Spring Budget 2024: “Budget for long term growth” promises Jeremy Hunt

As Mr Hunt continues his pursuit of stability and growth, there were very few surprises from today’s Spring Budget 2024 announcements. His speech provided limited support for businesses and is unlikely to improve the Conservative’s pre-election standing.

Mr Hunt’s dilemma was quite clear when he stood up to make his Budget announcements this afternoon, an economy not as robust as he would have liked and a general election looming.

There is no doubt that since Mr Hunt took office there has been a period of stability that he has said repeatedly is a key aim for his economic and tax initiatives. However, other factors have seemingly stymied his options for pre-election tax giveaways.

In his pre-Budget commentary, he indicated that he wants to make work pay, to deliver more opportunity and prosperity and above all to get the economy growing again – the economy is currently in a very weak recession. He has also stated that he will only reduce taxes when it is prudent to do so, but that tax cuts remain a key aim on his agenda. Borrowing more to fund tax cuts would be irresponsible and morally wrong, Mr Hunt has stated.

Yet again, we have seen a flurry of media comments detailing the likely tax cuts, tax increases and public spending reductions based on seemingly perfect information. A lot of this may be deliberate leaking to ‘test the water’ on the part of the Chancellor’s team, however, it would be good to get back to the good old days when the Budget announcements come as surprises – both positive and negative.

Spring budget 2024

Striving for stability

The expectation was no headline grabbing tax cuts (National Insurance is not a tax of course), targeted tax ‘raids’ on some taxpayers, and a public spending reduction to help balance the books. Steady as she goes!

Mr Hunt started his speech by confirming that his measures are designed to create more investment, more jobs and lower taxation.

He also stated that economic growth has been higher than all other European economies, with employment halved and 800 jobs created for each day the Conservatives have been in power.

One positive economic point made by Mr Hunt was the OBR prediction that inflation will be below 2% in two months’ time.

In what follows I concentrate on the tax measures Mr Hunt announced.

The ‘highlights’ for me were the:

  • National Insurance reductions;
  • Child benefit changes;
  • Reduction in residential Capital Gains Tax;
  • Abolition of the furnished holiday letting and non-domicile regimes; and
  • Increase in the VAT registration threshold.

Tax measures announced today

Personal taxation

As you will see below, the main change (as heavily predicted in the media) is the reduction in National Insurance contributions for employees and the self-employed.

No changes were announced to the main taxes.

Income tax rates

No changes were announced.

National Insurance contributions 

The rate of National Insurance for the employed is to reduce from 10% to 8% with effect from 6 April 2024. The rate for the self-employed will reduce from 8% to 6%.

Child benefit

The existing scheme which is fraught with difficulty and anomalies is to be revamped.

As of April 2026 it will be based on household circumstances. Currently, the income based approach creates unfairness. In recognition of this the annual limit, after which child benefit is taxed, will be increased from £50,000 to £60,000 with effect from 6 April 2024 until the new regime is in force.

Capital Gains Tax

The rate of tax on residential property disposals will be reduced from 28% to 24% for disposals on or after 6 April 2024.

Inheritance Tax

No changes were announced.

Pensions

No changes were announced.

Non-domiciliaries

The non-dom regime will be abolished, as will the concept of domicile, which is a peculiarity of the UK tax system. A simple system will be introduced based on residence.

From April 2025 new arrivals to the UK will have a four-year tax break following which, if they remain resident in the UK, they will be taxed as any other UK tax resident. There will of course be transitional rules to be navigated by those affected.

This measure alone is expected to raise £2.7 billion in additional tax.

The non-dom regime has been in the spotlight for some time, not least because of Mr Sunak’s family tax arrangements.

Those potentially affected may need to consider what changes they have to make to their tax status to address the new rules.

Furnished holiday letting (FHL)

The favourable FHL regime will be abolished from 1 April 2025.

