The UK’s Autumn 2024 Budget “delivers a large, sustained increase in spending, taxation, and borrowing” according to the Office for Budget Responsibility. In this blog, we will summarise tax announcements that caught our eyes. Overall, it would seem fair to say that the government has opted for one big revenue-raiser – an increase in employer national insurance contributions for additional revenues of over £20 billion per year from tax year 2025/26 – and a large list of changes to raise smaller amounts.   

Employees and their employers

The Chancellor reiterated the government’s election manifesto promises not to increase income tax, VAT or national insurance contributions – but it is now clear that the latter commitment did not extend to employer NICs which will increase from 13.8% to 15% and the threshold from which they become payable will decrease from £9,100 to £5,000 per year. The changes will take effect from April 2025 and be legislated in the upcoming Finance Bill (to be published after the House of Commons’ decisions on the Budget Resolutions). It will also be of interest to employers that, from April 2026, it will be mandatory to use payroll software to report and pay tax on benefits in kind. We expect that these and other measures relevant to employees and employers will be covered by our pensions, employment and incentives colleagues in their HR Budget briefing - see here. 

Capital gains tax

As had been widely expected, the main rates of capital gains tax will increase from 10% to 18%, and from 20% to 24% for disposals made on or after 30 October 2024 (with certain anti-forestalling rules in respect of unconditional but uncompleted contracts entered into before this date). This is a less significant increase than the alignment of capital gains tax with income tax rates that some had predicted, but the rate increase still gets close to the percentage point increase that the Treasury had estimated in June would be revenue-negative over the period from 2025 to 2028. In the policy costings, the main rate changes are assessed together with an increase in the rates for business asset disposal relief and investors’ relief (from the current 10% to 14% in April 2025 and 18% in April 2026, again in each case with anti-forestalling provisions). An increase in revenues by over £1 billion in each tax year from 2025 to 2028 is predicted (although uncertainties in relation to the size of the tax base and the behavioural response are noted). 

The capital gains tax rate on carried interest will also be increased from April 2025 with a view to “moving the regime fully into the Income Tax framework from April 2026”, and the government intends to form a working group to discuss associated technical details. Interested stakeholders can email the Treasury if they would like to join this group (email address in paragraph 3.28 of the consultation outcome).

Another interesting capital gains tax point (although a rather limited revenue-raiser at £15 million per year) is a change to the treatment of assets contributed to a limited liability partnership in response to the taxpayer’s successful defence of a transaction notified under DOTAS before the First-tier Tribunal in GCH Corporation. 

Corporate Tax Roadmap

One purpose of the Corporate Tax Roadmap is to give business certainty that the government will, in certain respects, maintain the status quo. It reiterates the government’s commitment to cap the main corporation tax rate at the current rate of 25% for the duration of this Parliament, maintain full expensing and generous rates of R&D relief (more on R&D below). 

But it also signals changes, for instance with further consultations on reforms to the transfer pricing, permanent establishment and diverted profits tax legislation. The removal of UK-to-UK transfer pricing appears to be on the cards as a measure to reduce compliance costs. On the other hand, the government is considering bringing medium-sized businesses into the scope of the transfer pricing rules and to require multinationals to provide additional information on cross-border transactions. 

It also touches on international tax reform, noting for instance that the government is committed to “ensure that the UK rules reflect international agreed updates to Pillar 2” (for more on Pillar 2 – see “MTT and DTT” below).

Research and development

The Corporate Tax Roadmap confirms that the rates of R&D relief will remain unchanged and references a separate R&D Compliance Action Plan published by HMRC. 

The Compliance Action Plan provides an update on the actions taken by HMRC since the July 2023 report which (amongst other things) highlighted HMRC’s new mandatory random enquiry programme, which was introduced to bolster HMRC’s compliance efforts in respect of R&D relief claims. The Compliance Action Plan follows the publication of HMRC’s Annual Report and Accounts for 2023/24 earlier this year where the Comptroller and Auditor General qualified his opinion on HMRC’s financial statements partly as a result of the rates of error and fraud in corporation tax R&D reliefs. The Compliance Action Plan highlights that all of the compliance measures introduced since 2021 have now come into effect – most recently the prohibition on nominating agents for (or making assignments of) R&D tax credit payments (which took effect in April 2024). In addition, HMRC has implemented some internal changes to ensure the R&D function is better resourced (for example maintaining 500 members of staff to work on R&D compliance). This appears to have had some positive impact on the processing of claims, with 92% of R&D claims being processed within 40 days in 2023 to 2024 (which exceeds HMRC’s published aim to process 85% of claims within a 40-day period). Whilst the impacts of the various compliance measures introduced over the past few years cannot be fully measured this year, HMRC does expect that the rates of error and fraud will come down materially (HMRC projects that for the 2023 to 2024 period the rate of error and fraud will be 7.8% overall, compared to a high of 17.6% for the 2021 to 2022 period). 

The Corporate Tax Roadmap also notes that HMRC will establish an R&D expert advisory panel, launch a disclosure facility and consider increasing the use of advance clearances. 

MTT and DTT

The Corporate Tax Roadmap commits the government to considering possible “simplification or rationalisation of the UK’s rules for taxing cross-border activities following the introduction of the Pillar 2 framework”. As a first step in this direction, the Budget confirmed that, with the introduction of the UTPR from (effectively) the start of 2025, the ORIP rules would be repealed (as first announced by the previous government at Autumn Statement 2023 – see this blog post).

The government has also announced certain additional changes to the MTT and DTT rules which will include the introduction of the anti-arbitrage rule for the country-by-country reporting safe harbour for which draft legislation was published alongside the Chancellor’s statement at the end of July. The OOTLAR notes that minor changes have been made to the draft legislation, reflecting responses received. 

Tax administration 

Given the government’s intention to close part of the funding gap through closing the tax gap, it is unsurprising that the Budget included a range of tax administration measures. 

• HMRC will publish a consultation in the Spring 2025 on the use of third-party data. This will need to grapple with difficult questions, for instance around whose responsibility it will be to ensure the accuracy of that data.
• Building on an earlier call for evidence, HMRC has published a consultation (open for comments until 22 January 2025) on New ways to tackle non-compliance which could include a new duty for taxpayers to self-correct a return (or explain why no amendment should be required) following a nudge letter from HMRC. 
• The current 3.5 percentage point differential between late payment interest (set at BoE base rate plus 2.5 percentage points) and repayment interest (set at BoE base rate minus 1 percentage point (with a lower limit of 0.5%)) will be increased to 5 percentage points. According to the OOTLAR, late payment interest will be increased by 1.5 percentage points.