Autumn UK Budget Predictions 2024 - Specialist Tax
It’s been a long time since there has been such anticipation (perhaps trepidation would be more accurate) in the lead up to the Autumn Budget speech.
The incoming new Labour Government have been very clear that they will be required to raise taxes significantly and the concern over potential changes to Capital Gains Tax (CGT), Inheritance Tax and Pensions in particular have resulted in a flurry of activity as some people try to reorganise and restructure their assets before the end of October, ahead of their first Budget announcement.
Rather than focus on these areas, which have been well covered, our Specialist Tax leads have focussed on some of the other changes that we may see in relation to their respective areas.
Construction & Property Incentives
Financial Services Tax
We will be keeping an eye on announcements in relation to the tax treatment of ‘carried interest’.
Back in July, the Chancellor Rachel Reeves, announced her commitment to take action in respect of the carried interest “loophole”. On the same day, the Treasury issued a Call for Evidence on the tax treatment of carried interest and advised that an announcement on the taxation of carried interest would be made in the Autumn Budget 2024.
Private fund managers can therefore expect potential changes to the tax rates applying to carried interest, although we are hopeful that there will be exceptions depending on asset class and/or fund size.
Entrepreneurial Taxes
Following the announcement at the beginning of September that the legislation has come into force to extend the “sunset clause” for Enterprise Investment Scheme (EIS) to April 2035, we can now be confident in the longer-term availability of this important relief. Growth was certainly a hot topic of conversation for both leading parties in the build up to the election.
Now that the sunset clause extension has come into force, could the government make further changes to the legislation? In the discussions with the European Union on extending the sunset clause, the UK Government carried out analysis on the effectiveness of EIS. The analysis found the following:
- The EIS/VCT schemes have incentivised additional investment into target companies. In the absence of the schemes, most investors would not have invested in the same or similar (risk profile) companies.
- More than half (57%) of EIS investors said the tax incentive was one of the most important reasons they invested through the scheme.
When presented with a counterfactual of no tax incentive scheme or one that was less generous, investors indicated that they would change their investing habits and/or withdraw some or all of the investment from targeted companies.
The UK authorities concluded from this that an equity gap would likely develop if the schemes were withdrawn or scaled backed. Our hope, given the focus on growth and the importance of EIS, would be that the government may take steps to both simplify the legislation and potentially look to extend some of the limits to make it open to more businesses. One area they could potentially look at is the maximum age requirement, which generally is seven years from the date of the first commercial sale.
Extending this beyond seven years would give businesses a greater window to seek that crucial investment needed to expand and grow.
R&D tax relief
The Research and Development (R&D) tax relief system, which was first introduced by a Labour Government in the year 2000, is designed to encourage investment in innovation and drive economic growth.
Although there have been some changes over time, the system remained fairly consistent until more recently when HMRC became aware that levels of error and fraud within R&D claims was much higher than they had previously estimated.
As a result, over the past three years, the government has introduced a series of changes to the reliefs and the associated compliance requirements to help HMRC in identifying potentially inaccurate or fraudulent claims and with a view to ensuring that the benefit of the schemes is received only by eligible companies.
This period of unparalleled change has included adjustments to the mechanics and rates of relief, the costs that can be claimed for and the steps that a company must take both ahead of making a claim and at the time of submission in order for its claim to be valid. You could forgive potential claimants for hoping for little mention of R&D tax relief in the upcoming Autumn Budget.
The government has given little away on this front since stepping into office. However, in its Partnership for Growth document, which was published ahead of the General Election, it committed to stabilising R&D tax credits as part of its five-point plan for business growth. The document also confirmed Labour’s commitment to maximising Britain’s strengths in innovative sectors such as life sciences, clean power and aerospace.
We are fully supportive of the government and HMRC’s efforts to tackle fraud and inaccuracy in the R&D tax relief system. We would hope that the new government conclude that the most effective way to achieve this will be to utilise the data being gathered as part of the recent changes already implemented, as opposed to introducing further change and complexity.
