Hazel Platt, Head of Tax at Grant Thornton UK LLP, said:
“In a Budget that represented an important milestone in the delivery of Labour’s manifesto, the Chancellor’s main targets for tax rises were employers, businesses and entrepreneurs. Due to some clear expectation-setting in the run up, businesses were anticipating tax increases and very few incentives. In many ways, it was a Budget of mixed messages, where savings were offered, but the cost of that saving had to be found elsewhere. The largest cheer of the announcement came for the reduction in Alcohol Duty on draught products, with Reeves saying the saving would amount to a penny off a pint. But the increases in Employer’s National Insurance and in the National Minimum Wage may mean that the cost to the business for the person pulling the pint is higher, which could result in the final cost to the customer being more than it was before.
“For businesses, one of the most impactful of the expected changes was the increase in the main rate of Employer’s National Insurance. Today’s announcement confirmed an increase from 13.8% to 15% along with a lowering of the secondary threshold at which it becomes payable (from £9,100 to £5,000 per annum). This will come into effect from April 2025 and is forecast to raise over £23bn next year. Coupled with an above inflationary rise in the National Minimum Wage, this rising cost base will be particularly felt by people heavy businesses.
“Expectations had been well managed that there would be no room for further business tax incentives to be announced in the Budget. Instead, as expected, the main business tax offer was the outline of a corporate tax roadmap, aimed at providing businesses with certainty over the future direction of travel. It contains reconfirmation that the corporation tax rate will be capped at 25% and the current suite of tax incentives for capital investment, R&D and the Patent Box will be maintained – the focus was on ensuring stability rather than radical reform.
“After months of unchecked speculation – the Government has finally set out their stall in respect of Capital Gains Tax (CGT) and Inheritance Tax (IHT). On one hand the CGT announcements were not as bad as some had been speculating, but IHT reforms in particular represent a substantial step change in the tax landscape, especially for entrepreneurs and business owners. It was announced that there will be a modest increase in the higher rate of CGT to 24%, creating a single higher rate of CGT for all chargeable assets (excluding carried interest) with effect from today. Whilst many entrepreneurs will be breathing a sigh of relief that Business Asset Disposal Relief will be maintained, albeit there will be annual stepped changes from 6 April 2025 increasing the rate ultimately to 18% from 6 April 2026.
“The 50% restriction to IHT Business Property Relief, alongside IHT Agricultural Property relief, for assets valued above £1m has the potential to become a major risk not only for family business owners but also their companies which will play a major part in funding any IHT that is due. In context, for shares valued at more than £1m, business owners will have an effective 20% tax liability on the market value of their business above £1m and often will not have the personal assets to pay this liability.
“For AIM quoted businesses the announcement today that Business Property Relief will be restricted to 50% on AIM quoted shares in trading companies has been well received by the market, in light of fears it may have been abolished altogether.
“As expected, the Government followed through on their tax revenue raising manifesto commitments to reform the taxation of carried interest relevant to the private equity industry, the tax treatment of non-doms , extending the Energy Profits Levy and imposing VAT on private school fees. On carried interest the rate increase was not as significant as feared but with further reform on the cards for 2026 there is still future uncertainty of the tax landscape for the industry.
“This Budget was focused on wiping the slate clean – in the short term there is no shying away from the fact that businesses and entrepreneurs will be paying more tax, in some cases as soon as today and the pressures this could put on the wider economy. Time will tell if the Government’s gamble that a corporate tax roadmap for the future and additional borrowing for investment can offset the possible impact of tax rises today on investment, to provide the foundations for longer-term economic growth that it’s striving for.”
