31st October 2024
National Minimum Wage
The announcement of changes will be welcome to those on the lowest incomes.
The Main Rate will increase from £11.44 to £12.21.
The 18-20 Year Old Rate will increase from £8.60 to £10.00.
The 16-17 Year Old Rate and the apprentice rate will increase from £6.40 to £7.55.
The increase equates to additional costs for employers of those on the appropriate rate for a 40 hour week as follows:
Main Rate £1,610.53pa
18-20 Rate £2,928.24pa
16-17 Rate £2,405.34pa (Same for the apprentice rate)
It is worth reminding ourselves that the intention is to have a single adult rate for minimum wage, so you can expect to see the 18-20 Year Old Rate increase by similar if not higher amounts in the coming years. This also means that the 16-17 Year Old and Apprentice rates are also likely to increase in line with the 18-20 Year Old Rate to avoid a cliff edge for employees pay.
This combined with the NIC increase will come as a large blow to the care, retail and hospitality sectors to name just a few. They will be left facing difficult decisions on retaining staff or price increases, where they can, particularly difficult in the valuable care sector. The increase in apprentice rate will test employer’s appetites for investing in and training staff or taking on staff with experience and it will be interesting to see how this will impact those who do not wish to go to university and their ability to get into skilled jobs.
Employers NIC
The rate of NIC will increase from 13.8% to 15% from 6 April 2025. This is a rise of 1.2%. The increase will also apply to the rate of Class 1A NIC payable on benefits provided to employees via a P11D. For employees on NMW this will be an increase to the employer of £197.26pa per employee.
The amount at which the employer’s NIC becomes payable will be reduced to £5,000 from £9,100, fixed for the period 6 April 2025 to 5 April 2028. From 2028 onwards it will be increased in line with the Consumer Price Index (CPI). The change will see an additional cost per employee of £615pa.
There will also be an increase in the Employment Allowance (EA) from £5,000 to £10,500 from 6 April 2025. As well as the removal of the restriction where employers could not claim the allowance if their total Employers NI was more than £100,000 in the previous tax year, which means that all employers should be able to claim (subject to meeting certain conditions). Therefore employers with more than nine staff will be much worse off.
Assuming that an employer has 100 employees at the National Living Wage who all work 40 hours a week. Taking all these changes into account it will cost the employer an additional £85,000 per year.
Fuel Duty & Alcohol Duty
The five pence cut in fuel duty, which was introduced in March 2022, will continue until further notice.
There has also been a penny in duty removed from the price of a pint in the pub. Unfortunately, not many of us will see a benefit from this as costs of a pint will need to increase to cover the cost of staff and the NIC increases, we wouldn’t be surprised to see 20p per pint increases.
Capital Gains Tax
Increasing Capital Gains Tax (CGT) rates has been a theme pre-budget. It turned out that the increase from the 10 & 20% rates weren’t as high some feared. From 30th October 2024 the new rates change from 10% to 18% for gains within the basic rate of income tax. For all other gains (excluding anything subject to special rates or other reliefs) the rate has increased from 20% to 24%.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) has a current 10% rate. This will also be aligned with the lower rate of CGT (18%). Although the 10% rate will apply for disposals up to 5 April 2025, with a transitional 14% rate applying until 5 April 2026, and gains attracting the 18% rate thereafter. The £1m lifetime limit still applies and the narrowing of the gap between the higher and lower rates of CGT means that from 2026 onwards, the maximum benefit of BADR will be £60,000.
Inheritance Tax: Agricultural Property Relief & Business Property Relief – The attack on farming and others or not? – PART 1
Agricultural Property Relief (APR) & Business Property Relief (BPR) rules were intended to prevent the need to break up or sell a family business to fund an Inheritance tax liability.
The new rules now limit this at £1m or less, with anything over the £1m limit being taxed.
These rules will apply from 6 April 2026.
Will this be a disaster for all but the smallest farms? The £1m allowance is per person and does not need to cover the farmhouse, land and buildings, for most when you factor in the £350k residence NIL rate band and the £325k per person annual exemption, then potentially you get £3m per couple, now that looks better, but as with all IHT it will be extremely important to get the planning right, pass on assets in the best way and pass on some items early, so if you could be affected by this you need to start planning now! The final saving grace being the reduction of 50% applied to agricultural property.
