Budget 2024 – What does it mean for you?

UK Budget 2024

As predicted, the Chancellor managed to find enough wiggle room in order to cut national insurance by a further 2%. But what else was announced, and what does it mean for you?

With a general election in the near future, could this be the final Budget delivered by the current chancellor?

Income Tax

The were no changes to income tax. The basic income tax rate will remain at 20% (on income up to £50,270), with higher rate tax remaining at 40%.

The additional rate tax of 45% also remains on income in excess of £125,140.

As a reminder, the tax-free personal allowance is reduced by £1 for every £2 of income over £100,000. This results in an effective tax rate of 60% on earnings between £100,000 and £125,140.

As previously announced, the personal allowance of £12,570 will be frozen until April 2028.

With the freeze on personal allowances and tax thresholds, this will result in more people being brought into taxation and higher tax rates as their income increases, hence the stealth tax on income moving forward.

National Insurance

As leaked before the budget speech, the Chancellor reduced the main rate of National insurance by a further 2%. As a result, employees will pay main rate NIC of 8%.

Class 4 national insurance (which the self-employed pay) will also be reduced to 6%.

These changes take effect as from 6 April 2024.

Those with profits under £6,725 and who pay voluntary Class 2 NIC to get access to contributory benefits, will continue to be able to do so, though further information will follow on this.

The employment allowance will remain at £5,000, meaning the first £5,000 of employers NIC will be covered by the allowance.

Frustratingly for employers, there was again no reduction to the rate of employer's national insurance, which will remain at 13.8%.

Dividend Allowance

There were no further announcements with regards to the taxation of dividends and allowance of currently £1,000 will be reduced to £500 from April 2024.

Unfortunately for a lot of business owners who are often paid by a mix of salary and dividends, there was no reduction to the tax rate on dividends (in line with national insurance cuts).

Child Benefit

From April 2024, the threshold at which the High-Income Child Benefit Charge applies will increase to £60,000.

Furthermore, the rate at which HICBC is charged will halve, so that child benefit is not withdrawn in full until an individual's income exceeds £80,000.

Currently, a family with two parents earning £49,000 each, can continue to receive the full child benefit entitlement, whereas a family with one parent earning £60,000 would result in no child benefit entitlement. The government will reform the High-Income Child Benefit charge, due to the unfairness to single earner families. They plan to administer the HICBC on a household basis rather than individual basis, by April 2026.

Capital Gains Tax

The higher CGT rate on residential property will decrease from 28% to 24%, as from 6 April 2024. The lower rate on residential property sales will remain at 18%, for any gains that fall within an individual's basic rate band.

As a reminder, the annual allowance of currently £6,000 will reduce to £3,000 from April 2024.

Trusts generally have the benefit of a CGT annual allowance of 50% of that available to individuals.

Corporation Tax

Unfortunately for businesses, no major announcements were made in connection with corporation tax.

Since April 2023, corporation tax rate is now 25% for companies with profits in excess of £250,000.

Companies with profits of below £50,000 will continue to pay tax at 19%.

Although these are the headline rates, the effective tax rate on profits between £50,000 and £250,000 is actually 26.5%.

Minimum Wages

The minimum wage will increase substantially from 1 April 2024.

As from 1 April 2024, the national living wage will also apply to over-21's.

Rate from April 2024

Current Rate

Increase

National Living Wage

£11.44

£10.42

9.8%

21-22 year old

£11.44

£10.18

12.4%

18-20 year old

£8.60

£7.49

14.8%

16-17 year old

£6.40

£5.28

21.2%

Apprentice rate

£6.40

£5.28

21.2%

Given the large increase and therefore additional costs to employers, we recommend businesses consider the increases coming into effect from April 2024.

VAT

As from 1 April 2024, the VAT registration threshold will increase to £90,000, with the de-registration threshold increasing to £88,000.

Although it is welcome news, many feel the threshold should have been increased further to take into account recent years inflation and freezes to the thresholds.

Business Rates

Announced in the Autumn Statement 2023, in order to continue to support businesses and the high street, the government announced the freeze to business rate multipliers for another year, and keep in place the relief for retail, hospitality and leisure to 75%. This is expected to save businesses £2.4 billion.

Capital Allowances

In the Autumn Statement 2023, the decision to make permanent "full expensing" for business was announced.

The annual investment allowance was previously increased to £1m permanently, which covered an estimated 99% of UK businesses, so although the change is welcome, for most businesses it will not bring any additional benefit.

There is ongoing consultation on full expensing being extended to assets for leasing when fiscal conditions allow. Further information will follow.

Inheritance Tax

No changes to IHT will take effect before April 2025.

The Inheritance Tax Nil Rate bands will be frozen until March 2028.

However, it was announced that as from 1 April 2024, personal representatives of estates will no longer need to have sought commercial loans to pay inheritance tax before applying to obtain a "grant on credit" from HMRC.

SDLT

Multiple Dwellings Relief is being abolished.

If contracts were exchanged on or before 6 March 2024, then the relief will still apply regardless of when the transaction completes.

Any other purchases (i.e. entered into after 6 March 2024) must complete by 1 June 2024, otherwise Multiple Dwellings Relief will not be available. Although this does give a window to still claim the relief, the window is quite restricted.

From 6 March 2024, the rules for claiming First-Time Buyers relief will be amended so that individuals buying leasehold residential property through a nominee or bare trustee will be able to claim First Time Buyers relief.

Furnished Holiday Lettings

The government will abolish the Furnished Holiday Lettings tax regime, eliminating the tax advantage for landlords who let short term furnished holiday properties over those who let residential properties to longer term tenants. This will take effect from 6 April 2025, with legislation being published in due course.

Other Announcements

A brand new British ISA which allows an additional £5,000 annual investment, into UK businesses.

Abolished the non-domicile status.

Introduced duty on vaping products as from October 2026, and a one-off increase in tobacco duty will be made at the same time.

Frozen fuel duty for the 14th year in a row for another 12 months, thus maintaining the 5p cut.

Extended the alcohol duty freeze until February 2025.

Extended the windfall tax on oil and gas companies, until 2029.

Summary

The main announcement was expected, with the reduction to the main rates of national insurance.

With the increase in costs to run a business, increase in minimum wage rates, etc, employers are likely to once again feel aggrieved with the lack of support.

Given the increase in corporation tax rates and increase in dividend tax in the past few years, it seems small business owners who operate via a limited company are being "forgotten about" with no equivalent cuts.

With that said, with an election looming and therefore a potential change in government, any decisions should be taken with consideration that some announcements may get amended.

If you want to know how the Budget Statement affects you, get in touch with one of our tax advisers, who will be happy to assist.

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Tuesday, 25 June 2024

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