2024 UK Autumn Budget

Last week the Institute met with HMRC to discuss the 2024 Autumn Budget. We expressed concern and shared our views on the impact of a range of changes including increased employment costs as a result of the National Minimum Wage and employer National Insurance Contribution changes from April 2025. We also highlighted the damaging impact that the 2026 changes to key inheritance tax reliefs (agricultural property relief and business property relief) will have, particularly for Northern Ireland family-owned businesses and farms. The Institute recommended to HMRC that the Government consult more widely on these particular changes and we highligted the need for any anti-forestalling legislation to be fair. These changes should not impact retrospectively on lifetime gifts already made in the seven years prior to 6 April 2026. The changes need to be properly considered before implementation given the impact they will have on both indigenous businesses and investors in the UK. Other issues discussed were the fuel duty dilemma, tax simplification, the taxation of electric vehicles, the practical impact of the in-year capital gains tax rate changes, the extension in this Parliament of Making Tax Digital for income tax to the £20,000 - £30,000 turnover population and regulation of the UK tax agent market.  

Finance Bill 2024/25 was published last week on 7 November. Explanatory notes to the Bill were also published. The Bill’s first reading in the House of Commons took place last week; second reading has not yet been scheduled.

Over the next five years, the Government is expanding HMRC’s capacity with the objective of closing the tax gap and bringing in an additional £6.5 billion per year by 2029/30. A range of announcements featured in this area including anti-avoidance legislation, and a commitment to overhaul HMRC’s IT systems and improve debt management by ensuring tax debt is settled faster. However, no information was provided on any specific additional investment to improve HMRC’s phone and post services. And finally, the expected consultation on e-invoicing will not be launched until early 2025. Investment in HMRC The HMRC settlement provides total funding of £6.7 billion in 2025/26. According to the Budget publications, the increased funding, together with the Exchequer Secretary to the Treasury becoming Chair of HMRC’s Board, marks a step change in the Government’s efforts to “close the tax gap, improve service levels, and modernise and reform HMRC”. Plans also continue to transform HMRC into a “digital‑first organisation”, with a Digital Transformation Roadmap to be published in Spring 2025. 180 new counter-fraud staff will be used to target increasing HMRC’s capability to better tackle fraud and error in child benefit and tax-free childcare via an expected gross saving of £95 million by 2029/30. As announced in July, £1.4 billion will be invested over the next five years to recruit an additional 5,000 HMRC compliance staff in order to raise £2.7 billion per year in additional revenue by 2029/30. The first 200 are set to join this month. £262 million will be invested over the same period to fund 1,800 HMRC debt management staff, with the aim of raising £2 billion per year in additional revenue by 2029/30. £154 million will be invested to modernise HMRC’s debt management case system and a £12 million investment will be used to acquire further credit reference agency data to enable HMRC to better target their debt collection activities. £16 million is to be invested to modernise HMRC’s app to allow income tax self-assessment taxpayers to make voluntary advance payments in instalments. The Government also confirmed that the use of payroll software to report and pay tax on benefits in kind (payrolling of BIKs) will become mandatory as previously announced. This will take place in phases, from April 2026 and will apply to income tax and Class 1A National Insurance Contributions. Tax agents £36 million is being invested in order to modernise HMRC’s tax adviser registration services from April 2026 and tax advisers who interact with HMRC on behalf of clients will need to be registered with HMRC. This will be legislated for in a future Finance Bill. From 6 April 2025, tax advisers will be required to provide an advanced electronic signature when making specified income tax repayment claims on behalf of clients. A consultation will also be published in early 2025 on options to enhance HMRC’s powers and sanctions to take swifter and stronger action against tax advisers who facilitate non-compliance. Umbrella company market To tackle “the significant levels of tax avoidance and fraud in the umbrella company market”, recruitment agencies will become responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies. Where there is no agency, this responsibility will fall to the end client business. This will take effect from April 2026. A policy paper was published alongside the Budget providing further information on this measure. Late payment interest rates on unpaid tax From 6 April 2025, the late payment interest rate charged by HMRC on unpaid tax liabilities will increase by 1.5 percent points so that it will be set at 4 percent above base rate. Should the current Bank of England base rate remain unchanged between now and then, the interest rate will therefore increase from 7.25 percent to 8.75 percent. Digital reporting for Individual Savings Account managers This will be mandatory from 6 April 2027; hence draft legislation will be published for a technical consultation in 2025. Car ownership schemes Draft legislation will be published to deal with loopholes in car ownership arrangements. This aims to target arrangements through which an