Key Implications of the Recent UK Budget
Welcome to 2025! To kick off this years Blog series I thought it might be helpful to recap on the key messages from the recent (Nov. 2024) budget because judging by the emails which have come in over the Christmas break, many of them loom large in the thinking of my clients. I will be expanding on many of the implications in subsequent blogs and providing an overview of some of the main issues at the forefront of the minds of my clients via the NEW Client Diaries tab due to launch later this month.
The Autumn Budget 2024, presented by Chancellor Rachel Reeves, has been one of the most anticipated budgets in recent memory. With a focus on addressing a claimed black hole of £22 billion and supporting public services, the budget introduces several significant changes that will impact both businesses and individuals.
Economic Outlook
The budget aims to support the economy’s long-run growth potential through increased public spending. However, the Office for Budget Responsibility (OBR) forecasts no medium-term boost to GDP from these measures. The UK economy has shown signs of recovery, with GDP growth returning in the first half of 2024. However, population growth has meant that GDP per person remains subdued.
Tax Increases and Public Spending
One of the most notable aspects of the budget is the cumulative £40 billion tax increase. This includes a 1.2% increase in National Insurance Contributions (NIC) for employers, rising from 13.8% to 15% starting April 6, 2025. Additionally, the secondary threshold for employee earnings above which employer’s NIC are due will be reduced from £9,100 to £5,000 annually. To partially offset this for small businesses, the Employment Allowance will increase from £5,000 to £10,500, with the £100,000 limit being abolished.
Impact on Businesses
The increase in NIC and the reduction in the secondary threshold will significantly impact large employers, increasing the economic burden of employing labour. This could potentially lead to an increase in the use of arrangements that disguise employment relationships, prompting more enforcement activities by HMRC. Additionally, large corporates with global income exceeding €750 million will be affected by the introduction of the undertaxed profits rule (UTPR) from December 31, 2024.
Household Impact
While the budget includes measures to better fund public services, it is expected to squeeze household income growth. The OBR anticipates that the tax rises and higher borrowing will not provide a medium-term boost to GDP, potentially impacting household incomes.
Additionally
There were also big changes to pensions, Inheritance Tax, Capital Gains Tax rates as well as reliefs available to businesses and agricultural land and I will be exploring and expanding on these in the coming days via blogs and client experiences.
