The headlines

As you will have seen, there were some significant tax raising policies announced by the Chancellor today. I won’t cover those in detail here, because they will be well talked about by the media and many other tax commentators. What I will talk about here is the lesser discussed changes, some of which I think are very significant.

Before we get into the detail bits where we get changes to double cab pickups (again!), employee ownership trust changes, and significant increases in the cost of purchasing new cars, I'll highlight some of the well documented changes. The big revenue raiser is the increase to employers’ national insurance contributions from 13.8% to 15%, and a reduction in the threshold at which this becomes payable from £9,100 to £5,000. This could be hugely impactful for lots of clients but there is very little planning which can be done to avoid it.

There are some big inheritance tax changes; the reduction in value of business property relief and agricultural property relief will make for sad reading for those it affects, but inheritance tax being charged on pensions is likely to be more impactful to a bigger number of people.

Again, only relevant to those people already within the regime, the non-domiciled scheme is set to end and be replaced with a residence based system.

The capital gains increases are relatively modest compared to what had been discussed in the media; an increase at the basic rate from 10% to 18%, and the higher rate from 20% to 24%. Business asset disposal relief stays with the lifetime allowance of £1m, but will transition to being a reduced rate of 18%, after being 10% until 5 April 2025, and 14% until 5 April 2026.

Relevant for all landlords, stamp duty land tax will increase for second properties or purchases by companies from 3% to 5%.

Hidden in the detail

There are a number of measures, some significant, which were hidden in responses to consultation documents and barely got a reference in the main release. We’ll look at some of these below (although there are many, so I have selected those I think most impactful!)

Employee ownership trusts

The first is changes in relation to EOTs. This is driven by a consultation that took place last year. The budget document suggests these changes will be effective from 30 October 2024! The changes include:

• restricting former owners or persons connected with former owners from retaining control of companies post-sale to an EOT by virtue of control (direct or indirect) of the EOT

• requiring that the trustees of an EOT must be UK resident (as a single body of persons) at the time of disposal to the EOT

• confirming in legislation that contributions made by a company to an EOT to repay the former owners for their shares will not be charged to income tax as a distribution

• easing the EOT income tax-free bonus provisions to allow bonuses to be awarded to employees without directors being included

• extending the period of time within which the relief can be withdrawn from the former owner if the EOT conditions are breached post-disposal, to the end of the fourth tax year following the tax year of disposal

• requiring that the trustees must take reasonable steps to ensure that the consideration paid to acquire the company shares does not exceed market value

• requiring that individuals provide within their claim for Capital Gains Tax (CGT) relief information on the sale proceeds and the number of employees of the company at the time of disposal

• confirming in legislation that the restrictions on connected persons benefiting from an EBT must apply for the lifetime of the trust

• only allowing the Inheritance Tax (IHT) exemption for EBTs where the shares have been held for 2 years prior to settlement into the EBT

• requiring that no more than 25% of employees who are able to receive income payments from an EBT should be connected to the participators of the company

In addition to these legislative changes, in line with wider practice on anti-avoidance motive tests, HMRC will from 30 October 2024 onwards cease to provide clearances to companies and their advisers on the application of section 464A Corporation Tax Act 2010 to a transaction to establish an EOT.

Raising standards in the tax advice market

Raising standards in the tax advisory market

There was a consultation published earlier this year about how HMRC might deter and indeed remove bad actors from the tax advice market. Their first step towards this is to require registration for all tax practitioners that interact with HMRC. There will be a new process for this which will be ‘simple’ due to the investment HMRC will make (£36m). I’ll believe that when I see it.

Late payment interest

The rate of late payment interest will increase by 1.5% for all taxpayers. This brings the current late payment rate to 9% for most taxpayers, and 7.5% for those paying corporation tax by quarterly instalments. This is a significant rate of interest and will mean any clients that might fall into the quarterly instalment regime should be prepared for interest if they don’t make any payments in-line with the deadlines for that.

Close company loans to participators

There was a way to potentially avoid the loan to participators tax charge. HMRC ‘lost’ at the GAAR advisory panel and they will legislate to prevent this loophole.

Rewards for informants

HMRC pays its informants in relation to high value tax fraud or tax avoidance. They are increasing the amount they will pay. I mention this as I think it is more interesting than hopefully relevant to you!

HMRC compliance & debt activity

HMRC will be hiring 5,000 new staff (I think this was a previously announced policy by the Conservatives). They expect to raise an additional £2.7bn/year by 2029/30 which equates to roughly £540,000 of additional tax per new officer. They are also bringing on 1,800 new debt collectors and I have no doubt there will be some focus on this.

Cars

New cars which have emissions of 76g/km of CO2 or higher will have their year 1 vehicle excise duty doubled – meaning a performance car will increase from c. £2,800 to £5,600! The intention is to make electric cars look more attractive, but not by offering further discounts, but instead increasing the tax on non-electric vehicles. The benefit in kind rates for all vehicles are also going up, so electric cars will hit 9% from 2029-30.

For double cab pick-ups, the government has said it will treat them as cars for certain tax purposes from 1 April 2025 for CT purposes, and 6 April 2025 for income tax. They will be treated as cars for capital allowances, benefits in kind, and some deductions from business profits. Existing capital allowance treatment will apply to those who purchase them before April 2025. Transitional BIK arrangements will apply if it is ordered before 6 April 2025 so that they can keep the existing BIK treatment under the earlier of disposal, lease expiry, or 5 April 2029.

Corporate Tax roadmap

No specific changes were announced here, but worth noting that they are talking about significantly reducing the transfer pricing thresholds so that rather than only catching large companies, it would be all but small companies that are within scope of the UK transfer pricing rules – which would bring so many more companies into the scope of the rules. There is a consultation to follow.

Corporate tax rates, marginal relief, capital allowances, R&D scheme, patent box, and so on are all due to remain the same to provide some consistency.

R&D tax relief

HMRC say that error and fraud is still too high, and they will be continuing with their compliance checks. HMRC will be establishing an R&D expert advisory panel. There is some interesting data which will be the subject of an article soon - along with what you can do for any clients subject to HMRC enquiries on R&D claims.

HMRC say they are checking about 17% of all R&D claims submitted. They seem to suggest they will now consider whether they should make discovery assessments (i.e., assess tax for earlier years) where they discover inaccuracies in the course of an enquiry. I haven’t seen them do this so far, so it is a departure from their current practice but not entirely surprising to me.

It takes an average of 246 days to conclude an R&D enquiry and 77% of all enquiries require adjustments to be made. HMRC held 822 requests for statutory reviews. Only 251 were concluded and 214 were in favour of HMRC in full, and only 5 resulted in no tax payable to HMRC.

It looks to me like R&D checks will continue to be an important part of HMRC’s enquiry strategy, so next time we’ll look at what they are doing in that space, the rules around HMRC’s powers, and how to help clients effectively.

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