The 2024 UK Budget introduces the biggest tax increase in over two decades,
affecting businesses, investors, and wealthy individuals. As accountants, we understand that these changes may bring up questions about costs, cash flow, and strategic planning. Here’s a breakdown of the most impactful tax changes for businesses, along with practical steps to help you navigate these shifts and make informed decisions.
1. Employer National Insurance Contribution (NIC) Increase
- What’s Changing: The NIC rate for employers will increase by 1.2 percentage points, and the threshold at which employers begin paying NIC will drop from £9,000 to £5,000.
- Impact: This measure is targeted at businesses, though the additional costs could affect employees indirectly, potentially leading to adjustments in wages, staffing, or prices.
Action Steps for Business Owners:
- Review Payroll Costs: Calculate the impact of the NIC increase on your business’s payroll expenses. Consider adjusting budgets or seeking efficiencies to absorb this change without compromising growth.
- Explore Salary Sacrifice Schemes: NIC savings can be achieved through salary sacrifice arrangements for pensions or other benefits, which could help offset the NIC rise. Speak to your accountant about setting up tax-efficient compensation packages.
- Evaluate Hiring and Retention Plans: With increased employment costs, consider reviewing your workforce structure. Remote, part-time, or flexible roles may help balance payroll budgets and retain talent in cost-effective ways.
2. Capital Gains Tax (CGT) Increase
- What’s Changing: The lower rate of CGT is rising from 10% to 18%, and the higher rate from 20% to 24%. For entrepreneurs, the Business Asset Disposal Relief (BADR) rate will also increase from 10% to 14% after April 2025.
- Impact: These changes could affect the value realized from asset sales, business disposals, and investment exits, potentially influencing your business’s capital strategy.
Action Steps for Business Owners:
- Plan Asset Disposals Carefully: If you’re considering selling business assets or shares, talk to your accountant about timing. Completing disposals before the rate increase could yield significant tax savings.
- Consider Tax-Efficient Investments: Higher CGT makes it even more important to explore tax-efficient investment vehicles. Tax shelters like ISAs or pensions can reduce CGT liability on personal investments.
- Reevaluate Succession Plans: For business owners thinking of retirement or passing down the business, it’s essential to revisit succession plans and account for these changes. Adjustments now can help maximize your retained value in light of rising tax rates.
3. Changes to Inheritance Tax (IHT) Reliefs for Business Assets
- What’s Changing: Agricultural Property Relief (APR) and Business Property Relief (BPR), currently offering up to 100% IHT relief, will be capped for assets above £1 million. This means that farm and business assets beyond this threshold will receive only 50% relief, leading to an effective 20% IHT rate on additional value.
- Impact: Family-owned businesses, farms, and estates are particularly affected, as these changes could impact estate planning and intergenerational wealth transfer.
Action Steps for Business Owners:
- Update Estate and Succession Plans: With caps on IHT reliefs, reevaluate your estate planning strategy. Work with your accountant to restructure ownership and maximize available exemptions.
- Explore Trusts and Gifting: Trusts and gifting strategies may be more important than ever for business owners aiming to pass on wealth tax-efficiently. Although recent changes limit trust benefits, they still offer options for structured wealth transfer.
- Review Asset Valuations: Understanding the current market value of your business or farm assets will help you anticipate potential IHT obligations. Periodic valuations can assist in adjusting strategies proactively.
4. End of Non-Dom Status and New Residence-Based Taxation
- What’s Changing: The non-domiciled tax status is being phased out in favor of a four-year residence-based tax system. Trusts set up before this change will still benefit from reduced inheritance taxes but will face a new 6% tax rate every decade.
- Impact: This change will affect international clients, investors, and foreign-owned businesses based in the UK. For existing non-doms, it may alter long-term tax plans significantly.
Action Steps for International Business Owners:
- Assess the New Tax Regime: If you’re currently benefiting from non-dom status, consult with your accountant about how the new residence-based system will affect your UK tax obligations.
- Consider Restructuring Assets: For business owners who rely on trusts to shelter assets, work with a tax specialist to explore alternative structures. It may be possible to limit exposure while complying with new regulations.
- Plan for Transition Costs: Ending non-dom status could increase your tax liabilities. Setting aside funds for this transition or adjusting business spending may help you maintain cash flow stability.
5. Interest Rate Increase on Late Tax Payments
- What’s Changing: The interest rate for late tax payments has been raised by 1.5 percentage points to 9%, which could increase penalties for overdue tax bills.
- Impact: This change is aimed at encouraging timely payments, but it also means businesses could face steep costs if they encounter cash flow issues or tax delays.
Action Steps for Business Owners:
- Prioritize Tax Payment Planning: Stay ahead of tax deadlines by budgeting for upcoming liabilities. If cash flow is a concern, set aside funds throughout the year to avoid late fees and increased interest.
- Work with Your Accountant on Cash Flow Forecasting: Accurate forecasting helps ensure funds are available for tax payments. Your accountant can assist in building a realistic cash flow plan to minimize the risk of late penalties.
- Consider Payment Plans if Needed: HMRC offers time-to-pay arrangements for businesses facing financial difficulty. Your accountant can guide you in setting up a plan, which may be helpful if you’re facing an unexpected tax bill.
Final Thoughts
This Budget introduces sweeping changes, especially for businesses and asset owners. Working closely with your accountant will be essential to navigate these changes effectively. From updating estate plans and exploring new investment structures to implementing payroll and tax planning strategies, a proactive approach will be key to minimizing tax burdens and securing your financial future.
If you need support in adjusting to these changes, reach out to our accounting team here at Amanah Accountant's for tailored advice and planning solutions that align with the latest tax landscape.