Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
Rachel Reeves First Budget – Initial Thoughts
There is usually a frenetic scurry of professionals vying to be the first or be among the first to get their budget summary out. We did that for a few years. It is actually a lot of fun. These days I prefer to let the dust settle and uncover the measures that have been buried in the budget paperwork. There is always something.
This was a budget packed full of tax rises and spending plans. It was torn apart in the usual post-budget feeding frenzy but the test will be where we are and what our services look like in a year when the next budget falls to be presented.
The headlines as expected were:
- Increasing employer’s NIC, increasing payroll costs dramatically from next April. On the bright side, the reduced profit will attract less Corporation tax.
- If you were thinking of selling up and possibly retiring, then your after-tax proceeds will be a lot less.
- The freeze on allowances is set to continue, being the stealth tax that increases your taxes gradually over time.
However, buried in the budget documents were:
- Double cab pickups will indeed be taxed as cars from next April.
- More small businesses that are expected are now going to be drawn into MTD.
- The benefit in kind of an electric company car is set to rise significantly but not right away.
Both of these will impact smaller businesses but there will be more stuff coming out over time as “clarifications” surface. But, remember, the budget is only a proposal and does not have the force of law until passed as an Act of Parliament.
More detail will be available over the coming days and weeks and there will undoubtedly be all sorts of plans floated to ride out the tax rises as best we can. There will be the usual counter headlines claiming that the Chancellor has got it wrong, and the country is going to be bankrupted.
In an interesting development, Rachel Reeves announced that there will no longer be biannual fiscal events. The Budget will now only be in the autumn, while the Spring Statement will have no tax changes.
The Headlines
- increasing employer’s national insurance by 1.2 percentage points to 15% from April 2025
- reducing the secondary threshold on each employee’s salary from £9,100 a year to £5,000
- increasing the employment allowance from £5,000 to £10,500
- further investment and modernisation for HMRC
- freeze fuel duty at 5p for another year
- increasing the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24%
- business asset disposal relief will remain at 10% this year, before rising to 14% in April 2025, and to 18% from 2026/27
- confirmed VAT on school fees
- no extension to the personal tax threshold freeze
- an increase to national living wage from £11.44 to £12.21 an hour from April 2025
- a confirmation that the VAT on private school fees was going ahead
- increasing the energy profits levy on oil and gas companies to 38%
- increasing alcohol duty rates on non-draft products in line with RPI from February
- removing the “outdated concept” of domicile from the tax system from April 2025
- increasing the rate of air passenger duty by a further 50%
- increasing capital gains rates on carried interest to 32% from April 2025
- increasing the stamp duty land tax surcharge for second homes to 5%.
Company Cars and Vans
Company car benefit percentages for 2028-29 and 2029-30
The appropriate percentages for calculating the benefit of having a company car have been announced.
- A zero-emission vehicle will increase for 2028-29 and 2029-30 by two percentage points per year.
- Vehicles producing 1g to 50g CO2 per km including hybrid vehicles will be charged at 18% in 2028-29 and 19% in 2029-30.
- All other emission bands will increase by one percentage point per year to maximums of 38% and 39% for 2028-29 and 2029-30 respectively.
Van benefit charge and car and van fuel benefit charges
For 2025-26 these will increase in line with the September 2024 Consumer Prices Index:
- Van benefit charge £4,020.
- Van fuel benefit charge £769.
- Car fuel benefit charge multiplier £28,200.
Employers National Insurance up 1.2%
The three measures were:
- Employers NIC up from 13.8% to 15% from April 2025.
- The earnings above which employers NIC is payable (the secondary threshold) will be cut from £9,100 to £5,000.
- However, there will be some relief f with an increase in the employment allowance from £5,000 to £10,500 from April 2025 and the removal of the £100,000 employers NI threshold.
This is a quick way of getting money into the treasury’s coffers as it will be collected through the PAYE system with the first instalments being paid in May 2025. A quick fix! It also has the advantage that no new administration is required. The PAYE mechanisms are already in place.
This measure will raise £23.8bn in the 2025-26 tax year alone.
The Employment Allowance currently allows businesses with employer NIC bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NI bill. From next April the deduction will be £10,500 and apply to all businesses, irrespective of their employer’s NI in the previous year.
The total cost to employ someone on £30,000 will now be £33,750 compared to £32,884.20, a rise of £865.80. If a business wanted to keep their cost to that latter number then an employee’s gross salary would have to drop to £29,247.’
The small compensation is that as employment costs rise, there will be a saving in Corporation Tax.
Effect on Umbrella Company workers
An umbrella company worker is employed by the umbrella company to provide services to the client, usually through a recruitment agency. Before the worker gets paid, however, all the deductions including the employment taxes and agency margin come out of the assignment rate. Whatever is left, will then be available as the worker’s wages. Then the worker’s taxes will be deducted and shown in the payslip. The impact of a rate rise on the umbrella company worker will be that the rise in ER NICs will be deducted from the assignment rate which will ultimately mean a reduction in the amount available for the worker’s wages. So, it is essentially a tax on the worker.
The same is true of the contractor who has been deemed to be inside IR35. In that scenario, again the contractor will end up paying the rate rise. This is because the contractor’s limited company pays the ER NICs.
Effect on a director of a personal service company
The director of a personal service company will also be impacted by the rate rise and the lowering of the threshold. This is because their limited company will pay the ER NICs as well as the workers paying the Employees NICs.
This may well mean a restructuring of the way they pay themselves. Although there was no change to the dividend rate or tax-free allowance of £500 from 6 April 2024.