Taxation of Pensions
The 25%* tax-free lump sum has been a talking point pre-budget. Given pensions were essentially an IHT free pot that could be passed down, prematurely taking out a pension lump sum might not have been the right advice and could have resulted in a higher overall tax liability if the cash had not been spent before death.
In the end the 25%* tax free lump sum remains, but instead the pension fund itself will now fall back into IHT charge (at 40%) from 6 April 2027.
* If your pension fund exceeds £1,073,100 the maximum tax-free lump sum will be less than 25%, subject to any protections in place.
Double Cab Pickup Trucks – The attack on farmers – PART 2 – but also businesses
From April 2025 a change in taxation rules will see these vehicles classed as cars for the purpose of capital allowances, Benefits in Kind and some deductions from business profits. This essentially removes the 100% claim under annual investment allowance or 18% if you had used up your AIA and replaces it with a 6% (yes that is correct) allowance. And for sole traders and partnerships it is worth remembering that rate is further reduced by any private use add back. As most farms are run through one of those two scenarios this will have a big impact on their tax reliefs. Additionally, it appears no thought has been given to the added practicality of these vehicles for farmers.
To put some numbers on this, for a company, assuming you had your AIA available and paid tax at the lowest rate of 19%, your tax saving would have been £5,700 in the first year, it will now be £342. For a business paying tax at 25% the tax saving will fall from £7,500 to £450. For sole traders and partnerships taxed at 40% this is going to be an even bigger impact.
Existing Capital Allowance Treatments will apply to those trucks purchased before April 2025. The transitional benefit-in-kind arrangements will apply for employers that have purchased, leased or ordered a double-cab pickup 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.
I think the other point to get to in depth here is the benefit in kind (BIK) treatment and the “transitional benefit in kind treatment”.
For vans with private use and fuel the current BIK is:
Van £3,960 Basic rate tax £792 Higher rate tax £1,584
Fuel £757 Basic rate tax £151 Higher rate tax £302
Under the new rules, assuming a £30k vehicle and estimating a BIK rate of 35% for the emissions (each vehicle will vary).
Van £10,500 Basic rate tax £2,100 Higher rate tax £4,200
Fuel £27,800 Basic rate tax £5,560 Higher rate tax £11,120
That’s an increase in tax of £6,717 for a basic rate taxpayer and £13,434 for a higher rate taxpayer, that’s before we get into the additional Class 1A NIC on the business at 15% of £5,037.45.
Company Car Tax rates 2028-29 and 2029-30
Company Car Tax (CCT) have been set for 2028-2029 and 2029-30 to provide long term certainty for taxpayers and industry. CCT rates will continue to strongly incentivise the take-up of electric vehicles, while rates for hybrid vehicles will be increased to align more closely with rates for internal combustion engine (ICE) vehicles, to focus support on electric vehicles.
- Appropriate Percentages (APs) for zero emission and electric vehicles will increase by 2 percentage points per year in 2028-29 and 2029-30, rising to an AP of 9% in 2029-30.
- APs for cars with emissions of 1 – 50 g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in 2028-29 and 19% in 2029-30.
- APs for all other vehicle bands will increase by 1 percentage point per year in 2028-29 and 2029-30. The maximum AP will also increase by 1 percentage point per year to 38% for 2028-2029 and 39% for 2029-2030.
Making Tax Digital – Income Tax and Self Assessment
The government confirmed in its budget paper that they intend to continue full steam ahead with MTDITSA.
Businesses, self-employed people and landlords will be required to operate MTD from 6 April 2026 in relation to their trading and property income chargeable to Income Tax and Class 4 National Insurance contributions, if their total qualifying income from these income sources for a tax year exceeds the relevant limits.
MTD for ITSA will be introduced in phases:
- from April 2026, for those with qualifying income over £50,000
- from April 2027, for those with qualifying income over £30,000
- from April 2028, for those with qualifying income over £20,000 (this is based on the new comment in the budget paper that they will include these taxpayers by the end of this parliament)
They will:
- keep their records digitally
- provide digital quarterly updates
- be able to provide their ITSA return information to HMRC through MTD compatible software
Time to dust of the MTD is coming letters again then….