There is always conjecture and hype in the weeks leading up to a Budget, but this was particularly apparent this Autumn, with repeated government warnings of difficult decisions and pain to come, and much of the substance (if not the detail) of the measures announced or leaked in advance. Against this backdrop, unsurprisingly, not many will feel that they have “won” from the Budget, and tax cuts were indeed minimal, but certain taxpayers may feel that they haven’t “lost” as much as they had feared they would.
We are expecting the publication of the Finance Bill over the next week or so, and meanwhile highlight below some of the measures that will be significant to business.
Employment taxes
The headline measure was the increase in rates of employers’ national insurance contributions (NICs) by 1.2% from 13.8% to 15% from April 2025 as well as a significant reduction in the secondary threshold (the threshold from which employers’ NICs are payable). The government expects this to raise a significant proportion of the additional GBP40 billion Budget revenue goal. Umbrella companies were also targeted, with an announcement that, with effect from April 2026, agencies will be responsible for accounting for PAYE on payments made to workers supplied using umbrella companies. (Where there is no agency, responsibility will fall to the end client business.) There are also reforms to, and further restrictions on, the use of employee ownership trusts.
Corporation tax
Much of the corporation tax content amounted to confirmation of previously announced measures, such as the introduction of the Pillar Two undertaxed profits rule (UTPR) for accounting periods ending on or after December 31, 2024, further amendments to the multinational top-up tax and domestic top-up tax, and the abolition of the offshore rules for intangible property (ORIP). There was also confirmation that the rate of the energy profits levy (EPL) will increase from 35% to 38% with effect from November 1, 2024 and that the sunset clause will be extended to March 31, 2030.
The Corporate Tax Roadmap, setting out the government’s commitments on corporation tax policy for the parliamentary term, consists to quite a large extent of commitments to maintain various core elements of the current corporate tax regime, subject to any changes required “in response to unforeseen developments”. This is clearly designed to offer certainty and stability for corporates, acting as a visible step away from the unpredictable tax policy environment of recent years. The roadmap is likely to be well-received as far as it goes and is adhered to, though some will have been disappointed that it addressed only corporate tax, rather than business taxation as a whole.
Particular commitments in the roadmap include capping corporation tax at 25%, retaining the substantial shareholding exemption, continuing limited withholding tax requirements and retaining full expensing, the patent box and other reliefs. There is also a statement that the government will consider extending the full expensing regime to leased assets, and a more general commitment to monitoring international developments to ensure that the UK corporation tax regime remains competitive. The existing discussions and consultations in relation to transfer pricing, permanent establishments and diverted profits tax are also specifically mentioned - the outcomes of these will be important and we await them with interest.
Fund industry
Reform of the treatment of carried interest (the share of profits of a private equity fund paid out to the fund’s investment managers) has been one of Labour’s flagship policies, but it is not without difficulty. To date, fund managers have been subject to tax at capital gains tax rates on carried interest that satisfies certain conditions. Labour’s repeatedly-stated belief is that this constitutes a “loophole”, on the basis that carry effectively constitutes employment income and should therefore be taxed at income tax rates.
However, the fund industry, which is highly mobile, contributes significantly to the UK economy and the UK is not the only jurisdiction to offer reduced rates. The Government recognises that the UK must remain competitive. The Budget outcome is an “interim step” of a single capital gains tax rate of 32% applicable to carry from April 2025. The intention is that, from April 2026, carried interest will be brought within the income tax framework (but as trading income rather than employment income) with a 72.5% multiplier applied to qualifying carried interest that is brought into charge. There will be further discussion between HM Treasury and the industry as to possible reform to scope and tax base.
The reforms to carry should also be considered together with the reforms to capital gains tax (see below) and the regime applicable to non-UK domiciliaries, which will be abolished with effect from April 2025 and replaced by a four-year foreign income and gains regime as well as a residence-based regime for inheritance tax purposes.
Also in relation to the funds industry, the government has confirmed that it will proceed with the introduction of the new reserved investor fund (RIF). Primary legislation was enacted as part of the Finance (No.2) Act 2024 and will be supplemented by secondary legislation. Broadly, the RIF offers an onshore, flexible fund structured as an unauthorised contractual scheme and open to professional and institutional investors. The confirmation will be welcomed by the industry which hopes that the flexible post-Brexit structure will encourage further inward investment into the UK.
Capital gains tax
Other changes to capital gains tax announced in the Budget included a significant hike in rates from 10%/20% to 18%/24%, effective immediately (although there were no changes to the 18%/24% capital gains tax rates that already apply to gains on residential property), and significant restrictions to business asset disposal relief (previously entrepreneurs’ relief) and investors’ relief.
Administration and compliance
Finally, a number of documents published as part of the Budget demonstrate the government’s continued focus on closing the “tax gap”, taxpayer compliance and administration of the tax system. These include a focus on new ways to tackle non-compliance (including a possible new power to require taxpayers to correct their own mistakes), further measures to tackle promoters of tax avoidance schemes and stronger powers to deal with tax advisers who facilitate non-compliance.
Further, from April 1, 2026 tax advisers dealing with HMRC on behalf of clients will need to be registered (although the specifics of these requirements remain unclear). Clients will also want to note that from April 1, 2025 HMRC will increase the interest rate charged on late payments of unpaid tax liabilities by 1.5% from 7.5% to 9%. There is apparently no corresponding uplift in the interest rate paid by HMRC on overpayments.