Thus, the beneficial tax treatment of interest and deductible expenses, the reduced rate of Capital Gains Tax, and potential Inheritance Tax reliefs will all go. This will mean that FHL landlords will be taxed as buy to let landlords.

TIP: Existing FHL landlords may need to carefully consider their options for addressing the change to minimise any costs.

Business taxation

Corporation tax (CT)

Mr Hunt did not bow to pressure and did not reduce the rates of corporation tax – see details later in this note.

Capital expenditure

With effect from 1 April 2023 full expensing of capital expenditure on main rate plant and equipment against has been possible – see detail below.

Today Mr Hunt announced that the rules will be extended to leased assets as soon as it is affordable to do so.

Research & Development (R&D)

No new changes were announced.

Please see further below for the changes to R&D reliefs which have already been announced.

Other issues

Windfall tax

The current windfall levy, which applies to profits made from extracting UK oil and gas, is 35% and will now remain in place until March 2029.

The Electricity Generator Levy applies to revenues from ‘in scope’ electricity generated and remains in place until 31 March 2028. It is at a rate of 45% on extraordinary returns from low-carbon electricity generation.

VAT

The VAT registration threshold will rise to £90,000, from the current £85,000, on 1 April 2024.

Stamp Duty Land Tax (SDLT)

Multiple dwellings relief is to be abolished with effect from 1 June 2024. This is perhaps not surprising given the raft of tax tribunal cases dealing with the application of the rules and potential abuse and avoidance.

Zero emissions vehicles

No changes or further reliefs were announced.

Fuel duties

Fuel duty has been frozen for another year until April 2026.

Alcohol duty

Alcohol duty will be frozen until February 2025, the current freeze was due to end in August this year.

Tax on vaping

A new duty will be leviable on vaping products in 2026. There is to be consultation on how the rules are to be applied, and to which products. There will be changes to tobacco duties alongside the vaping duties.

Air passenger duty

The duty payable on business class flights will be increased from 1 April 2025. The new rates are yet to be determined.

Families

Targeted help for families on lower incomes will continue.

Investment

The ISA rules are to be reviewed. A new ‘British ISA’ will be available for investment in British companies. This will have a £5,000 allowance in addition to the current limit of £20,000 per annum. The Treasury are to consult on the detailed rules.

Personal taxation – what we know

Income tax rates

The personal allowance and higher rate thresholds are frozen until April 2028:

  • The personal allowance is £12,570;
  • The 40% higher rate of income tax applies on income over £37,700; and
  • The 45% additional rate of income tax applies on income over £125,140.
Dividend tax rates

The following rates apply from 6 April 2023:

  • 8.75% for dividends in the basic rate band;
  • 33.75% for dividends in the higher rate band; and
  • 39.35% for dividends in the additional rate band.

The dividend allowance is currently £1,000 but will be reduced to £500 from 6 April 2024.

The rate of tax payable by companies on any overdrawn director’s loan account (DLA) is 33.75% as this rate is linked to the rate of tax payable on dividends. As always DLA planning is important for all owner managed businesses.

Owner managers should review their profit extraction strategies for the current and future tax years to maximise any tax saving opportunities which may be available.

Reviewing the company’s shareholding structure may give owner managers tax planning opportunities with the use of ‘alphabet shares’. With all such planning, the practical and commercial factors should not be overlooked.

National Insurance Contributions (NIC)

The earnings threshold for employer’s NIC, payable at a rate of 13.8%, is now frozen at £9,100 until 2028.

The employment allowance is £5,000.

Capital Gains Tax

The annual exemption is £6,000 from 5 April 2023 and £3,000 from 6 April 2024.

Inheritance Tax

The nil-rate band is £325,000 and will remain at this level until April 2028.

SDLT

The starting value at which SDLT becomes payable is £250,000 for residential properties.

Pensions

The pension lifetime allowance, currently £1,073,100, will be abolished from 1 April 2024.

