What Accountants Should Know About the Tough Budget 2024

MA & CO Accountants Podcast

The Autumn Budget 2024 is set to bring big changes. Many people are worried about how it will affect businesses, accountants, and the UK economy. Let’s look at what accountants expect from this tough budget and how it might impact everyone. This article is simple, with clear language so you can understand how these changes could matter for you and your business.



What is the Autumn Budget 2024?

The Autumn Budget is a yearly plan where the Chancellor tells us how the government plans to spend money and where they will get the funds from, like taxes. This year, Chancellor Rachel Reeves has to tackle a huge challenge—a £40 billion hole in the public finances. Because of this, accountants expect some tough choices, which will make a big difference for business owners, employees, and even everyday families.

The government wants to keep things stable while also growing the economy. This means they might need to make spending cuts and increase some taxes. Let’s break down what changes could happen, with some examples and calculations to better understand the impact:

  • Spending Cuts Example: Suppose the government decides to reduce infrastructure spending by £2 billion. This could mean fewer new road projects or delayed maintenance, which could affect transportation businesses relying on those improvements.

  • Tax Increase Example: If the government decides to increase the Capital Gains Tax (CGT) rate from 20% to 24%, an individual selling a property for a profit of £100,000 would pay an additional £4,000 in tax (24% of £100,000 instead of 20% of £100,000). This kind of tax change can significantly reduce the profit that sellers take home.

Possible Changes to Taxes

Many are wondering if there will be tax increases. The government says it wants to keep the major taxes like Income Tax, National Insurance (NI), and VAT stable. But there are still other smaller changes that might affect businesses and individuals:

  1. Capital Gains Tax: This tax will go up to 24% for higher rates and 18% for lower rates. For example, if you sell property or business shares, you could see an increase from a 20% to a 24% tax rate, depending on your income. Let's say you make a profit of £100,000 from selling a property. If the tax rate is currently 20%, you would pay £20,000 in taxes. If the rate increases to 24%, you would instead pay £24,000, which means an additional £4,000 in tax. This kind of increase can significantly impact the profits you take home.

  2. Employer's National Insurance: The Employer's NI rate will increase to 15%. This means employers will have to pay more. For example, if the Employer's NI rate increases from 13.8% to 15%, an employer paying an annual salary of £30,000 for each employee would see their NI contribution rise from £4,140 (13.8% * £30,000) to £4,500 (15% * £30,000). This means an additional cost of £360 per employee, which could significantly impact overall payroll expenses for companies with many employees.

  3. VAT on Private Schools: From January 2025, private schools will need to pay VAT at the standard rate of 20%. This means that the cost of school fees will likely increase. For example, if current annual fees are £15,000, adding 20% VAT will increase the fees to £18,000 (£15,000 + (20% * £15,000)). This extra £3,000 will go towards the government's budget to help fund hiring more teachers and improve public education.

  4. Inheritance Tax (IHT): The IHT freeze will continue until 2030, meaning 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 £1 million when a tax-free allowance is passed to a surviving spouse or civil partner. Additionally, inherited pensions will be brought into IHT from April 2025.

The Impact on Small Businesses

The government wants to avoid increasing the basic rates for SMEs (small and medium-sized enterprises). But some changes can still affect these businesses. For example:

  • There might be changes to tax reliefs that help small businesses grow. For example, suppose a small business currently benefits from an annual investment allowance of £50,000, which allows it to write off the cost of new equipment. If this allowance is reduced to £30,000, the business will have to pay tax on the extra £20,000 worth of investment. If the corporation tax rate is 25%, this means an additional tax cost of £5,000 (25% * £20,000). Such changes could reduce the funds available for growth and expansion.

  • National Minimum Wage (NMW) will increase from £11.44 to £12.21 per hour, which means small businesses will have to pay more to their employees. For example, if a small business employs 5 staff members working 40 hours per week, the additional cost per employee would be £30.80 per week ((£12.21 - £11.44) * 40 hours). For 5 employees, this results in an additional £154 per week (5 * £30.80), or £8,008 annually (£154 * 52 weeks). This increase can have a significant impact on small businesses' overall wage expenses.

Many accountants advise that small business owners should start preparing for these possible changes. This will help them avoid any surprises when new rules come in.

Capital Expensing and Investment Help

One positive change is that the Full Capital Expensing Scheme will be made permanent. This means businesses can write off the costs of new equipment right away, which helps save money and boosts growth. For example, if a company buys equipment worth £100,000, they can deduct the full amount from their taxable income in the year of purchase. If the corporation tax rate is 25%, this deduction will save the company £25,000 in taxes (25% * £100,000). This kind of immediate expensing can improve cash flow and encourage more investment in growth. Accountants can help businesses plan how to take advantage of this benefit effectively.

