Autumn Budget 2024

This article was first published in the 1 November 2024 edition of Tax Journal.

On Wednesday morning I asked ChatGPT to “write a UK budget to plug a £22 billion black hole” and second on its list of suggestions was to put corporation tax up by 2% to raise £5 billion a year.  Happily for corporates the Chancellor had already ruled such a rise out and the first “major commitment” made in the long-awaited Corporate Tax Roadmap 2024 is to cap the headline rate of corporation tax at 25% for the life of this Parliament alongside a commitment to monitor international developments with a view to ensuring the UK’s corporation tax regime remains competitive. 

The last time a new UK government published a Corporate Tax Roadmap it was in 2010 and the objective then was to indicate a shift to a more competitive corporate tax regime to stem the flood of migrations to jurisdictions such as Ireland and to attract new investment into the UK.  Its promises included CFC reform, a more territorial tax system with a foreign branch exemption, a patent box and better R&D tax credits, all largely realised.  The purpose of the latest Corporate Tax Roadmap is clearly to provide reassurance that that is not about to change, the stated aim being to give “predictability, stability, and certainty to businesses and investors”.

Overall, although the mood music is not too bad, I would expect corporates to adopt a watching brief here.  This Budget is particularly expensive for businesses employing significant numbers of people in the UK.  Reducing the secondary threshold alone makes each employee £615 a year more expensive to employ and that, with the increase in the employer’s NICs rate to 15%, equates to a £25 billion per annum increase in National Insurance.  Having watched the government explain over the last few weeks why such an increase would not be a breach of its manifesto commitment, only given in June, “not [to] increase National Insurance”, it is not difficult to imagine that the caveat that the UK corporation tax system will still need to adapt “for example to respond to new business practices or new competitive pressures” could be used to justify some significant changes if push came to shove.  (As an aside, given the justification that employer’s NICs are a tax on businesses and not workers per se, it might have been sensible to have moved that measure to the “Business & international tax” section of the Red Book rather than having it as the lead item under the “Personal tax & savings” heading!).

That said, there are a few carrots dangling on the horizon.  The government will look at extending full expensing (100% capital allowances) to assets bought for leasing.  UK-UK transfer pricing, which was introduced in 2004 to ensure compliance with EU law, could be removed which would potentially result in a significant reduction in compliance burden for many groups.  And there is a consultation promised next year on “a new process that will give investors in major projects increased advanced certainty”.  Exactly what a “major project” is for these purposes is still somewhat shrouded in mystery, but any additional ability to obtain a tax clearance is likely to be welcomed by business. 

But, as ever, there are also some dangling sticks.  The government is considering extending transfer pricing requirements to medium sized businesses as well as introducing a requirement for multinationals to report cross-border related party transactions to HMRC.  And although both the bank levy and the bank surcharge have been left alone in this Budget, financial institutions have been put on notice that the bank tax regime continues to be kept under review. 

So bad news for employers, bad news for groups that pay the Energy Profits Levy (where the rate has gone up, the levy has been extended and the 29% investment allowance removed), and for everyone else, and whether the UK retains its competitive corporate tax system as promised, the proof of the pudding will be in the eating.

This article was first published in the Autumn 2024 Budget: Views from practice: Tax edition of Practical Law on 1 November 2024.

In the 2014 movie Interstellar, the protagonist’s encounter with a black hole leads him into a vortex of time and space enabling him to communicate with the past and help to save humanity. Our first brush with the dreaded £22 billion fiscal black hole on Wednesday has proven rather underwhelming by comparison.

On the CGT front, some may well feel a degree of relief (given recent headlines) at the new higher rate going up by only 4 percentage points to 24%. Indeed, those invested in residential property escaped any rate rise altogether – although the increase in the SDLT surcharge to 5% will not do much to help that particular market. Business asset disposal relief - surely a likely target for abolition -  got off relatively lightly with a phased increase in rate to 18% from April 2026. Carried interest likewise suffered only a 4-point increase to 32% (at the higher rate end) – although moving, it seems, to an effective 34% higher rate from April 2026 based on the current proposals for its transition to the income tax regime. Interestingly, the Summary of Impacts says that the latter measure “will impact approximately 3,100 individuals working in the investment management industry” – unclear as yet how these are not among the “working people” protected by the manifesto commitment.

On the subject of commitments, the corporate tax roadmap tells us that the headline corporation tax rate will not rise above 25% during the current Parliament – reassuring on the face of it, but one wonders about this leaving the door open for yet more sector-specific levies or surcharges as the economic (and political) winds change. It’s good news that full expensing will be maintained and possibly extended to leased assets, as had been previously hinted at. The promise of the annual investment allowance sticking at £1m will be appreciated by businesses frustrated at the constant chopping and changing of that amount in years past. It also suggests the removal of UK-UK transfer pricing, a simple reform deliverable post-Brexit which would be most welcome from an administrative perspective.

Expected blows were softened, for some at least, in other areas: the hike to employer’s NICs and lowering of the threshold were accompanied with a more than doubling of the employment allowance; and whilst the 29% investment allowance was indeed removed for Energy Profits Levy purposes, the other reliefs remain (almost) intact. The non-dom regime will be abolished as expected, but with a four-year regime for recent arrivals not previously UK resident and other measures which leave it not a million miles away from the scheme devised by the last Government – and certainly in line with the established direction of travel.

Overall then, while there was certainly not much good news here, it perhaps wasn’t quite as bad as feared.