. Regular engagement with professional advisers will ensure businesses stay well-positioned for the future.”

Employment Costs and National Insurance Contributions (NICs)

“The Chancellor has announced a 1.2% increase in employers NICs and cut the threshold at which employers start paying the tax from £9,100 to £5,000. In conjunction with a 1.2 percentage point rise in National Insurance to take the employer rate to 15%, this will raise about £25bn a year.”

“Our calculations highlight that the costs for business of the average employee on the minimum wage have increased over 10% today. Compounding this impact is that there are very few levers that employers can now pull to seek to mitigate these cost increases – although maximizing the use of salary sacrifice may be one.”

“Increases to the National Minimum Wage (NMW) and National Living Wage (NLW) have been fully accepted by the government. Such increases are fantastic for employees on low wages and represent a significant increase to many young workers.”

“However, the added burden is piled onto employers, who are obliged by law to pay this rate of pay to their workers. Smaller employers who primarily employ a younger workforce, including retail, hospitality, and childcare providers, will especially feel the pinch come April 2025.”

Alexander Simpson, Partner at professional services group Evelyn Partners comments: 

“The increases in employers’ NIC and the National Living Wage announced today deliver a significant uplift in the costs of employing staff. Some businesses may now think twice about taking on additional employees as a result of these changes and this might pose risks for the continued growth of the UK economy.

Increasing the National Minimum Wage by an above inflation rate, plus higher employer NICs comes at difficult time for many businesses, particularly those that have grappled with rising costs and reduced consumer demand following the pandemic. In extreme circumstances, the changes could push some businesses to close. Businesses need to take review their budgets and plan for higher costs.”

Derry Crowley, CEO, Xeinadin

“Changes to employers’ national insurance contributions were expected, but the slashing of the secondary threshold from £9,500 to £5,000 is reckless. Despite there being a relief for the very smallest of businesses, this will represent a massive hike in tax for the majority of the UKs SME sector. The chancellor stated Britain was falling behind other countries in the race for new jobs, but raising national insurance contributions for employers is counterintuitive. Increasing the cost of UK based employees – and simultaneously increasing workers wages – makes the UK a far less attractive place for hiring new talent. It is the employers that will bear this cost. Whilst swallowing up the black hole in public finances, it will create a host of problems for the majority of businesses in this country.”

Support for Small Businesses and Investment Gaps

“It is a real shame that the Chancellor did not use her first Budget to announce a suite of incentives and investment reliefs to provide a real direct green boost for the UK’s 5.6 million private sector businesses as part of her ‘invest, invest, invest’ strategy.”

“Whilst the Government will be looking to invest, the Budget did not provide the foundations needed for the UK’s 5.6 million private sector businesses to invest in the same way. The combined increase in national minimum wage to £12.21 and the national insurance increase of 1.2% to 15% will ultimately affect jobs, wages and consumer prices.”

HMRC and Tax Administration

“It is difficult to overstate levels of concern and frustration being experienced by a substantial proportion of ACCA members in their contact with HMRC and the impact this has on either their business or their clients’ businesses.”

“ACCA is pleased to see that the Chancellor understands the UK simply cannot grow without a properly functioning tax office, and we will continue to offer our expertise and consultancy in creating an HMRC service that works for everyone.”

Digital Tax Compliance and Support for Accountants

“Following the budget, we now have the certainty we all needed to hear around Making Tax Digital for Income Tax (MTD for IT), but it is still clearly a big change for everyone, especially now with the lowering of the revenue threshold to £20K coming in the future. But typically, when regulation impacts accountants and bookkeepers, the industry responds well and adapts, finding ways to create new opportunities from change. This will be no different.”

“There will be a period of adjustment but we will be here to listen, to help, and work together with our community with learning resources and support, whether they are accountants, bookkeepers, or small businesses.”

“Xero has been working closely with HMRC as part of the wider MTD beta since 2022, and we’re ready to support customers. As part of this, we’ll be adding new MTD for IT enhancements to our Xero Cashbook plan. The Xero Cashbook plan is available for accountants and bookkeepers to use now so they can start getting their small business clients ready. We aim to add the new MTD for IT enhancements in time for the public testing phase from April next year.”

“MTD for IT functionality will be available in all of Xero’s UK business plans soon after that, so we will be ready to support businesses of all stages and needs with MTD.”

Nick Williams, Director of UK Product Management at Intuit QuickBooks: 

“We are in full support of the government’s confirmed commitment to delivering MTD for Income Tax on time. We have been, and continue to, work closely with HMRC on the testing phase, including working jointly on the APIs. This enables us to support our customers in preparation of the changes. Intuit QuickBooks was the first major provider recognised by HMRC for the MTD for Income Tax test phase. We have been on the beta programme for the last two tax years already with customers filing quarterly updates and final declarations.

We are encouraged by our engagement with HMRC and the new government on MTD. We are seeing momentum building at every level. We have received letters from the Treasury and HMRC who reaffirmed their commitment to MTD. Trade bodies have also engaged in these conversations and we are encouraged by the open dialogue, collaboration and renewed commitment to making MTD for Income Tax happen.

There are many well known business benefits to digital accounting and for many it will be a catalyst for greater clarity and control of their financial affairs. Using software to keep financial records, while keeping you compliant, undoubtedly encourages you to keep up to date with your business finances. You are able to manage your cash flow better, gain a better view of your profitability, and know when to chase up customers for payment.”