Global Employer Services - Autumn Budget 2024

On Wednesday 30 October, the Chancellor of the Exchequer, the Rt. Hon. Rachel Reeves MP delivered the 2024 Autumn Budget to parliament, with some significant announcements, which we are summarising below. 

Income tax

• It has been announced that the freezing of the income tax rates and thresholds will end on 6 April 2028. Until then, the personal allowance will remain at £12,570. For those not living in Scotland the headline rates will remain at 20%, 40% and 45%, with basic rate threshold at £37,700 and higher rate threshold at £125,140.
• The income tax rates for Scottish taxpayers which will apply from 6 April 2025 will be announced in Scottish Budget on 4 December 2024.
• The dividend allowance will remain at £500 and personal savings allowance at £1,000 for basic rate taxpayer and £500 for higher rate taxpayers.
• Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2030.

Deloitte's view

The freezing of the income tax rates and thresholds until 6 April 2028 will result in income tax as a portion of income increasing through a concept known as ‘fiscal drag’. Fiscal drag is bringing more people into tax and bringing more people over key thresholds (such as the £100,000 threshold whereby individuals lose access to childcare support).

The personal allowance and basic rate threshold have now been frozen since 2021/22. Were they to have increased in line with CPI inflation they would have increased from £12,570 to £15,490 and £37,700 to £46,600 by 2025/26.

National insurance contributions (NICs)

• It was announced that the rate of all types of employer national insurance (Class 1 secondary, Class 1A and Class 1B) will increase from 13.8% to 15% from 6 April 2025.
• The income level at which Class 1 secondary starts to be payable, known as the Secondary Threshold, will reduce, with contributions now due from an annual level of £5,000 (down from £9,100).
• For an employee earning £50,000 per annum, the changes will result in an increase in employer national insurance of £1,106 per annum. The increase is £2,306 for an employee earning £150,000.
• The government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NIC bills from 6 April 2025.
• The government is extending the employer NICs relief for employers hiring qualifying veterans for a further year from 6 April 2025 until 5 April 2026. This means that businesses will continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for the first year of a veteran’s employment in a civilian role.
• The NIC rates for employees will remains unchanged at 8% and 2% with employee thresholds also remaining unchanged.

Deloitte's view

This increase in employer national insurance will be an unwelcome increase in cost of employment for employers. This could also increase the cost of outbound or inbound assignments, depending on whether the individual is within scope of UK national insurance. It remains to be seen whether this increasing cost will be absorbed by employers or if they will look to address it in other ways.

Smaller employers will welcome the increase of the Employment Allowance which may allow them to offset the increase in employers NIC rate and decrease in the Secondary Threshold.

Capital gains tax

• The lower rate of capital gains tax will be increased from 10% to 18% and the higher rate of capital gains tax will be increased from 20% to 24%, bringing the rates in line with those applicable to residential property disposals. This will apply for all disposals on or after 30 October 2024.
• The capital gains tax annual exemption will remain at £3,000.
• Additionally, the rate of capital gains tax applied to ‘carried interest’ (the profit share allocated to private equity fund managers) will be increased from 28% to 32% from 6 April 2025. From April 2026, all carried interest will be taxed within the income tax framework, with a 72.5% multiplier applied to qualifying carried interest that is brought within charge. The government will also consult on introducing further conditions of access into the regime.

Deloitte's view

The increase in the rate of capital gains tax was smaller than some had initially speculated.

The difference that remains between the rates of income tax and capital gains tax will mean the tax advantaged shares schemes will continue to be attractive from a tax perspective.

Reform of taxation of non-domiciled taxpayers

• It was re-confirmed that from 6 April 2025 the non-domicile regime of taxation (the remittance basis) will be abolished and replaced with a new foreign income and gains regime (known as ‘FIG’).
• Individuals will be eligible for the FIG regime for their first four tax years of UK tax residence, provided they have been non-tax resident for the 10 tax years priors to that. UK national and UK domiciled individuals who meet these criteria would also qualify.
• The FIG regime will provide exemption from non-UK income or gains with no restriction on remittances.
• Individuals opting into this regime would do so on a tax year by tax year basis, but will need to quantify the amounts of income and gains for which relief is claimed, and would not then be entitled to a personal allowance or annual exemption for capital gains.
• For those who meet the FIG regime residence criteria, overseas workday relief will be available for the first four tax years of residence, with no restriction on remittances, but with an overall limit of 30% of qualifying employment income or £300,000 per tax year, if lower.
• Individuals already claiming overseas workday relief but who will become eligible for FIG will still benefit from overseas workday relief for the remainder of their first four tax years of residence. Individuals already claiming overseas workday relief but ineligible for the FIG regime, will continue to be eligible for overseas workday relief for the remainder of their first three tax years of UK residence. For both categories of existing claimants, the remittance basis will not apply to income related to the period from 6 April 2025 and the above annual relief limits will not apply.
• The exemption for home leave travel costs incurred by non-domiciled employees that are paid for by employers when employees come to work in the UK will continue, but for a reduced period with the time limit of five years being reduced to 4 years to align with the 4-year foreign income and gains regime.
• The following points were announced regarding the transitional arrangements for individuals currently taxed on the remittance basis:
• An option to rebase the value of non-UK assets to 5 April 2017 for capital gains purposes and
• A three-year Temporary Repatriation Facility allowing previously untaxed remittance basis income and gains to be ‘designated’ and taxed at a 12% rate of tax if ‘designated’ in 2025/26 and 2026/27 or 15% if ‘designated’ in 2027/28. The remittance itself need not occur within these periods.
• From 6 April 2025, there will be a new residence-based regime for inheritance tax. Individuals who have been UK tax resident for 10 out of the previous 20 tax years will face inheritance tax on worldwide assets. Once within scope of worldwide inheritance tax, they will potentially remain so until they have been non-resident for 10 tax years. Transitional rules apply to currently non-domiciled individuals non-resident in 2025/26 and those resident in the UK for less than 20 tax years. These individuals will remain in scope of worldwide inheritance tax for shorter periods after departure.

