Could the Autumn Budget 2024 fuel smart growth for entrepreneurs and SME’s?
Sarah Curzon · Posted on: August 27th 2024 · read
Tax reliefs play a crucial role in the decision-making process of entrepreneurs and business owners, influencing how and where they invest their resources.
These reliefs can lower the overall cost of capital expenditures, encouraging businesses to invest in growth, which in turn can spur job creation and economic stability.
For instance, when tax reliefs are available for capital spending, businesses are more likely to invest in new equipment or technology, knowing that these expenditures will be more affordable due to the tax savings.
Small and medium-sized businesses rely on tax stability to make informed decisions about investments and expansion. They also seek assurance that the risks they take in employing people and developing their businesses won't be disproportionately penalized by hefty tax bills.
Fiscal policy, which involves government decisions about taxation and spending, can significantly affect the business environment and thus influence investment decisions. However, with Labour now in power, there is growing uncertainty about the future of these tax reliefs and how the Autumn Budget 2024 might impact them.
Labour's manifesto did not provide extensive details on specific tax changes but did pledge to raise £8.5 billion in tax without increasing income tax, national insurance, or VAT. Since Labour came to power, we have learnt that there is a significantly greater hole in the public finances believed to be around £22bn that needs to be plugged. This raises questions about where additional tax revenue will be sourced and how it might affect the tax reliefs that entrepreneurs and business owners currently rely on.
Will Labour favour businesses in the Autumn Budget?
As we approach the Autumn Budget 2024 on 30th October 2024, entrepreneurs and business owners are eagerly anticipating the changes that could significantly impact their operations. Chancellor Rachel Reeves has already hinted that the state of public finances is worse than the Labour Party initially anticipated, making it clear that taxes will need to be raised.
However, with a manifesto pledge not to increase income tax, national insurance, or VAT - taxes that contribute over 60% of the UK's revenue - Reeves faces limited options for generating additional funds.
One confirmed change is the introduction of a 20% VAT rate on school fees, set to take effect from 30 October 2024. While this move is expected to raise significant revenue, other tax measures likely to be included in the Budget could have a more direct impact on small and medium-sized businesses.
Here are a few confirmed changes
- The introduction of a 20% VAT rate on school fees, from 30 October 2024 (not 1 January 2025 as previously announced).
- They will continue with the previous Government policy to change the tax rules for non-domiciled individuals with effect from April 2025 with a number of further changes to this policy expected to be announced in the Budget.
- An extension to the Energy Profits Levy.
- While these changes are expected to raise significant revenue, other tax measures likely to be included in the Budget could have a more direct impact on small and medium-sized businesses.
Which tax rates and reliefs could be subject to change?
- Capital Gains Tax (CGT) Labour have refused to rule out an increase in the current level of CGT. They have previously expressed interest in aligning CGT rates with income tax rates. Currently, CGT is set at 20% for higher-rate taxpayers (24% for residential property gains), significantly lower than the 40% and 45% rates for income tax. There is currently a tax-free allowance of £3,000 which was significantly slashed by the last Government. This could be reduced further but unlikely to yield the returns required by the Government. More likely we will see the withdrawal of reliefs like Business Assets Disposal Relief, which allows business owners to pay a 10% tax on up to £1 million in gains when selling their business, could also be at risk of being reduced or eliminated entirely.
- Inheritance Tax (IHT) This has long been a contentious issue for Labour, with valuable reliefs such as business property relief and agricultural property relief potentially in the crosshairs. These reliefs can offer up to 100% exemption from inheritance tax, but Reeves may look to restrict or abolish them to increase tax revenues. Currently everybody is entitled to a nil rate band of £325,000 and in the right circumstances a home’s nil rate band of up to £175,000 for a married couple this means they can pass an estate of £1m tax free to their beneficiaries. There are restrictions on this once your joint estate exceeds £2m. These allowances have been frozen for a significant amount of time by the last Government meaning more people are subject to IHT but we could see a reduction in such allowances by Reeves in order to raise much needed Revenue.
- Fuel Duty The previous government froze fuel duty at 5% since 2011, but with the current financial pressures, Reeves may target this area to raise additional funds.
- Tax Avoidance Measures HM Revenue & Customs is expected to receive more powers to crack down on tax avoidance, particularly targeting savers, investors, and freelancers. This could result in increased scrutiny and potential tax liabilities for business owners who fall within these categories.
- Pension Taxation Although Labour leader Keir Starmer has retracted plans to reintroduce the lifetime allowance for pensions, the tax-free status of pension pots upon death could still be revisited as a potential source of revenue. However, there are other ways that further tax could be raised form pensions. Currently a taxpayer will receive tax relief at their top rate of tax. Subject to certain restrictions on contributions levels per annum. We could see a flat rate of relief introduced.
A roadmap to stability
Labour has emphasized its commitment to providing stability and certainty for businesses regarding tax policies. Reeves is expected to introduce a business roadmap outlining scheduled changes to corporation tax reliefs and capital allowances for the next five years.
This roadmap aims to give entrepreneurs clarity on what will qualify for allowances, helping them make informed decisions on investments in plant, machinery, and equipment. We are expecting this to reveal certainty for companies that pay corporation tax capping the rate at 25% for the duration of the current Government’s term in office. However, the labour manifesto did not mention Research and development reliefs which so many SME business have relied upon for several years. This has become a significantly challenging area for HM Revenue & Customs to administer with a number of false claims in recent years so we could see changes to this relief by Reeves.
What does this mean for me and my business?
As the Autumn Budget approaches, many entrepreneurs are likely feeling uncertain about the future. The potential increase in capital gains tax rates and the possible elimination of business assets disposal relief has prompted some business owners to accelerate their plans to sell or retire.
Additionally, ongoing economic challenges, including high inflation and rising living costs, may cause businesses to delay investment decisions until Reeves unveils the full details of her first budget.
Business owners will need to closely monitor these developments to adapt their strategies accordingly.
How we can help
For further guidance on any of the tax measures discussed in this article, or outcomes from the Autumn Budget, please contact our private client tax team to discuss further.
Stay updated with MHA
Ahead of the Autumn Budget, our tax experts and industry specialists will be sharing their insights on the measures that would best support UK industries and individuals in the medium and long term.
Stay updated on the latest developments right here on our dedicated Autumn Budget hub.