Labour also promised that the corporation tax rate would be capped at 25% during this parliament. This offers a bit of certainty, so businesses can plan without fearing sudden tax hikes.

To make sure your business is prepared, our corporate tax planning services at MA & CO Accountants can help you manage these changes.

Employment Taxes and Wages

There are concerns that the Employer's NI might go up, but Employee NI is expected to stay the same. For example, if Employer's NI increases from 13.8% to 15%, an employer paying an annual salary of £40,000 would see their NI contribution rise from £5,520 (13.8% * £40,000) to £6,000 (15% * £40,000). This increase of £480 per employee could significantly impact payroll costs, especially for businesses with multiple employees.

Also, we may see a new Apprenticeship Levy called the Growth and Skills Levy. This will be more flexible to help businesses with training and skills, potentially reducing the burden on employers by making the levy more adaptable to their workforce development needs.

Businesses might also need to follow new rules for employees, like day-one rights, which give employees more protections from the first day they start working. These changes could mean more paperwork and higher costs for companies.

Accountants play a big role in helping businesses adapt to these kinds of changes. They can help you set up the right systems for payroll and compliance.

To learn more about payroll services, check out our payroll solutions.

Impact on Property Taxes

Residential Property Developer Tax may be increased, which would mean property developers might need to pay more tax to fund tower block cladding fixes. For example, if a developer makes a profit of £1,000,000, and the tax rate is increased from 4% to 6%, the tax paid would rise from £40,000 (4% * £1,000,000) to £60,000 (6% * £1,000,000). This extra £20,000 would go towards funding safety improvements like cladding fixes.

Additionally, SDLT (Stamp Duty Land Tax) on second homes will increase to 5%. For example, if an overseas buyer purchases a property worth £500,000, an additional 5% SDLT would mean paying an extra £25,000 (5% * £500,000). This aims to keep more UK property affordable for local buyers.

These changes will affect not only big developers but also small landlords and individual property owners. It’s important to stay informed about these changes and their tax implications.

If you’re in property development, take a look at our tax advisory services to see how we can help you navigate these new regulations.

Green and Environmental Changes

To support green policies, the government may bring back the fuel duty escalator. This means that the cost of petrol and diesel could go up, pushing more people towards electric vehicles. For example, if the fuel duty increases by 5p per litre, and a small business uses 10,000 litres of fuel per year, the additional cost would be £500 (5p * 10,000 litres). This increase will affect small businesses that rely on transportation and could lead to higher delivery costs, reducing their profit margins.

For businesses that rely on transportation, understanding these changes is important for financial planning. Accountants can help businesses forecast these additional costs and adjust their budgets.

Digitalisation and Tax Simplification

The UK tax system is currently very complex, with over 20,000 pages in the tax code. Accountants want to see more focus on digitalisation and simplification. For example, digitalisation could mean easier online submissions and fewer manual errors, which would save time for businesses and accountants. If the government also brings back the Office of Tax Simplification, it could help reduce redundant forms and clarify confusing regulations.

Conclusion

The Autumn Budget 2024 brings many significant changes that will impact businesses, property owners, and individuals across the UK. With increased tax rates, changes to National Insurance, and other fiscal adjustments, it’s essential to stay informed and prepared. Accountants play a crucial role in navigating these changes, helping businesses make informed decisions, optimize their tax planning, and maintain compliance with new regulations.

To ensure your business is well-prepared for these upcoming changes, consider working with professional advisors like MA & CO Accountants. Our services can help you adapt to the new financial landscape and make the most of available opportunities. Visit MA & CO Accountants to learn more about how we can assist you.

FAQs

  1. What is the Autumn Budget 2024?
    The Autumn Budget 2024 is the government's yearly financial plan to outline how it will collect taxes and allocate spending for the coming year. This year, the Chancellor aims to address a £40 billion gap in public finances.

  2. How will the increase in Employer's National Insurance affect my business?
    The Employer's National Insurance rate will increase to 15%. This means that for every employee, businesses will have to pay more towards National Insurance contributions, increasing overall payroll costs.

  3. What is changing for Capital Gains Tax (CGT)?
    The higher rate of CGT will increase from 20% to 24%, and the lower rate will rise from 10% to 18%. These changes will impact the profits from selling assets such as property or business shares.

  4. How does the Budget impact small businesses?
    Small businesses will face higher costs due to increased Employer's National Insurance and National Minimum Wage. However, the Full Capital Expensing Scheme is being made permanent, allowing businesses to write off equipment costs immediately.

  5. What are the changes to property taxes?
    Stamp Duty Land Tax (SDLT) on second homes will increase to 5%, and the Residential Property Developer Tax may also be raised. These changes could increase costs for property developers and landlords.


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