Yesterday’s Autumn Budget revealed that the government is still capable of finding ways to generate revenue for public spending, even without relying on income tax, employee national insurance, and VAT, which have long been the backbone of the UK’s fiscal strategy.
Rachel Reeves made a series of significant and ambitious promises, declaring that Labour's first Budget since 2010 would not only "fix the foundations" of the economy but also "rebuild" it into something more robust and sustainable.
This announcement sparked widespread discussions and debates leading up to the 30th October, with the public and experts alike questioning not only whether her plans would achieve these goals… but also at what cost.
The government remained focused on raising taxes rather than cutting spending, resulting in what is being described as ''one of the biggest tax-raising Budgets ever".
As promised in their election manifesto, the government chose not to raise taxes on working people which includes some of the most lucrative tax sources. However, the Chancellor's plans to generate over £40 billion in taxes will largely impact businesses in the coming months.
Navigating the New Budget: A Summary of Key Changes
National Living Wage Increase
From April 2025, the National Living Wage for those aged 21 and over will see a 6.7% rise, increasing from £11.44 to £12.21 per hour. Furthermore, the National Minimum Wage for 18 to 20-year-olds will also increase, moving from £8.60 to £10 per hour. In the most substantial pay bump, apprentices will see their hourly rate rise from £6.40 to £7.55.
Employers will need to prepare for the upcoming wage increases. This may involve updating payroll systems, reviewing employment contracts to ensure compliance, and assessing the financial impact on the business.
Employer NICs
Although Employee NICs were safeguarded by the government's election promises, Employer National Insurance Contributions were included in the Chancellor's plans.
Starting in April 2025, the main rate of Employer NICs will increase from 13.8% to 15%. Furthermore, the threshold for employers to begin paying NICs on employee earnings will be reduced from £9,100 to £5,000. These changes mean businesses will contribute more to the National Insurance system.
Employment Allowance
The government is increasing the Employment Allowance from £5,000 to £10,500 for 2025/26 to provide relief for smaller businesses. This increase in the allowance is aimed at easing the financial burden on these businesses by reducing their National Insurance liabilities; however, the benefits of this change should be evaluated alongside the rise in the national insurance rate and the reduction in the threshold mentioned above.
Business Rate Relief
The Chancellor is extending business rate relief for the retail, hospitality, and leisure industries in England. The current 75% discount, which is set to end in April 2025, will be replaced by a 40% discount. This discount will be capped at £110,000 per business for the 2025/2026 tax year.
Capital Gains Tax
It comes as no surprise that the government has decided to increase the Capital Gains Tax rates. Effective immediately, the lower rate will rise from 10% to 18%, effectively almost doubling the tax burden on gains that fall within this bracket. Meanwhile, the higher rate will also see an increase, moving from 20% to 24%, which represents a substantial hike for those with larger capital gains.
While these changes apply to most assets, it's important to note that the rates for residential property will remain unchanged at 18% and 24%.
The rate for business asset disposal relief will also rise to 14% for 2025/26 and
18% from 2026/27.
Inheritance Tax
As mentioned in her speech, the Chancellor is taking a “balanced approach to inheritance tax". The current threshold freeze has been extended, meaning the first £325,000 of an estate remains tax-free, with increased allowances for residential properties and spousal transfers. However, inherited pensions will now be included in the taxable estate from April 2027.
Additionally, from April 2026 reforms to Agricultural Property Relief and Business Property Relief will limit tax relief to the first £1 million of combined assets, with a 50% relief for values above this threshold. However, the cap will not apply to AIM shares which will just qualify for 50% relief.
Income Tax Thresholds
The existing freeze on income tax thresholds will continue for now. However, the freeze will
end from April 2028 and these thresholds will be adjusted to align with inflation. This means that as the cost of living rises, the income levels at which different tax rates apply will also rise, this could potentially lessen the tax burden on individuals whose incomes are increasing at a similar pace.
The government also has plans to abolish the non-domicile tax regime from April 2025, as well as introduce a new residence-based system for those coming to the UK temporarily.
VAT on Private School Fees
It was confirmed by the Chancellor that VAT at 20% will be introduced on private school fees starting from 1 January 2025. Additionally, they plan to remove business rates relief for private schools from April 2025. These changes were previously announced and will be implemented as planned.
Electric Vehicle Incentives
Company car tax benefits for EVs will remain in place beyond 2028, the Vehicle Excise Duty difference for electric vs. other vehicles will increase from 2025. These benefits are designed to make EVs a more attractive option for company fleets, thereby reducing carbon emissions and promoting sustainability.
Fuel & Tobacco Duty
The Chancellor has confirmed that fuel duty will remain frozen for the next year and the current 5 pence per litre cut will be extended, providing continued relief for motorists.
A series of measures to increase tobacco and vaping taxes were also announced:
- Tobacco duty: Renewing the tobacco duty escalator at Retail Price Index plus 2%, with hand-rolled tobacco seeing a steeper 10% hike.
- Vaping duty: A new flat-rate duty on vaping liquid will be introduced in 2026.
- One-off tobacco duty hike: A planned one-off increase aims to encourage smokers to quit.
These measures are part of a broader strategy to reduce smoking rates by making tobacco and vaping products less affordable.
Duty on Draft Alcohol
The duty on draft alcohol will be reduced by 1.7% and alcohol duty rates on non-draught products will increase in line with the Retail Price Index from February 2025.
Stamp Duty Increase
From 31st October 2024, stamp duty on second homes will rise from 3% to 5%.
The temporary increases in the 0% SDLT band for first time and other property buyers
will end on 31 March 2025.
Next Steps After the 2024 Autumn Budget:
Understand the Impact - Post-Budget planning starts with the facts. Gather all the details on the latest announcements and consult your accountant or financial advisor. They can tailor advice to your specific situation, helping you navigate the new tax landscape and make informed decisions about your tax liabilities and overall financial strategy.
Analyse Your Situation - Start by assessing how the new tax rates, allowances, and government schemes affect your income and expenses. Are there opportunities to save or challenges to address? Once you've evaluated your situation, create a plan to adjust your finances accordingly.
Adapt and Implement - After assessing how the Budget will affect your personal and business finances, it's time to act on that insight! Keep in mind that the best financial plans are adaptable. Be prepared to modify your strategy as you gain more information or as new opportunities arise.
Planning for What's Next...
The 2024 Autumn Budget has laid out a bold vision for "boosting long-term growth". With significant changes to taxes and spending, it's crucial to understand how these will affect you and your business.
As always, further details will continue to develop following yesterday's statement and this summary simply serves as a guide to some key points. Remember to stay informed, assess how the Budget might affect you, and adapt your financial strategy as needed.
We recommend reviewing our free guide to yesterday's announcements and if you have any questions regarding the 2024 Autumn Budget we encourage you to get in touch with our team.
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