After a damning verdict on the inheritance of the public finances from the previous conservative government, the Chancellor, Rachel Reeves, has delivered the first Labour budget in over 14 years.

Whilst there is lots to talk about, we’d be remiss for not celebrating the historic moment of this budget being the first budget in the history of the UK being delivered by a female Chancellor.

The state of the economy

Emphasised throughout the budget was a focus on economic ‘stability and growth’, with much attention given to more responsible budgeting. For example, David Goldstone CBE has been appointed as the chair of the new Office for Value for Money, "to help us realise the benefits from every pound of public spending".

With the economy finances currently in a deficit, more borrowing would worsen the situation. Ms Reeves has announced new fiscal rules* to not borrow for ‘day-to-day’ spending, and committed to balancing the budget within three years of forecasts.

Providing figures from the Office for Budget Responsibility (OBR) forecasts, the government expects to run a deficit of £26.2bn in 2026, but will achieve a surplus of £10.9bn in 2027/28, £9.3bn in 2028/29 and £9.9bn in 2029/30.

Ms Reeves has also committed to maintaining the government's 2% inflation target.
 

*New fiscal rules

• Stability rule: to move the current budget into balance, so day-to-day spending is met by revenues, and the government will only borrow for investment.

• Investment rule: to reduce net financial debt (public sector net financial liabilities) as a proportion of GDP.

Lower growth than expected

According to the OBR forecasts, real GDP growth will be 1.1% in 2024, 2.0% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028, and 1.6% in 2029.

In the short term, these forecasts show increased economic growth for 2024 and 2025 than previously forecasted under the conservative government. However, growth rates for 2026, 2027 and 2028 are lower than previously forecasted, though Ms Reeves attempts to explain this away by stating that the figures presented by the Tories to the OBR for the Spring Budget means forecasts would be “materially different”, so comparison may be somewhat tenuous.

Governmental productivity and a crackdown on fraud

In line with the commitment to getting ‘value for money’, the Chancellor aims to reduce wasteful spending by setting a 2% productivity savings target for government departments.

Ms Reeves has also pledged investment in HMRC services, improving the use of technology and hiring new employees to help clamp down on fraud. She also mentioned that HMRC interest rates on unpaid taxes would increase by 1.5 percentage points from 6 April 2025 to encourage taxpayers to pay their tax liabilities on time.

Getting to the thick of it

Now we get to the key announcements from the budget. As with every budget, there’s a lot to unpick and so many different sources of information, it can be difficult to know where to begin. We’ve picked out the key headlines that are most likely to have a real, noticeable, day-to-day impact on you and your business.

Income Tax and National Insurance Contributions

Employers' National Insurance contributions will rise from 13.8% to 15%.

Taking a big hit in this budget are employers. Whilst there has been no increase in employee NI, the employers NI rate has increased from 13.8% to 15%.

Additionally, the Secondary Threshold (the threshold at which businesses start paying national insurance on a workers' earnings) will be lowered from £9,100 to £5,000 a year from 6 April 2025 until 6 April 2028, and then increased by CPI thereafter.

However, the employment allowance will increase from £5,000 to £10,500, which the chancellor says will mean 865,000 employers won’t pay any NI at all next year. The £100,000 employer’s NIC threshold for eligibility will be removed from 6 April 2025 increasing its availability to a larger number of employers.

No extension of income tax and employee NI thresholds

There will be no extensions to income tax and NI thresholds beyond those already set out by the previous government (the personal allowance has remained frozen). From 2028/29, personal tax thresholds will be uprated in line with inflation.

Government to abolish non-dom tax regime

The non-dom tax status applies to a UK resident whose permanent home - or domicile - for tax purposes is outside the UK. It means they do not pay UK tax on money they make elsewhere in the world. Ms Reeves says she will abolish the non-dom tax regime and remove the "outdated concept" of domicile from the tax system from April 2025.

It will be replaced with a residence based regime from 6 April 2025. Individuals who opt-in to the new residence-based regime will not pay UK tax on foreign income and gains for the first four years of tax residence.

MTD for ITSA expanded to include those with income above £20,000

MTD was not directly addressed in the Chancellor's speech, but there are some new details to be aware of hidden away in the red book.

Along with re-committing to MTD for ITSA, the budget expands the rollout of MTD to those with incomes over £20,000 by the end of this parliament.

The current timings remain unchanged; April 2026 - those with income from trading and property over £50,000, April 2027 - those with income between £30,000 and £50,000. It would be a fair assumption to make that the new third tranche of taxpayers with incomes between £20,000 and £30,000 will likely be affected from April 2028, though timings are yet to be confirmed.

Payroll and Benefits

National Minimum Wage to rise by 6.7%

The National Living Wage for people aged 21 or older will rise by 6.7% from £11.44 an hour to £12.21 from next April.

The National Minimum Wage will rise for people aged between 18 and 20-years old from £8.60 to £10.

Apprentices will get the biggest pay bump, with hourly pay increasing from £6.40 to £7.55.

Benefits reporting to change to a real-time basis

From April 2026 employers will be required to report and pay tax and Class 1A NIC on benefits in kind on a real time basis, with the exception of accommodation and loans.

Company car tax percentages to increase

Appropriate Percentages (APs) for zero-emission and electric vehicles will increase by 2% per year, reaching an AP of 9% in 2029/30.

For cars with emissions of 1-50 g/km of CO2, including hybrid vehicles, APs will rise to 18% in 2028/29 and 19% in 2029/30.

