After the Chancellor’s announcement that she would not be making any sweeping tax changes in her Spring Statement this year, it should not have come as a surprise that she really did not.
The Spring Statement was definitely not a “Budget” as we have come to expect. It was more simply an economic update, confirming that the OBR has cut its growth forecast for the UK economy in the coming year from 2% to 1% and with promises of an increase in Defence spending and the building of 18,000 more homes in the next financial year to promote growth and stability. We also heard how technology will be used to help HMRC continue the fight against tax evasion.
Disappointingly, Reeves did not address the impact of the (unpopular) announcements that were made back in the Autumn, blaming the reduction in growth forecasts purely on the “uncertainty of the global economy”, with no acknowledgement that any of those changes might have had any impact.
As most of these changes announced in the Autumn will not be implemented until the new tax year, we have probably still not seen the full economic force of the changes yet.
Even so, it is hard to see how that can still be described as a “Budget for growth” when the forecasts are suggesting that inflation will outstrip growth by some margin over the remainder of this term. Surely not all of this can be blamed on what is going on overseas.
To recap what is about to happen:
Employers’ NICs
The increase in employers National Insurance Contributions will be brought in in just a few days’ time, without adjustment. At the very least, we would have expected some sectors of the economy to be protected from this, for example charities. No such concessions were made.
The changes have been widely hailed as anti-growth as employers face spiralling costs (especially as this coincides with the increase in the living wage) as the rate of employers NIC increase from 13.8% to 15%, with the secondary threshold falling by more than half the current threshold to £5,000. The enhanced employment allowance will not come close to covering the additional costs that many businesses will now face and so decisions will need to be made as to how to deal with the impact of that increased cost – passing this on to customers may not be an option, and reducing the workforce or freezing pay might instead be necessary.
See our Employers’ NICs calculator to get an idea about how the changes might affect your business.
Abolition of the non-dom regime
It cannot have escaped the Chancellors’ notice that there has been a significant uptick in the number of UK tax payers seeking to leave the UK ahead of the introduction of the new non-dom rules. The new regime will apply from 6th April 2025, and which will see a loss of the Remittance Basis for longer term residents and a much more onerous IHT regime for anyone who has lived here for more than 10 years. Interestingly, even those who were born in the UK may now benefit from being long term resident outside the UK, and so it is not just the so-called non-doms who are exploring this avenue. Again, no mention was made of how this exodus could affect UK growth.
Business Property Relief and Agricultural Relief
No comment was made of the planned changes to Business Property Relief (BPR) or Agricultural Property Relief (APR) which have seen business owners, and the farming community take to the streets in protest of the changes that will come into force in just over a year’s time. These changes will remove the IHT relief that currently enables qualifying businesses to be passed on to the next generation tax free on death, enabling the family to keep operating the business/farm. Admittedly, there is still an ongoing consultation and perhaps we will know more once that has closed in late April.
Business Asset Disposal Relief
We have no doubt that many accountants and lawyers will still be working hard at this late stage in the tax year to help clients to agree sales of businesses who wish to qualify for the 10% rate ahead of the 4% increase in CGT on BADR qualifying assets from 6th April 2025. Perhaps this has had a positive effect on the economy, but it will depend on whether those businesses are being sold or simply closed down (earlier than perhaps their owners would have liked) to maximise the relief.
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