employer/third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period. This will take effect from 6 April 2026. Charity compliance Legislation will be introduced to ensure that only the intended tax relief is given to charities. These changes will take effect from April 2026 to give charities time to adjust to the new rules. Liquidations of limited liability partnerships The way capital gains are taxed when a limited liability partnership is liquidated, and assets are disposed of to a contributing member or person connected to them, changed from 30 October 2024 and will be legislated for in Finance Bill 2024/25. Close company loans to participators The Government will ensure that shareholders cannot extract funds untaxed from close companies by legislating to remove opportunities to side-step the anti-avoidance rules attached to the loans to participators regime. This change applies from 30 October 2024. Reducing tax-free overseas transfers of tax relieved UK pensions The Government removed the exclusion from the overseas transfer charge for transfers to qualifying recognised overseas pension schemes in the European Economic Area or Gibraltar from 30 October 2024 to address the risk of individuals receiving double tax-free allowances. Rogue company directors Collaboration between HMRC, Companies House, and the Insolvency Service will be increased to tackle those using contrived corporate insolvencies and dissolutions, often referred to as “phoenixism”, to evade tax. Deterring tax fraud and rewards for informants HMRC’s counter-fraud capability will be expanded to address “high value and high harm tax” and its scheme for rewarding informants will be strengthened in order to encourage reporting of high value tax fraud and avoidance. Tackling promoters of marketed tax avoidance A consultation will be published in early 2025 on a package of measures to tackle promoters of marketed tax avoidance. Offshore tax compliance The Government committed additional resources to scale up compliance activity in order to tackle serious offshore non-compliance such as fraud by wealthy taxpayers and intermediaries, corporates they control and other connected entities. Simplification of taxation of offshore interest A consultation has been launched to tackle challenges arising from the mismatch of information on offshore interest being provided on a calendar year basis rather than a UK tax year basis. The consultation is seeking views on options to address this mismatch, including changes to the rules so that individuals are taxed on the non-UK interest arising in the year ended 31 December that ends in the tax year. Cryptoasset Reporting Framework and amendments to the Common Reporting Standard A summary of responses to the consultation on the implementation of the Cryptoasset Reporting Framework (CARF) and amendments to Common Reporting Standard was published. This includes a decision to extend the CARF’s reporting requirements to UK users. This will be legislated for in Finance Bill 2024/25, although draft regulations to implement the revised rules have already been published for consultation. Employee ownership trusts and employee benefit trusts A package of reforms to the taxation of employee ownership trusts and employee benefit trusts were introduced to prevent opportunities for abuse and ensure that the regimes remain focused on encouraging employee ownership and rewarding employees. These changes took effect from 30 October 2024. Hidden economy: expanding tax conditionality to new sectors and consultation on HMRC correction powers A consultation has been published on whether to make the renewal of further public sector licences conditional on applicants demonstrating they are appropriately registered for tax. The Government has also published a consultation on reforming HMRC’s correction powers, exploring changes to HMRC’s existing powers and processes, and a potential new power to require taxpayers to correct mistakes themselves. A response to the call for evidence on HMRC powers, penalties, and safeguards has also been published. Making better use of third-party data The Government will publish a consultation in early 2025 on modernising how HMRC acquires and uses third-party data. Requirements for European Economic Area overseas pension schemes The Government will bring in line the conditions of overseas pension schemes (OPS) and recognised overseas pension schemes (ROPS) established in the EEA with OPS and ROPS established in the rest of the world from 6 April 2025. UK resident pension scheme administrators The Government will require scheme administrators of registered pension schemes to be UK resident from 6 April 2026.  

A range of measures featured in this area including the announcement that the 100 percent first year allowance (FYA) for qualifying expenditure on certain green assets, including plant or machinery for electric vehicle charge points, will be extended, a recommendation of the Institute in its pre-budget submission. Green FYA The Government will extend for a further year the 100 percent FYA for qualifying expenditure on zero-emission cars and the 100 percent FYA for qualifying expenditure on plant or machinery for electric vehicle charge points to 31 March 2026 for corporation tax and 5 April 2026 for income tax. Leased assets and full expensing Extending full expensing to assets bought for leasing or hiring will be explored when fiscal conditions allow. What qualifies for capital allowances HMRC will continue to work with stakeholders to improve and clarify guidance on areas of uncertainty within the capital allowances system. Tax treatment of predevelopment costs A consultation will be launched in the coming months that explores the tax treatment of predevelopment costs.