Business Asset Disposal Relief up from 10% to 14%
The rate for business asset disposal relief (BADR) and investors’ relief will increase by 4% from the current 10% to a standard rate of 14% from 6 April 2025 before increasing again the following year to equalise with the main lower rate of 18% capital gains tax from 6 April 2026.
Under the current system, business asset disposal relief is a 10% tax charge on all gains on qualifying assets when a business is sold as long as it has been owned for a minimum of two years.
The relief remains limited to a lifetime allowance of £1m, meaning that by April 2026 it will only save a maximum of £60,000 in capital gains tax.
Inheritance Tax Reliefs Removed
The new rules will come into effect from 6 April 2026.
The first £1m for business property and agricultural property relief will be exempt from inheritance tax, covering combined assets, with 50% relief thereafter.
This effectively reduces the rate of IHT on assets over the £1m to 20%.
If the total value of the qualifying property to which 100% relief applies is more than £1m, the allowance will be applied proportionately. It is the total of assets qualifying for APR and BPR and not £1m for APR and another £1m for BPR.
Any unused allowance will not be transferable between spouses and civil partners.
The measure will affect property in the estate at death, lifetime transfers to individuals in the seven years before death (‘failed potentially exempt transfers’) and chargeable lifetime transfers where there is an immediate lifetime charge, so for example when the property is transferred into trust.
Previously these reliefs meant that businesses and farms could often be passed down a generation without any IHT. They protect the UK’s numerous business owners and farmers from having to sell up to pay for the tax. This change could see tax-motivated lifetime giving or exits, when this may not be the best outcome for the business.
She then turned her attention to inheritance tax. She confirmed that she will continue the IHT freeze until 2030. That means the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants, and £1m when a tax-free allowance is passed to a surviving spouse or civil partner.
She also announced bringing inherited pensions into inheritance tax from April 2025.
She also announced the scrappage of the “outdated concept” of domicile from the tax system from April 2025.
More Taxpayers Taken Into MTD
The government is committed to delivering MTD IT and it will expand the rollout of MTD to those with incomes over £20,000 by the end of this Parliament, with precise timing to be set out in a future fiscal event.
The first taxpayers to join MTD IT will be those with income from trading and property of over £50,000, who will be required to join in April 2026. Those with income between £30,000 and £50,000 will then join a year later in April 2027.
The latest announcement means a third tranche of taxpayers, those with income between £20,000 and £30,000 will then also be required to join at some point, presumably after April 2027.
The £20,000 to £30,000 income population is likely to include a significant number of unrepresented taxpayers. MTD IT will need to work for that population with a wide variety of free and low-cost user-friendly software available.
The clear commitment to the programme does give agents and software providers the green light to start their preparations in earnest. April 2026 will soon come around.
High-Income Child Benefit Charge
Jeremy Hunt in his last budget announced a radical reform of the mechanism of the high-income child benefit charge (HICBC) by “moving to a system based on household rather than individual incomes”.
Because the £60,000 clawback threshold applies to the higher earner in the household, a family with two working parents can have an adjusted net income of £118k (£59k + £59k) and retain 100% of their child benefit, whereas a single working parent starts to see their child benefit withdrawn when their income reaches £60k.
Basing the clawback on household income instead was designed to address this inequality between families However, it was met with significant scepticism. One of the key concerns raised was over financial confidentiality.
The requirement for individuals to share information about their income levels with members of their household would breach the principle of independent taxation, introduced in 1990 by Nigel Lawson.
The government will not proceed with the reform to base the HICBC on household incomes. There will however be mechanisms by which the HICBC is collected. Employed individuals will be given the opportunity to pay the HICBC through their tax code and the self-assessment tax returns will be pre-populated with child benefit data.
The collection of the HICBC through tax codes will shift the burden from the individual taxpayer to payroll administrators.
Investment in HMRC
The government will invest to modernise HMRC systems using the very best technology and recruit additional HMRC compliance and debt recovery staff.
They will clamp down on umbrella companies and increase interest rates on unpaid tax debts to ensure that people pay on time. They will also go after the promoters of tax avoidance schemes.
We also expect to see an increase in the rates of interest on late-paid tax so that it may no longer be seen as a cheap source of working capital.
What’s here for businesses?
There was little in terms of new announcements or incentives for businesses, aside from a previous commitment from the Chancellor to maintain full expensing and the £1m annual investment allowance.
Double Cab Pickups are Cars
Double cab pickups are now set to be taxed as cars, after a U-turn on the same decision in February, where HMRC announced double cab pickups were to be classed as cars not vans for income tax, only to reverse that decision a week later when double cab pickups were back to being vans.
The government has decided to steer the taxation of double cab pickups back to being cars.
The change of taxation will apply to these vehicles with a payload of one tonne or more. Those less than a tonne are already being treated as cars.
The change in taxation will come into effect from 1 April 2025 for corporation tax and 6 April 2025 for income tax, where double cab pickups will then be treated as cars for the purposes of capital allowances, benefits in kind, and some deductions from business profits.
The Budget red book confirmed that the existing capital allowances treatment will apply to those who purchase DCPUs before April 2025. Furthermore, the transitional benefit-in-kind arrangements will apply to employers that have purchased, leased, or ordered a DCPU before 6 April 2025. In this case, they will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.
What is a double cab?
According to the HMRC employment income manual, a double cab pickup vehicle has:
- a front passenger cab that contains a second row of seats and is capable of seating about four passengers, plus the driver
- four doors capable of being opened independently, whether the rear doors are hinged at the front or the rear (two-door versions are normally accepted to be vans) and
- an uncovered pickup area behind the passenger cab.
Questions?
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.
