Autumn Budget 2024 for businesses

As there have been significant changes to the corporation tax regime over recent years, the corporation tax roadmap has been introduced to provide predictability, stability and certainty for companies and their stakeholders over the course of this parliament.

The roadmap intends to meet this by:

1. Maintaining many of the current features of the corporation tax regime.
2. Highlighting areas for potential future change and using consultations that will allow companies to influence these changes.
3. Committing to improve guidance to make it more straight forward to business to understand their corporation tax obligations and how to meet them.

Some of the main features of the corporation tax roadmap will include:

• Capping the main rate of corporation tax at 25%, whilst keeping the small profits rate and marginal relief at current rates and thresholds.
• Maintaining the current capital allowances regime to support capital investment (including permanent full expensing, the £1 million annual investment allowance and structures and buildings allowances).
• Providing guidance on what qualifies for different capital allowances and the simplification of the regime, including consideration of specific areas such as the tax treatment of predevelopment costs and the extension of full expensing to assets that are bought for leasing.
• Maintaining the rates for the merged R&D expenditure credit scheme and the enhanced relief for R&D intensive SMEs, with companies undertaking qualifying R&D continuing to receive a benefit of between £15 to £27 for every £100 spent on qualifying R&D (see Research and Development section below for further details).
• Establishing an R&D advisory panel to enhance the administration of R&D tax reliefs, launching an R&D disclosure facility and confirming a consultation on widening the use of advance clearances in the R&D reliefs.
• Maintaining the effective 10% tax corporation tax rate under the patent box regime.
• Preserving the intangible fixed assets regime.
• Maintaining audio-visual expenditure credits and video game expenditure credits.
• Consultation on the effectiveness of land remediation relief.
• Further consultation on reforms to the UK tax rules on transfer pricing, permanent establishments and diverted profits tax (including the potential removal of UK-to-UK transfer pricing, potentially lowering the thresholds for exemption and introducing a requirement for multinationals to report cross-border related party transactions to HMRC).
• Aligning the UK corporation tax regime with international frameworks for allocation of profits and minimum tax rates on global corporate profits under Pillar 1 and Pillar 2.
• Monitoring international developments with a view to ensuring that the UK’s regime remains competitive.
• Consultation on a new process that will give investors in major projects increased advance certainty about the tax that will apply.
• Publishing an update in early 2025 on how the government will take forward modernisation of technology in respect of corporation tax.

To support investment in innovation and boost economic growth, the government in the Autumn Budget and the corporation tax roadmap has committed to maintaining the rates of relief for both the merged Research and Development Expenditure Credit (RDEC) and Enhanced Support for R&D Intensive SMEs (ERIS) schemes which came into effect for accounting periods beginning on or after 1 April 2024. This means that for the duration of this Parliament companies undertaking qualifying R&D will continue to receive a benefit of between £15 to £27 for every £100 spent on qualifying R&D.

To combat fraud while considering concerns raised by stakeholders regarding the increased scrutiny by HMRC, an R&D expert advisory panel will be established to improve guidance on the reliefs.

There will also be a consultation with stakeholders in Spring 2025 on widening the use of advance clearances in R&D reliefs, to further reduce error and fraud and provide certainty to businesses. We will be responding to the consultation so please get in touch with your usual Saffery contact if you have any comments.

The corporation tax roadmap also confirmed that there are no planned changes to the Patent Box regime. Companies that develop and exploit patents and other similar intellectual IP will welcome the continued ability to claim an effective 10% tax rate.

The following changes to creative sector reliefs announced at Spring Budget 2024 will be effective from 1 April 2025.

Audio-Visual Expenditure Credit

Film and high-end TV productions will be able to claim an enhanced 39% 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% cap on qualifying expenditure. Costs incurred from 1 January 2025 will be eligible. Read more about the changes here.