Employment Tax
Whilst we have not heard much about significant employment tax measures to be introduced in the Autumn Budget, the government made it very clear that they intended to raise pay for all and end in-work poverty by introducing the Employment Rights Bill within the first 100 days of tenure. The Bill is intended to create a new partnership between business, trade unions and working people and will potentially see a major upgrade to workers’ rights.
There are quite a few measures that could therefore impact and which employers will want to be aware of. Significant measures include:
- Banning zero hours contracts,
- Making unfair dismissal a day-one right,
- Making flexible working a default from day one, and
- Introducing a single enforcement body (Fair Work Agency) to strengthen the enforcement of workplace rights.
In addition, there is also an expectation of providing a genuine living wage which also takes into account the cost of living and which will remove the age bands which are perceived to be discriminatory. This will likely cause additional administration and cost for employers, but the government has advised it will work in close partnership with trade unions and business to deliver on these changes and how best to put them into practice, so there will hopefully be some time to better understand the changes and how they can be addressed by employers.
Global Mobility
The proposed abolishment of non-domicile status from April 2025 is the biggest development in global mobility for many years. Although the direct impact may be more tangible for individuals, employers (particularly those who support employees with cross border moves) should be mindful of the impact these changes may have. In addition to the already proposed changes, we are expecting clarity from the government on any transitional arrangements with the key focus areas for employers expected to be:
- Structuring the affairs and resulting advisory costs for UK inbound assignees with non-UK income should become more straightforward. The new Foreign Income & Gains (FIG) scheme places no restriction on remittances of foreign income and so we expect:
- The UK should be a more attractive location for moves as this reduces the complexity of their employment/personal affairs; and
- Costs historically associated with longer term non-domiciled individuals (such as those related to bank account structuring and remittance basis charges etc) could potentially reduce. In addition, repatriating long-term non-residents hailing from the UK should also become more straightforward as the FIG regime is open to returning UK nationals (with a requirement to have been outside the UK for 10 years prior to repatriating). There is no similar relief opportunity under current rules and so this is an attractive proposition for well-remunerated individuals seeking to return to the UK.
- On the contrary and compared to some of our European counterparts (Italy for example, with a similar FIG regime lasting for 15 years), whilst the change provides more clarity in terms of projecting equalised tax costs for the employer’s account, the four-year time window for this relief is less attractive compared to neighbouring European locations (with the weather unlikely to be our saving grace!). There will also be uncertainty and potential increased complexity in the immediate future post April 2025 for existing residents of the UK with non-domiciled status as we await clarity on the transitional rules to be implemented.
- We are anticipating initial added complexity around transitional rules and this, together with the all-inclusive nature of the new FIG regime may require employers to review their current assignee population and associated global mobility policies. The current system restricts relief opportunities relating to non-UK income (including overseas workday relief for income connected to offshore duties) to those qualifying as non-domiciled. The changes proposed hold no similar restriction and so should see increased opportunities to access the FIG regime meaning a more appealing UK inbound market.
International Tax
We aren’t expecting specific measures targeted at international groups in the Budget, with the government’s focus being elsewhere. However, we might see further details being published around the administration of the global minimum tax. The government is supportive of this measure, and the legislation is already in force, but many practical questions remain as to how it will be administered.
We are expecting the Business Tax Roadmap to be published and it will be helpful for large businesses to get certainty over the future landscape of taxation measures. Last year, there was a consultation relating to international tax and transfer pricing which didn’t lead to any significant changes at the time, so we may see some of those areas of legislation being updated to make sure the UK’s domestic law is in line with its international obligations.
Construction & Property Incentives
In the Labour manifesto, there was a commitment to giving businesses greater clarity on what qualifies for capital allowances to improve business investment decisions. We may, therefore, see some improvements to HMRC guidance over the coming months
Keep up to date with our Autumn Budget 2024 insights
Find out more from our team of sharp minds as we bring you further Autumn Budget predictions on Corporation Tax and Personal Tax. You can also visit our Budget Hub for further insights, including a break-down from the most recent Spring Budget.
