Budget - Mar 24

Todays budget was perhaps one of the Governments last chances to make an impression on the polls prior to an anticipated autumn election.

In message at least, it reverted to political principles - a smaller state, with lower taxation and public spending, underpinned by departmental efficiencies driven by automation and technology.

The Office of Budget Responsibility (OBR) predict a return to relative economic normality with inflation dropping below 2% in the next few months, interest rates to fall as a consequence, and growth of between 1% and 2% each year to 2028. But the statistics used by all parties to determine the country’s recent economic performance, have been subject to much debate.

National Insurance continues to be the target for tax cuts, with the levy being sighted as an unfair ‘double tax’ on employment and self employment. The Chancellor fell short of scrapping the tax altogether but did indicate a potential amalgamation of income taxes in the future.

Relief was offered up for parents, drivers, UK investors and small businesses, but with the continual freeze of tax thresholds (the point at which higher rates of tax fall due), the overall tax burden remains high.

A full schedule of rates and allowances for the upcoming tax year, and a look of what this may mean to you, will be shared in due course.

Lets have a look at the tax and benefit changes in detail:

National Insurance

The main change in taxation was around the headline rate of National Insurance. A deduction in the Autumn Statement was boosted by a further 2% deduction today for both employees (12% to 8% overall) and the self employed (9% to 6% overall). NI was targeted as opposed to income tax or the underlying thresholds, because it was called out as an unfair additional levy on workers.

This is great news for those of you in these categories. But with the thresholds at which these rates are applied frozen, coupled with the natural increase in wages and prices, a greater portion of our income will continue to be subject to income tax.

For Ltd Company Directors, your recommended salaries will be sent to you during March in preparation for the new tax year.

Child Benefit

The way in which child benefit income is clawed back (known as the High Income Child Benefit Charge) has finally been reformed. An interim measure increasing the point at which the clawback begins, will increase from £50k to £60k from Apr 24, with the upper threshold increasing from £60k to £80k. This will affect thousands of households who’s income hovers around the £50k to £80k mark.

The whole system will then be replaced in 2026, focussing on household rather than individuals earnings, once HMRC have the tools to implement a fair method of calculation.

On the subject of parenting support, the 30 hour per week free childcare will go ahead with the Government guaranteeing the extension of the support to 9 month old to 2 year old children.

Holiday Lets

3 measures were introduced in an attempt to make housing in tourist areas more affordable for local residents.

Firstly, a reduction in the higher rate of Capital Gains Tax for second homes from 28% to 24%. This is meant to increase property sales and free up property for purchase.

Secondly is the abolition of preferential tax rules for holiday lets compared to long-term lets, such as the offset of property financing costs and furnishings, making more homes available to rent for local residents.

Thirdly is the scrapping of stamp duty relief for dual purchases.

VAT

There is an enormous spike of SME businesses in this country, that have turnovers in the region of £70k to £80k. This is thought to be caused by the self-stifling of growth by business proprietors, to ensure turnover remains under the VAT threshold of £85k, and therefore not have a to charge their customers 20% VAT.

There is an argument to say that the VAT threshold should be slashed in order to ‘normalise’ VAT charging amongst consumers by small business. The Government has opted to increase the VAT threshold by £5k to £90k, in the hope that businesses uncap their productivity slightly. It’s a modest increase, that’s unlikely to compensate for the previous 7 year freeze on this threshold.

Other announcements

The investment in UK shares has been incentivised via the introduction of a British ISA, offering an extra £5k of tax free allowance when invested in UK equities. Institutional investors (such as pensions) invest only a fraction of their fund in UK stocks - there will be an obligation to disclose the level of domestic investment to potential contributors.

Fuel duty has been frozen for a further year. Useful relief if a used temporary measure, but 14 years straight has had a quantifiable impact on UK carbon emissions, according to Carbon Brief.

People who principally reside overseas, but who live temporarily in the UK enjoy what is known as non-dom status. This means that only UK earnings are taxed in the UK, with all other earnings protected. These rules, which often favour wealthy global business people, will be scrapped and replaced by a new set of rules next year.

Air passenger duty will go up for upper and business class tickets. Alcohol duty has been frozen rather than increase by the planned 3%. A new excise duty will be applied to vaping products, simultaneous to a rise in tobacco duty from 2026.

If you have any questions or concerns with regards today’s budget, which you think I may be able to help with, please let me know.