The Government will engage with stakeholders over the coming months to understand their views on where the tax policy making process works well, and what could be improved. In its pre-budget submission, the Institute highlighted the need to examine the current tax policy making process. The Government is also committed to a single major fiscal event per year. According to the Budget publications, the Government will simplify the tax system and will take this forward as part of its three strategic priorities for HMRC. It plans to engage with stakeholders before introducing a set of measures to simplify tax administration and improve taxpayer experience in Spring 2025. This will focus on reducing burdens on small businesses. The Government will meet stakeholders to understand the priorities for administration and simplification, ensuring that this work is driven by the views of taxpayers.

As previously announced VAT on private school fees will proceed as planned from 1 January 2025. On the duty side, the expected increase in fuel duty has been shelved, as recommended by the Institute in its pre-budget submission. VAT on private school fees From 1 January 2025, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20 percent This will also apply to boarding services provided by private schools. The Government has now published a response to its recent technical consultation on this policy. To protect pupils with special educational needs that can only be met in a private school, local authorities and devolved Government’s that fund these places will be compensated for the VAT they are charged on those pupils’ fees. VAT treatment of private hire vehicles The Government is considering the responses to the consultation on the VAT treatment of private hire vehicle services, and the impact of a recent Court of Appeal judgment and will respond to the consultation in due course. Fuel duty The Government is freezing fuel duty and extending the temporary 5p cut for one year, at a cost of £3 billion. This will save the average car driver £59 in 2025/26. Alcohol duty The Government recognises the economic and cultural importance of British pubs and is committed to supporting smaller brewers. The Budget therefore reduced duty on qualifying draught products from 1 February 2025, which represent approximately 60 percent of alcoholic drinks sold in pubs, cutting duty on an average strength pint by a penny. However, alcohol duty on non-draught products will increase in line with Retail Price Index (RPI) inflation from the same date. The current temporary wine easement will end as planned on 1 February 2025. To support small producers, the Government will make the small producer relief more valuable and will also consult on ways to encourage small brewers to retain and expand their access to UK pubs, maximising drinkers’ choice and local economies, including through provisions to enable more ‘guest beers’. The Government also announced the end of mandatory duty stamps for spirits and will consult with industry to establish how it can better support the delivery of the spirit drinks verification scheme, which allows spirit producers to verify the geographic origin of their products. This will include the Government making an investment of up to £5 million “to support and look to reduce bureaucracy for existing and prospective producers who may wish to join”. Air passenger duty To ensure Air Passenger Duty (APD) revenues remain sustainable, all APD rates will increase in 2026/27. This equates to £1 more for those taking domestic flights in economy class, £2 more for those flying to short-haul destinations in economy class, £12 for long-haul destinations, and relatively more for premium economy and business class passengers. The higher rate, which currently applies to larger private jets, will rise by a further 50 percent in 2026/27. From 2027/28 onwards, all rates will be uprated by forecast RPI and rounded to the nearest penny. The Government is also consulting on extending the scope of the APD higher rate to capture all passengers travelling in private jets already within the APD regime. Vehicle excise duty To help drive the transition to electric vehicles (EVs), the Government is strengthening incentives to purchase EVs by widening the differentials in vehicle excise duty (VED) first year rates between EVs and hybrids/internal combustion engine cars. The Government recognises the disproportionate impact of the current VED expensive car supplement threshold for those purchasing zero emission cars and will consider raising the threshold for zero emission cars only at a future fiscal event, to make it easier to buy electric cars. Heavy goods vehicle (HGV) VED rates will increase in line with RPI from 1 April 2025 as will the HGV levy. Smoking duty The tobacco duty escalator of RPI +2 percent is being retained for the remainder of this Parliament and will increase duty by a further 10 percent on hand-rolling tobacco this year. These changes apply from 6pm on 30 October 2024. A new vaping products duty will be introduced from 1 October 2026 at a flat rate of £2.20 per 10ml vaping liquid, accompanied by an equivalent further one-off increase in tobacco duty to maintain the financial incentive to switch from tobacco to vaping. Soft drinks levy The soft drinks levy will increase so that it maintains the incentive for soft drinks manufacturers to reduce their sugar content. Rates will be announced in the preceding autumn fiscal event. Both the lower and higher rates of the Levy will increase each year over the next five years to reflect the 27 percent Consumer Price Index (CPI) increase between 2018 and 2024, in addition to an increase in line with the CPI each year from 1 April 2025. The Government will also review the current sugar thresholds and the exemption for milk-based drinks. Gaming duty The gross gaming yield bandings for gaming duty will be frozen from 1 April 2025 until 31 March 2026. The Government will also consult in 2025 on proposals to bring remote gambling (meaning gambling offered over the internet, telephone, TV and radio) into a single tax, rather than taxing it through a three-tax structure. This will aim to simplify, future-proof and close loopholes in the system.