Autumn Budget 2024 - Business Taxes

Employer NICs rate rise. Heavily trailed in the media and sparking a political debate about what constitutes a 'working person', the increase in Class 1 (employer) NICs from 13.8% to 15% will have come as a surprise to few. The Class 1A and Class 1B employer rates will also increase in line with this. Taking effect from 6 April 2025, the new rate will be accompanied with two additional changes to the operation of employer NICs which, while less likely to hit the headlines, are likely to be of interest to businesses:

Reduction in the Employer NICs threshold. The Chancellor has reduced the threshold at which Class 1 (employer) NICs become payable from £175 to £96 per week. This will take effect from 6 April 2025 until 5 April 2028. Thereafter the threshold will be increased in line with CPI.  The impact of this is that employer NICs will be chargeable on substantially more employees' pay packets and the amount payable by the employer is going to increase before accounting for the rate rise. The reduction in the threshold alone is going to mean an increase in employer NICs of £615 which, using an example of an employee with a salary of £50,000, is more than is raised from the rate rise of 1.2%, being £490.

Increase in the Employment Allowance. The employment allowance provides a relief from Class 1 (employer) NICs where the total employer NICs cost is below certain thresholds. The Chancellor announced in the Budget that she was increasing the Employment Allowance from £5,000 to £10,500. The Chancellor has also removed the restriction that currently applies to the Employment Allowance, where only employers who have incurred a secondary Class 1 National Insurance contributions liability of less than £100,000 in the tax year prior are able to claim. This change will go some way to alleviating the impact of the changes discussed above and means that 865,000 employers will pay no NICs next year.

The Government has published its promised  'Corporate Tax Roadmap' which sets out its commitment to maintaining key features of the UK Corporation Tax landscape and provides insight into the areas which it may, over the course of the Parliament term, reform.

Where the Government has considered reliefs to be unclear, over-complicated, or unstable, they have proposed the following changes or reviews over the course of the Parliament term:

• Simplifying capital allowances 

There is an intention to update and simplify the legislation relating to capital allowances. Amongst other things, the Government hopes to clarify what qualifies for different capital allowances as part of its review.  

• Pre-Development Costs

The Government has acknowledged concerns raised by businesses in the renewable energy and infrastructure space following the Gunfleet Sands Ltd and others v HMRC (2023) decision which held that preliminary studies performed prior to installation would not qualify for capital allowances. The Government has committed, in the Corporate Tax Roadmap, to launching a consultation on the options for addressing these concerns.  The hope will be that this encourages further investment in renewable energy and major infrastructure projects.  

• Full Expensing for Leasing or Hiring

The Government has committed to, when the fiscal conditions allow, extending full expensing to leasing and hiring (which would allow businesses in the leasing industry to benefit from an initial 25% reduction in the effective cost of new plant and machinery).

• Advance R&D relief clearances

The Government has committed to consulting on widening the use of advance clearances for R&D claims in Spring 2025. Such assurances would enable businesses to guarantee that an R&D claim for tax relief will be accepted, allowing for a higher degree of certainty in businesses' longer-term financial planning.  

• Transfer Pricing and other international matters

The Government has committed to reviewing and consulting on the UK's rules on transfer pricing, permanent establishments and Diverted Profits Tax, including the potential removal of UK-to-UK transfer pricing. The removal of UK-to-UK transfer pricing would reduce the UK compliance burden, decreasing the administrative and financial burden for both HMRC and businesses in UK transfers. This may go some way to alleviate concerns about the threshold being lowered for SMEs.

• Increase to HMRC interest rates on unpaid tax

HMRC interest rates are linked to the Bank of England base rate, with late payments of tax liabilities currently (as at October 2024) being charged at the Bank Rate plus 2.5 percentage points. The Government has now confirmed that they will increase the late payment interest rate charged by HMRC to the Bank Rate plus 4 percentage points (equating to a 1.5% increase). This increased rate will become effective from 6 April 2025. 

• Digitisation 

The Government has committed to continuing to digitalise the administration of Corporation Tax to improve customer experience and ease administrative burdens for businesses.