Esther Marshall
Company & Commercial
How the budget is going to impact UK Companies
The UK Chancellor of the Exchequer has announced that the primary rate for employers’ National Insurance contributions will rise from 13.8% to 15% starting in April 2025. This increase, along with a reduction in the threshold for employer contributions from £9,100 to £5,000, is projected to generate over £23.7 billion in revenue for the government in the 2025-26 fiscal year.
In addition to the Budget documents, the government released a 28-page corporate tax “roadmap,” outlining commitments for the corporate tax system during this parliamentary session. The roadmap aims to ensure “predictability, stability, and certainty” in the tax environment, reinforcing the government’s intent to maintain the UK’s competitive edge among major global economies.
The overall impact of the Budget on businesses presents a mixed picture. On one hand, the corporate tax roadmap offers significant reassurance by emphasising stability and certainty. It maintains the current losses regime, the new R&D regime, and capital allowances while simplifying aspects of the Capital Allowances Act 2001. Furthermore, there are plans for consultations on advance clearances for major project investors and R&D tax reliefs. However, the rise in employment taxes suggests that the government is using these increases to address the Treasury’s substantial financial gap.
Key commitments in the corporate tax roadmap include capping the corporation tax rate at 25%, sustaining full expensing for capital allowances, and upholding essential features of the UK capital allowances regime, such as the £1 million annual investment allowance. It also aims to maintain research and development tax relief rates and the patent box while retaining favourable conditions for intangible fixed assets.
The roadmap also promises consultations to broaden access to advance clearances. This will involve a new process providing investors in major projects with more certainty regarding applicable taxes, along with discussions on R&D tax reliefs. These consultations are anticipated to be published in Spring 2025.
However, businesses should remain cautious about certain aspects of the roadmap. The exploration of clarifying what qualifies for different capital allowances may not fully meet business expectations. Additionally, the proposed consultation to modernise transfer pricing legislation could unintentionally include more medium-sized companies in the regime and impose further reporting obligations on multinationals for cross-border related party transactions, increasing the tax compliance burden.
Significant changes to capital gains tax (CGT) rates were also announced, with the main rates rising from 10% and 20% to 18% and 24%, effective for disposals made after 30 October 2024. The rates for Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14% for disposals after 6 April 2025, and from 14% to 18% for those after 6 April 2026. Additionally, the lifetime limit for Investors’ Relief will decrease from £10 million to £1 million for qualifying disposals from 30 October 2024. There will be no changes to CGT rates for residential property gains.
An increase in tax on carried interest was also announced, with the rate rising from 28% to 32% starting in April 2025, ahead of a full reform of the regime set for April 2026.
James Bowles an Associate in the Corporate and Commercial team said:
“While the main CGT rates are increasing, some private equity firms may aim to exit current investments before April 2025, when the rate for carried interest jumps to 32%, and certainly before April 2026, when it transitions into the income tax framework. Overall, while the situation could have been worse, a short-term increase in deal activity could benefit those in the sector.”