After months of speculation, our first female Chancellor delivered the first Labour Budget for 14 years, badged as a Budget to ‘fix the foundations of our economy’.
Throughout her speech Rachel Reeves emphasised stability and the need to invest, invest, invest.
Whilst there were few business tax changes announced, they are being asked to carry much of the £40bn increase in taxes announced.
The combined impact of a 1.2% increase in Employer’s National Insurance and the increase in the National Minimum Wage by 6.7% from April 2025 will have a significant impact on employers. There appears to be stability in the corporate tax regime, which will be welcomed to provide businesses with certainty when making investment decisions.
As was announced in advance, VAT will be charged on independent school fees from January 2025.
Employer’s National Insurance
Overall, the business tax announcements were relatively quiet, which will be a welcome relief as they will soon face an increase in the Employer’s National Insurance rate from 13.8% to 15%, combined with a reduction in threshold at which National Insurance is payable.
Corporate Tax update
The Chancellor has confirmed that the Government will continue to cap the Corporation Tax rate at 25% for the duration of the Parliament, making it the lowest rate in the G7. The 19% small profits rate will also be maintained. Additionally, there will be no changes to capital allowances available to companies, including the £1 million Annual Investment Allowance and Full Expensing Relief.
Recent years have seen many changes to the R&D scheme. The Chancellor has committed to maintaining the current rates of relief for the R&D merged scheme and the Enhanced R&D Intensive Scheme (ERIS). The only change is a correction to the tax legislation for the R&D intensity calculation.
The government will introduce legislation, effective on Budget day, to prevent avoidance of the Loans to Participators (s455) rules. This will ensure that the Targeted Anti-Avoidance Rule (TAAR) remains robust and effective against attempts by companies and their shareholders to avoid the charge.
Large groups with global revenue exceeding €750 million will need to consider the implementation of ‘Pillar 2’, as current legislation will be updated to align with the Global Anti-Base Erosion rules.
VAT on private school fees and boarding services
The Chancellor confirmed that VAT will indeed apply to private schools from January 1st 2025.
Whilst there were no significant changes to the initial announcement from the Chancellor on July 29th, there was some interest in the Government’s response to the consultation, with a commitment to carve-out of the draft legislation, certain types of entity and education caught at present.
In addition, changes have been made to ease the rules on certain things such as nursery classes, these having previously been drafted as consisting of only pre-school age pupils, whereas the commitment is to change this to “wholly or almost wholly...”. Included in the carve-out is English as a Foreign Language, certain Higher Education tuition provided by a private school, and further education establishments that will not now be within the policy unless the majority of pupils are charged a fee.
Stamp Duty Land Tax on residential property
Companies purchasing residential property will be subject to a higher surcharge rate of Stamp Duty Land Tax, on purchases after October 31st 2024.
Conclusion
As a result of the Budget, larger businesses will need to budget carefully for the increase in Employer’s National Insurance and National Minimum Wage that both come into effect in April 2025. This may mean that prices need to increase to maintain profit margins.
The stability in the corporate tax regime, including tax relief on investment in plant and equipment, should allow businesses to plan for the longer-term and commit to investments that will improve productivity in the medium to long-term.