Independent Film Tax Credit

UK films with budgets under £15 million and a UK lead writer or director will be able to claim an enhanced 53% rate of Audio-Visual Expenditure Credit, known as the Independent Film Tax Credit. Expenditure incurred from after 1 April 2024 on films that began principal photography on or after 1 April 2024 is eligible.

Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief

The rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief will be set at 40% for non-touring productions and 45% for touring productions and all orchestra productions. These rates apply UK-wide.

There were a number of changes to impact employers, not just the headline increase in employer NIC rates.

National Insurance

The main rate of employer’s NIC will increase from 13.8% to 15% from April 2025 and this will impact both payroll and benefits in kind. Additionally, the starting point from which employer’s NIC is assessed on earnings will be reduced from £9,100 to £5,000.

While costs will therefore increase substantially for most employers, there was an increase in the employment allowance from £5,000 to £10,500 which will still result in many of the smaller employers not paying any employer NIC at all. The allowance is also currently only available to employers whose annual NIC liability was less than £100,000 in the previous tax year but his threshold will be removed. There are currently still restrictions on personal services companies and domestic employers claiming the allowance and the guidance is currently silent on whether these restrictions will remain in place from April 2025.

The starting point for employees to pay NIC will remain the same but will likely increase in line with personal allowances from 2028/29. There will be an increase in the lower earnings limits in line with CPI but this will not impact the amount of NIC that employees pay.

The employer NIC relief scheme for employers hiring qualifying veterans will be extended for a further year to 5 April 2026, so no employer NIC will be payable on earnings up to the upper threshold in their first year of employment in a civilian role.

With no real changes to the NIC treatment on employer pension contributions and electric vehicles, the benefits for implementing salary sacrifice schemes have only increased.

National Minimum Wage

The National Living Wage will rise from £11.44 to £12.21 an hour from April 2025 and there will also be an increase in the National Minimum Wage for 18 to 20-year-olds from £8.60 to £10 an hour. In addition, the minimum hourly wage for apprentices and under 18s will increase from £6.40 to £7.55 an hour. The accommodation offset rate will increase to £10.66 a day.

Company vehicles

The appropriate percentage for zero emission and electric vehicles will increase by 2 percentage points per year in 2028/29 and 2029/30, rising to an appropriate percentage of 9%, so retaining much of the large differential in benefit in kind charges between electric and non-electric cars. Appropriate percentages (AP) for hybrid cars with emissions of 1 – 50 g of CO2 per kilometre will rise to 18% in 2028-29 and 19% in 2029-30 and all other vehicle bands will increase by 1 percentage point per year in 2028-29 and 2029-30. The maximum AP will also increase by 1 percentage point per year to 38% for 2028-2029 and 39% for 2029-2030.

There was also a less publicised announcement in that all Dual Cab Pickups will be classed as cars from 6 April 2025 irrespective of their payload. Currently such vehicles are treated as vans where their payload exceeds 1,000Kg. Transitional benefit in kind arrangements will apply for employers that have already purchased or leased such a vehicle before 6 April 2025 and they will be able to use the previous treatment until the earlier of disposal, lease expiry, or 5 April 2029. Expect a flurry of orders between now and 5 April 2025 as the transitional rules will also apply to those ordered but not yet delivered.

A potential loophole where employers sell a car to an employee, often via a loan, and then buy it back after a short period is due to be legislated against from April 2026.

Payrolling benefits in kind

A commitment was made to the previous announced intention for payrolling of benefits to be mandatory from April 2026. The only exceptions to this will be for employment related loans, such as overdrawn loan accounts, and accommodation benefits. Payrolling for these two benefits will be introduced on a voluntary basis, also from April 2026, with the potential for mandatory payrolling of these benefits to be introduced at a later date.

The voluntary payrolling system currently in place will remain for the 2025-26 tax year and will still allow employers to adopt payrolling of benefits before the mandatory implementation date.