All other vehicle bands will see APs increase by 1% per year, with the maximum AP reaching 39% in 2029/30. 

Pensions

Government reaffirms commitment to the triple lock

Spending on the state pension is projected to rise 4.1% in 2025/26. According to the Chancellor, that is a £470 increase for over 12 million pensioners in the UK.

Corporation Tax

Corporation tax capped at 25%

The government will cap the corporation tax rate at 25%, making the UK the lowest tax country for businesses in the G7. The Small Profits Rate and marginal relief will be maintained at their current rates and thresholds.

Capital allowances

The government will maintain permanent full expensing, the £1m Annual Investment Allowance, writing down allowances and the Structures and Buildings Allowance.

The 100% First Year Allowances for qualifying expenditure on zero-emission cars and electric vehicle charge points will be extended to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes.

R&D tax reliefs

The existing rates for the merged R&D Expenditure Credit scheme and the Enhanced Support for R&D Intensive SMEs will be maintained.

Capital Gains Tax (CGT)

Capital gains tax increases to 18% on lower rate and 24% on higher rate

The lower rate of Capital Gains Tax will rise from 10% to 18%, and the higher rate from 20% to 24%. These rates are effective immediately, impacting asset disposals from 30 October 2024. However the rates on residential property will remain at 18% and 24%.

Business Asset Disposal Relief maintained at 10%

Business Asset Disposal Relief (“BADR”) is available when entrepreneurs dispose of their business.

Where an individual qualifies for BADR, the CGT rate will remain at 10% on the first  £1 million of gains  before rising to 14% on 6 April 2025 and 18% (to match the lower rate) from 6 April 2026.

It should be noted that the £1 million is a lifetime allowance and not an annual amount. Gains over the £1 million limit will now be taxed at 24% (previously 20%).

Value Added Tax (VAT)

VAT rate remains unchanged

There have been no increases to the VAT rates.

VAT on private school fees

There will be VAT on private school fees from January 2025, and legislation will soon be introduced to remove private schools’ business rates relief from April 2025.

Inheritance Tax (IHT)

Inheritance tax threshold freeze extended

The inheritance tax threshold which was frozen under the previous government until 2028 has been extended for a further two years to 2030.

That means the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants and up to  £1m where unused rate bands are available to a surviving spouse or civil partner.

Inherited pensions to fall under IHT

From 6 April 2027, defined benefit pension schemes will be brought into IHT calculations on death. Currently, pension pots are not included in the IHT calculations but this will change in 2027.

Business and agricultural relief

From April 2026, the first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1m, this relief will be cut to 50%  giving an effective rate of 20%.

Unlisted share relief halved

Business Property Relief (BPR), currently 100%, is available against the value of AIM listed shares From 6 April 2026, this will be halved to 50%. That will mean AIM stocks will attract an effective IHT charge of 20%.

Based on our understanding, they can not be included in the £1M exempt from BPR.

Duties and Rates

Stamp duty on second homes increases to 5%

Stamp duty is a tax paid on the purchase of a UK residential property. Whilst there are no changes to ordinary stamp duty rates, the stamp duty land surcharge for second-homes will increase by 2% to 5% effective from 31 October 2024.

Fuel duty freeze

Fuel duty has been frozen for another year, and the existing 5p cut will also be maintained for another year. This represents a saving of £59 in 2025/26 for the average car driver.

Business rates

For 2025/26, the small business multiplier in England will be frozen at 49.9p. The standard multiplier will be uprated by the September 2024 CPI rate to 55.5p.

The current 75% discount to business rates for Retail, Hospitality and Leisure (RHL) properties - due to expire in April 2025 - will be replaced by a discount of 40% - up to a maximum discount of £110k. Whilst this is likely to see the rates for many businesses double, they were expected to quadruple - we take wins where we can! Starting from 2026/27, the government will implement permanently lower multipliers for RHL properties, offset by a higher multiplier for properties with Rateable Values above £500,000.

Draught alcohol duty receives a cut

Draught alcohol duty will be cut by 1.7%, the equivalent of 1p off per pint (which received a loud cheer from MPs), though this will not come into effect until next February.
Alcohol duty rates on non-draught products will increase in line with Retail Price Index (RPI) from February next year.

Schemes, Reliefs and Incentives

Compensation Schemes

Ms Reeves criticised the previous government's forecasts for not including spending budgets for two key compensation schemes for recent scandals. The government will provide £11.8bn for victims of the infected blood scandal, and £1.8bn to compensate victims of the Post Office scandal.

Electric Vehicle (EV) incentives

The government is maintaining EV incentives in the Company Car Tax regime and extending 100% First Year Allowances for zero emission cars and EV chargepoints for a further year.

Carers allowance increases

The carers allowance will increase from £81.90 per week to the equivalent of 16 hours at the National Living Wage per week.

Local Government

Increased powers for mayoral authorities

The Chancellor says the government will increase funding significantly for local governments next year. Good news for those in Greater Manchester and the West Midlands, who Ms Reeves confirmed will be the first mayoral authorities to receive integrated settlements from next year.

Summary

There’s a lot to take in and we recommend taking some time to get to grips with these changes to understand the impacts on you and your business.  It is clear from this budget that Ms Reeves aims to make businesses pay for the deficit, with half of the £40bn tax increases coming from employers.

If you’re in need of financial advice or support, Inform Accounting’s friendly team of experts are always here to help. Get in touch with us today.