Deloitte's view

After 225 years of the remittance basis, these reforms represent a significant change to the taxation of non-domiciled individuals. The move away from the concept of domicile and the need for bank account structuring will be welcomed.

That said, employers and employees should be mindful of some pitfalls with the new rules. Some of these include:

• Individuals currently on the remittance basis will need to continue to ring-fence their untaxed remittance basis income and gains.
• An increase to the number of individuals taxable on worldwide income and gains and the complexities of quantifying income and gains on a tax return for those eligible for FIG.
• The need for spouses and employees with small amounts of overseas income and gains to complete UK tax returns where they were not previously required.

In light of these changes, employers may wish to consider how to communicate these changes and the support they wish to provide to those on mobility programmes, specific senior individuals or their wider non-dom employees.

Pensions

• The government will bring most unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027.
• Life policy products purchased with pension funds or alongside them as part of a pension package offered by an employer are not expected to be within the scope of the inheritance tax changes.
• The government will remove the exclusion from the Overseas Transfer Charge for transfers to Qualifying Recognised Overseas Pension Schemes in the European Economic Area (EEA) or Gibraltar from 30 October 2024 to address the risk of individuals receiving double tax-free allowances.
• There were no other announced changes to pensions with the standard annual allowance remaining at £60,000 and the minimum annual allowance remaining at £10,000.

Deloitte's view

After much speculation over various pension changes, employees and employers will welcome the fact only the inheritance tax aspect of pensions will be changed. The removal of the inheritance tax exemption may result in the need for more holistic tax considerations during later years.

Minimum wage rates for 2025

• The government will increase the National Living Wage by 6.7% to £12.21 an hour from 1 April 2025.
• The National Minimum Wage (applicable to younger workers) will also increase from the same day:
• From 1 April 2025 the minimum wage rates per age bracket will be as follows:
• for those aged 21 and over: £12.21 (currently £11.44);
• for 18 to 20 year olds: £10.00 (currently £8.60); and
• for those under 18 and apprentices: £7.55 (currently £6.40).

Deloitte's view

Employers will need to consider the cost impact of these measures in advance of next April and factoring in the broader changes announced on Employer NIC increases, in particular, how the rules operate in terms of assessing minimum pay levels. Special consideration should be given if employers are offering pay at or close to these levels, especially if deductions are taken from pay or employees are given the option of salary sacrifice arrangements.

Compliance and anti-avoidance

• The government will tackle tax non-compliance in umbrella companies by moving PAYE obligations to recruitment agencies or, where an agency is not present, end client businesses from April 2026.
• The government will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5 percentage points. This measure will take effect from 6 April 2025.
• The government is committed to tackling offshore non-compliance as part of the ambition to close the tax gap and is committing additional resources, including the scaling up of compliance activity to tackle serious offshore non-compliance including fraud by wealthy customers and intermediaries, corporates they control and other connected entities.
• The government is publishing a consultation on reforming HMRC’s correction powers, exploring changes to HMRC’s existing powers and processes, and a potential new power to require taxpayers to correct mistakes themselves.
• As announced in July, the government will invest £1.4 billion over the next five years to recruit an additional 5,000 HMRC compliance staff.

Deloitte's view

Employers will wish to ensure they are compliant in all areas as the announced additional investment within HMRC will likely result in additional scrutiny and compliance activity.

The increase in rate of interest charged on late paid tax make it important that employers and employees are on time with their payments.

Other key announcements

Other announcements made by the government, which may be relevant to employers include:

• The government has reconfirmed the standard 20% VAT rate will be added to private school fees relating to any term starting in January 2025 and onwards.
• The government is introducing a package of reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts. These reforms will prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees. The changes will take effect from 30 October 2024.
• Appropriate Percentages (APs) for zero emission and electric company cars will increase by 2 percentage points per year in 2028-29 and 2029-30, rising to an AP of 9% in 2029-30.
• APs for cars with emissions of 1 – 50 g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in 2028-29 and 19% in 2029-30.
• APs for all other vehicle bands will increase by 1 percentage point per year in 2028-29 and 2029-30. The maximum AP will also increase by 1 percentage point per year to 38% for 2028-2029 and 39% for 2029-2030. This means for vehicle bands with emissions of 51 g of CO2 per kilometre and over, APs will increase to 19% – 38% in 2028-29 and 20% – 39% in 2029-30.
• The government confirmed plans to mandate the reporting of benefits in kind via payroll software from April 2026.

Deloitte's view

VAT on private school fees will be an additional cost for employers who are paying schools fees as part of a relocation or assignment compensation package.