Use of umbrella companies

Following on from a number of publicised tax avoidance schemes run by umbrella companies, the responsibility for accounting for PAYE and NIC will move from April 2026 to the agency who engages the umbrella company, or where no agency is in the supply the chain the end client will be responsible. It will still be possible to outsource the operation of the payroll to the umbrella company but the agency or end client would be liable for any shortfall where non-compliance had occurred.

The importance of appropriate due diligence checks on the supply chain and having suitable tax indemnities in place will become much more important for clients going forwards where these services continue to be outsourced.

The government has confirmed the removal of the VAT exemption for education and boarding services provided by private schools will go ahead, as planned, from 1 January 2025. VAT at the standard rate will apply from this date. VAT will also apply to pre-payments received by private schools from 29 July 2024, which relate to the supply of education and boarding for terms starting on or after 1 January 2025. There is no further detail in respect of pre-payment arrangements entered into prior to 29 July 2024.

These measures were originally announced on 29 July 2024 and the government has resisted calls for implementation to be delayed to give schools more time to prepare.

Draft legislation and technical notes have been available for some time, and HMRC undertook a consultation which closed on 15 September. HMRC has now published its response to that consultation within which is specific reference to those elements of the draft legislation which will be amended within the final legislation. Our detailed FAQs can be found here.

Some of the key changes from the draft legislation include:

1. Ensuring education provided by Further Education (FE) colleges remains VAT exempt by amending one of the definitions of a private school for VAT purposes. Those institutions wholly or mainly concerned with educating 16-19 year olds, and where the majority of those are fee paying, will lose the VAT exemption for education and boarding services. The intention is to ensure private sixth forms lose the VAT exemption, but not other FE colleges subject to the revised definition.
2. A nursery class will be redefined as being a class that is composed wholly (or almost wholly) of children who are under compulsory school age or, school age in Scotland, and would not be expected to attain that age while in that class. Separate guidance published by HMRC suggests ‘almost wholly’ means at least 90% of pupils.
3. Non-maintained special schools will be required to account for VAT on placements paid from 30 October 2024 which relate to terms starting on or after 1 January 2025.

Within HMRC’s response document, clarification regarding school meals is provided. VAT exemption will continue for the provision of school meals where the charge is separately itemised on invoices issued, and that parents or guardians or carers, have a genuine choice regarding the purchase of school meals. In other circumstances the provision of school meals would form part of the supply of education and be subject to VAT.

Schools affected by the changes which are not already registered for VAT, can now apply to register for VAT. When doing so HMRC is requesting that within the business activity section of the application form, the narrative ‘Private Education Provider’ is added. This will presumably mean HMRC will identify these applications and prioritise their processing to ensure schools are issued VAT numbers without undue delay. Those schools who need to register for VAT should immediately apply.

Saffery continues to work closely with private schools on preparing for the removal of the VAT exemption.

The government has published a summary of responses to the consultation on the taxation of Employee Ownership Trusts (EOTs) and Employee Benefit Trusts (EBTs). Following consideration of the consultation responses, the government is introducing reforms to the taxation of EOTs and EBTs which will take effect from 30 October 2024.

These changes include:

Employee Ownership Trusts

• Preventing exiting shareholders (or persons connected with them) from continuing to control the company post-sale by controlling the EOT.
• Require that trustees of the EOT are UK tax resident as a single body of persons. A breach of this condition at any time following disposal would result in a ‘disqualifying event’ and the loss of EOT-status, as well as triggering an ‘exit charge’ to the trustees under existing provisions. This restriction will not apply to EOTs established before 30 October 2024.
• Require that the trustees take reasonable steps to ensure the consideration paid by the EOT for the shares does not exceed the market value of the acquired shares.
• The ‘vendor clawback period’ within which the tax relived can be recovered from the vendor (if the EOT conditions are breached) will be extended. Previously, the clawback period was the end of the second tax year following the end of the tax year in which the disposal was made. From 30 October 2024, this period is extended to four years. Where relief is withdrawn due to a breach in conditions, the vendor will be assessed to capital gains tax (CGT) as though the claim had not been made.
• Require that sellers provide within their claim for CGT relief on their self-assessment tax return, information on the sale proceeds and the number of employees of the company at the time of disposal.

