Although no changes will be made to a range of key business taxes as confirmed in the Corporate Tax Roadmap 2024, from 6 April 2025 the rate of employer National Insurance Contributions (NICs) will increase for all employers, and its 0 percent threshold will reduce. This is targeted to raise £26 billion, though it remains unclear if this takes into account the related tax effects of increasing employer NICs such as reduced employee NICs, income tax, and corporation tax. Transfer pricing is to be reformed, and the UK’s carbon border adjustment mechanism (CBAM) will be introduced from 1 January 2027 as planned. A range of enhancements were announced to the suite of the UK’s creative sector reliefs and the Pillar Two Undertaxed Profits Rule (UTPR), the final part of the G20-OECD Global Minimum Tax agreed by over 135 countries and jurisdictions, will take effect for accounting periods beginning on or after 31 December 2024.
Corporate Tax Roadmap 2024
The promised Corporate Tax Roadmap 2024 has been published. This reinforces the previous commitment to cap the Corporation Tax Rate at 25 percent and maintain the Small Profits Rate at 19 percent. Marginal relief will also be maintained at its current rate and there will be no changes to Corporation Tax thresholds. Other key business taxes which will remain untouched are Full Expensing, the Annual Investment Allowance, the rates of R&D tax relief, and the Patent Box regime.
In the Institute’s Pre-Budget Submission, we raised the importance of certainty and stability for the UK’s R&D tax relief regime, given its instability and the myriad of changes in recent years. The commitment to preserving R&D tax relief is therefore welcome.
Employer NICs
The rate of employer NICs will increase from 13.8 percent to 15 percent from 6 April 2025 and the secondary threshold will reduce to £5,000 (previously £9,100) from the same date. The secondary threshold is the level at which an employer is liable to pay employer NICs on each employee’s salary. This will remain at £5,000 until 6 April 2028 and will increase in line with CPI thereafter.
To support small businesses with these changes, from 6 April 2025 the employment allowance will increase from £5,000 to £10,500 and the £100,000 eligibility threshold will be removed thus expanding this to all eligible employers. The current employment allowance gives eligible employers with employer NICs bills of £100,000 or less a discount of £5,000 on their employer NICs bill.
Employer NICs relief for veterans
The employer NICs relief for employers hiring qualifying veterans will be extended a further year until 5 April 2026. This means that businesses will continue to pay no employer NICs up to the annual earnings of the veteran’s upper secondary threshold of £50,270 for the first year of a veteran’s employment in a civilian role.
Carbon border adjustment mechanism (CBAM)
The Government has published its response to the March 2024 consultation on the introduction of a UK CBAM which the Institute responded to earlier this year. The response confirms that the UK CBAM will be introduced on 1 January 2027, placing a carbon price on goods that are at risk of carbon leakage imported to the UK from the aluminium, cement, fertiliser, hydrogen and iron and steel sectors. Products from the glass and ceramics sectors will not be in scope of the UK CBAM from 2027 as previously proposed. The registration threshold will be set at £50,000, retaining over 99 percent of imported emissions within the scope of the CBAM, while removing over 80 percent of otherwise registrable businesses. Over 70 percent of those removed from the CBAM altogether by this threshold are micro, small, or medium sized businesses.
Creative sector reliefs
As previously announced, from 1 April 2025 film and high-end TV productions will be able to claim an enhanced 39 percent rate of Audio-Visual Expenditure Credit on their UK visual effects costs. UK visual effects costs will be exempt from the Audio-Visual Expenditure Credit’s 80 percent cap on qualifying expenditure. Costs incurred from 1 January 2025 will be eligible. This measure will be legislated in Finance Bill 2024/25.
From 1 April 2025, UK films with budgets under £15 million and a UK lead writer or director will be able to claim an enhanced 53 percent rate of Audio-Visual Expenditure Credit, known as the Independent Film Tax Credit. Expenditure incurred from 1 April 2024 on films that began principal photography on or after 1 April 2024 is eligible. Also from 1 April 2025, the rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief will be set at 40 percent for non-touring productions and 45 percent for touring productions and all orchestra productions. These rates apply UK-wide. Both these measures have already been legislated for.
R&D tax relief
In addition to a detailed email from HMRC’s R&D Communications Forum, the Government will discuss widening the use of advance clearances in R&D reliefs with stakeholders, with the intention to consult on lead options in Spring 2025. A document has also been published setting out further information on the scale and characteristics of error and fraud up to 2023/24, the policy and operational changes that have been made to address this, and further data on taxpayer experience.
Reform of transfer pricing
A further consultation on reforms to the UK’s rules on transfer pricing, permanent establishments, and the Diverted Profits Tax will launch in Spring 2025. This will include the potential removal of UK-to-UK transfer pricing. A consultation will also be published in Spring 2025 on further changes to the transfer pricing rules which will examine proposals such as:
- lowering the thresholds for exemption from transfer pricing for medium-sized businesses whilst retaining an exemption for small businesses, and
- introducing a requirement for multinationals in the scope of transfer pricing to report information to HMRC on certain cross-border related party transactions.
Alongside this, a review will be conducted on the transfer pricing treatment of cost contribution arrangements, to ensure that the rules are certain and do not act as a deterrent to investment that brings economic benefits to the UK.
Technical amendments will also feature in Finance Bill 2024/25 to provide certainty that Advance Pricing Agreements are available for financing arrangements covered by the Transfer Pricing rules in line with HMRC’s existing Statement of Practice 1 (2012).
Pillar Two UTPR
The UTPR will be included in Finance Bill 2024/25 and will take effect for accounting periods beginning on or after 31 December 2024. Technical amendments to the Multinational and Domestic Top-up Tax legislation will also be included in the Finance Bill to incorporate the latest international updates and stakeholder feedback.
Repeal of offshore receipts for intangible property
The offshore receipts for intangible property rules will be abolished for income arising on or after 31 December 2024, based on the Government’s view that the Pillar Two UTPR will more comprehensively discourage the multinational tax-planning arrangements that these rules sought to counter. Repeal will be legislated for in 2024/25.
Apprenticeship levy
As previously announced, the government will take steps to transform the Apprenticeship Levy (AL) into a more flexible Growth and Skills Levy by investing £40 million, with the aim of delivering new foundation and shorter apprenticeships in key sectors. The reformed levy will be developed in partnership with employers, providers, and learners.
Skills England will take the time to consult with a wide range of partners to ensure that levyfunded training meets the needs of employers, providers, and learners, and secures good value for money. Disappointingly, no mention was made of how this will be taken forward in Northern Ireland where the AL is a devolved function.
LOADING...