The annual allowance is £60,000 for the current and future tax years.

No further changes were announced today.

Childcare

At present, eligible working parents with a 3 or 4-year-old can access 30 hours of childcare support.

From April 2024, eligible working parents of 2-year-olds will be able to access 15 hours of childcare support.

From September 2024, 15 hours of childcare support will be extended to eligible working parents of children from the age of 9 months to 3-year-olds.

From September 2025, eligible working parents with a child from 9 months old up to school age will be entitled to 30 hours of childcare a week.

The rates have been confirmed for the next two years.

Business taxation – what we know

Corporation tax

The rate of corporation tax is 25% for companies with taxable profits of more than £250,000.

For small companies, with taxable profits below £50,000, the rate of corporation tax is 19%. The rate tapers for companies with taxable profits between £50,000 and £250,000. This will provide a gradual increase in the effective rate of corporation tax. The rate of corporation tax in the margin will depend on the level of profits in the margin.

The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies. Group loss relief planning is likely to become important for many groups.

The above rates mean that company tax planning may now become more important for a lot of companies.

Capital expenditure – full expensing

Where a company incurs capital expenditure on assets that would otherwise qualify for the main pool, such as plant and machinery, furnishings, manufacturing equipment, IT equipment and capital investment on software, it is entitled to claim a first year allowance and take a 100% in year deduction in respect of the expenditure. The expenditure must be on new and unused items.

There are separate rules for motor cars, as briefly referred to elsewhere in this summary.

R&D

A merged R&D tax relief scheme is coming into force for accounting periods beginning on or after 1 April 2024.

The merged R&D scheme sees the existing R&D tax relief incentives brought together into a single scheme:

  • Enhanced tax relief and payable credits for qualifying SME expenditure; and
  • R&D expenditure credit (RDEC) for large businesses, SME subcontractors and subsidised R&D expenditure.

The merged scheme will be implemented like the existing RDEC scheme.

There is also a separate set of rules for R&D intensive companies.

If you are an SME, you will need to identify whether you fall under the R&D intensive company rules or the merged scheme rules. The R&D intensive scheme is for companies, from 1 April 2024, with 30% or more of their total expenditure spent on R&D activities.

The merged scheme will provide relief for profit-making companies of all sizes at the current RDEC rate of 20%. The gross RDEC is subject to corporation tax, which means that the most profitable companies, paying tax at the full rate of 25%, will receive a net benefit of 15%.

The notional tax rate for loss-making companies of all sizes will be lowered to 19% in the merged scheme, resulting in a payable credit worth 16.2% of a company’s R&D expenditure.

The procedure for making an R&D claim:

  • Make an application for advance assurance, eligible new claimants;
  • Make a claim notification, unless an R&D claim has been made in one of the last three periods, within six months after the end of the accounting period;
  • Submit an additional information form with your CT600 or earlier; and
  • Claim tax relief via the corporation tax computation and the CT600 and attach an R&D report.

The above procedure must be followed. If it is not, HMRC will remove R&D claims from submitted computations.

Creative tax reliefs

The reliefs available to those companies involved in the creative sectors (museums, art galleries, theatres, orchestras etc.) are as shown in the following table:

Spring Budget 2024 creative tax reliefs 

The above rates, which had been increased due to the pandemic, were due to be reduced in March 2025. The above rates have now been made permanent. Lord Lloyd-Webber has described the changes as  ‘transformational’ and they will ensure that the UK remains the centre of global creativity.

The expenditure credits from 1 January 2024 are 34% for film, high end television and video games and 39% for the animation and children’s TV sectors.

Other targeted measures were announced.

Other reminders of recent tax changes

The following are measures which are already in place.

Residential property sales

The reporting and payment requirements for CGT in connection with residential property sales are still causing problems for taxpayers with investment property and/or second homes. The sale of a main residence does not normally need to be reported in this way.

The reporting and tax payment deadline is 60 days from the date of completion.

