01/11/2024
The Chancellor of the Exchequer made her Autumn Budget speech.
Measures announced include a number of changes that employers should know, and may need to take action on.
Secondary Class 1 National Insurance Contributions (employer NICs)
The rate of employer NICs will increase from 13.8% to 15% from 6 April 2025. The Secondary Threshold is the point at which employers become liable to pay NICs on employees’ 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 Inflation 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. 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 NICs bills from 6 April 2025.
Benefits in kind
The use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2026, applying to Income Tax and Class 1A NICs.
Veterans’ relief
The government is extending the employer NICs relief for employers hiring qualifying veterans for a further year from 6 April 2025 until 5 April 2026. This means that businesses will continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for the first year of a veteran’s employment in a civilian role.
Ownership Trusts and Employee Benefit Trusts
A package of reforms is being introduced to the taxation of Employee Ownership Trusts and Employee Benefit Trusts to prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees. The changes will take effect from 30 October 2024.
Umbrella Companies
To tackle the significant levels of tax avoidance and fraud in the umbrella company market, the government will make recruitment agencies responsible for accounting for PAYE payments made to workers that are supplied via umbrella companies. Where there is no agency, this responsibility will fall to the end client business. This will take effect from 6 April 2026.
Vehicles
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. Amended guidance clarifies this change of approach and how it is to be implemented, including transitional arrangements, for capital allowances (CA23510 and CA23511), benefits in kind (EIM23150 and EIM23151) and business profits (BIM47730 and BIM70035).
Capital Gains Tax (CGT) Rate Increases
The budget outlines notable increases in Capital Gains Tax (CGT), with the lower rate rising from 10% to 18% and the higher rate from 20% to 24%. These changes impact both buyers and sellers, particularly those selling a business asset like an accountancy practice. Sellers looking to exit the market and take advantage of existing lower rates might consider accelerating their sale timeline. Buyers, on the other hand, should factor in these increased CGT rates as they could affect potential gains upon the future resale of the practice.
• The CGT lower rate is increasing from 10% to 18%, and the higher rate from 20% to 24%. For business assets, rates will rise to 14% from April 2025, and match the main lower rate of 18% from April 2026.
• Sellers aiming for tax-efficient exits may find higher CGT liabilities, which could affect net returns on the sale of an accountancy practice. Buyers might face additional CGT considerations in future disposals if planning an eventual resale.
Changes to Business Asset Disposal Relief and Investors’ Relief
Incremental increases to Business Asset Disposal Relief and Investors’ Relief rates could impact tax liabilities for business owners when they sell their practices. These higher rates will gradually impact sellers’ post-tax profits, potentially diminishing the overall net gain from the sale. If sellers aim to benefit from current rates, they might need to consider accelerating their exit plans. Buyers could leverage this timing to negotiate purchase terms that are more favourable in light of the seller’s tax-driven urgency.
• These rates will increase gradually, impacting business owners' tax liabilities when they sell their practices.
• Sellers should consider accelerating their sale if they aim to benefit from current, lower rates. Buyers can use this timing to negotiate favourable purchase terms.
Other Relevant Tax Changes
Additional tax adjustments may impact ownership transitions. For example, the treatment of inheritance tax on business properties could affect family-owned practices or generational transfers. Buyers planning on operational improvements may also benefit from allowances for energy-efficient equipment or upgrades.
• Changes to the inheritance tax treatment of business property could impact generational transitions or family-owned practices.
• The extension of allowances for energy-efficient equipment or upgrades may benefit buyers planning to improve operational efficiency.
Summary Impact
For buyers, the budget’s measures offer stability in corporate tax rates and incentivise sustainable investments, which can support practice growth post-purchase. However, they should factor in increased NIC costs and potential tax liabilities on future disposals.
For sellers, the increased CGT rates and NIC changes may lower after-tax profits from the sale, prompting them to consider selling sooner rather than later to capitalise on current tax rates.