Legislation will also be introduced to confirm the distribution treatment for contributions made by a company to an EOT to repay the former owners for their shares. A new relief will be introduced which will apply to contributions made to the trustees of an EOT to fund costs relating to the setting up of the EOT. The relief will ensure that income tax is not charged on such contributions as distributions. HMRC will not seek to disturb the treatment of contributions to existing EOT trustees already undertaken in line with the conditions on which clearances were previously given, even where clearance was not sought from HMRC.

Employee Benefit Trusts

Legislation will be introduced confirming that connected persons are already excluded from benefiting from an EBT for the lifetime of the trust.

The inheritance tax exemption will be restricted to where the shares have been held for two years prior to settlement into an EBT. This provision will take into account shares held prior to any share reorganisation.

For the existing exemption from inheritance tax to apply, all or most employees need to be capable of benefiting from the EBT. Changes will be introduced that will require that no more than 25% of employees who are able to receive income payments should be connected to the participator and will apply to transfers of value to new and existing trusts on or after 30 October 2024.

The Carbon Border Adjustment Mechanism (CBAM) will place a tax on the imports of relevant emission intensive goods into any part of the UK from countries with a lower or no carbon price.

The tax will be based on the level of carbon emissions generated in the production of a certain good, as well as the gap between the carbon price (the tax or equivalent paid) applied in the country of manufacture and the carbon price (tax due) applied in the UK.

The government opened a consultation on CBAM in March 2024, and has now published its response which confirms the implementation of CBAM from 1 January 2027.

From this date a carbon price will apply to goods imported into the UK which are classified as at risk of carbon leakage. Aluminium, cement, fertiliser, hydrogen and iron and steel will be subject to the carbon price. Glass and ceramic products will not be included as was originally planned.

A £50,000 registration threshold will be set with respect to CBAM goods that pass the tax point (the point the imported goods go into free circulation in the UK) over a 12-month rolling period, which will remove some SMEs from the scope of CBAM.

UK importers of goods in the categories mentioned, should start preparing for the implementation of CBAM now.

The government has announced an increase in the PPT rate in line with CPI inflation from 1 April 2025 to 31 March 2026, with the aim of further encouraging business to use recycled plastic packaging. The current rate of PPT is £217.85 per tonne.

Following an HMRC consultation, businesses will also be able to adopt a mass balance approach to evidencing the level of recycled materials with the plastic packaging they are manufacturing or importing, when determining whether or not PPT is payable.

PPT is not due when plastic packaging contains at least 30% recycled plastic. Recycled plastic includes both mechanically and chemically recycled materials. The degree of variation in chemical recycling processes means it is difficult to assess the level of recycled plastics being used and the mass balance approach, which is more commonly used in other sectors including timber, aims to address this through a chain of custody model.

Manufacturers or importers of plastic packaging should take interest in HMRC’s response to the consultation originally opened in April 2023.

• Offshore receipts in respect of intellectual property (ORIP) was a short-term measure aimed at disincentivising large multinational enterprises from holding intangible property in a low tax jurisdiction if the intangible property is used to generate income in the UK. The ORIP rules are no longer required because the global minimum tax under Pillar 2 will more comprehensively discourage these arrangements. Repeal of the ORIP rules will take place alongside the introduction of Pillar 2 in the UK from 31 December 2024.
• New anti-avoidance rules have been introduced from Budget date in respect of the loan to participator (s455 tax charge) rules, which will ignore artificial arrangements where new loans are made and then repaid in a chain such that s455 tax charges will continue to arise on the amounts extracted by the participators.