Many taxpayers are still unaware of the new rules.

With suitable planning, the calculations taxpayers need to complete should be straightforward to complete, perhaps with a little help from their accountant!

Once a taxpayer has set up their CGT account with HMRC, it is then easy enough for them to appoint an agent to make the necessary return on their behalf. Once that has been completed the payment process is routine.

TIP: If you have a UK residential disposal which is due to complete before 5 April 2024, you can avoid the above if you can file your 2024 income tax return within 60 days of completion. The other benefit of this approach would be that the tax due would be payable in accordance with the self-assessment regime, i.e., by 31 January 2025, and not 60 days from completion.

Making tax Digital (MTD)

MTD for VAT is now mandatory for all VAT registered businesses. All new VAT registrations will result in an automatic inclusion within the MTD regime.

MTD for income tax is getting closer! The new target date for self-employed individuals and property owners with income over £50,000 is 6 April 2026.

Given the problems which HMRC have experienced to date with this initiative even 2026 may not be achievable.

MTD for corporation tax will be the last of the MTD initiatives and will not be in place for some time yet.

Penalties

With the progression of the MTD initiatives we now have a new points-based penalty regime for filing failures.

The new regime is effective as follows:

  • For VAT accounting periods starting on or after 1 January 2023;
  • For businesses, self-employed individuals, and property owners with income over £50,000 from 6 April 2026; and
  • For businesses, self-employed individuals, and property owners with income over £30,000 from 6 April 2027.

The new regime is intended to ‘punish’ more harshly those who miss deadlines regularly, rather than those who occasionally default due to a simple oversight. The penalties are clear because they are fixed.

With the delay to the introduction of MTD for income tax, no ‘soft landing’ is expected with the new penalty rules, so all taxpayers will need to be aware of them in time to avoid unexpected fines.

Basis period reform – sole traders and partnerships

The reform will involve businesses moving from the ‘current year’ basis to a ‘tax year’ basis. This will mean that business profits will be calculated for the tax year rather than for the accounting year ending in the tax year. This will align the treatment of trading income with non-trading income.

The change will be effective for the tax year starting 6 April 2024.

The current tax year is the transitional year for sole traders and partnerships that do not use 5 April or 31 March as their accounting date. This will advance tax liabilities for many businesses.

Zero emissions vehicles

There are 100% first year capital allowances for business expenditure on new and unused business cars, and zero emissions good vehicles for expenditure incurred prior to 1 April 2025.

With the company car benefit in kind percentage at 2% for 2023-24 and 2024-25, now could be a good time to consider switching to an electric company car.

Vehicle excise duty will be payable on electric vehicles from April 2025.

Conclusions

In Mr Hunt’s pursuit of stability and growth, there were very few surprises in today’s announcements, certainly none which had not been outlined in the pre-Budget press comment.

Mr Hunt concluded his speech by stating that the initiatives he had announced created a path to lower taxes and an economy where work pays.

There was plenty in Mr Hunt’s speech for individuals to consider, but very little cheer for businesses.

There have been plenty of immediate comments which suggests that his ‘cuts’ do not go far enough and certain sectors are bemoaning the fact that their sector has had little help.

Thus, businesses will have to wrestle with the increased corporation tax burden, especially those companies in the service sectors where the capital expenditure and R&D reliefs are of little relevance.

I cannot help but think that the announcements today will do little to improve their pre-election standing for the Conservatives given that the National Insurance reduction announced in November last year passed with barely a whisper from the electorate.

The announcements today do not necessarily create any need for immediate action, but rather points to consider with future personal and corporate tax planning.

Contact

If you have any questions, or other points, in connection with the contents of this summary of the Spring Budget 2024, please do not hesitate to get in touch through the normal channels.

Disclaimer

Please bear in mind that this is a general overview of the Spring Budget announcements.

Please take appropriate detailed professional advice before acting on any of the points made in this overview.