Spring Budget 2024: A sigh of reliefs

With all the big headline tax cuts leaked over the weekend, there was very little “news” for the Chancellor, Jeremy Hunt, to announce in today’s budget. However, this had all the signs of a pre-election budget, although not necessarily a Conservative one. The voters who would be materially worse off (non-doms, holiday homeowners, vapers) should be significantly out-numbered by those who will be better off (small businesses, employees, families earning between £50,000 and £80,000 per year), but only time will tell whether it’s enough to move the polls.

Business tax

Corporation tax and VAT thresholds

The government will maintain the main corporation tax rate at 25% and the small profits rate at 19%, for the financial year beginning 1 April 2025. However, to incentivise smaller business productivity, the UK’s VAT registration threshold will be increased (after a 7-year freeze) by £5,000 to £90,000, from 1 April 2024.

Extending capital allowances

As announced in last year’s Autumn Statement, full expensing for main rate expenditure (such as construction and office equipment and some fixtures) and the 50% first-year allowances for special rate assets, were made permanent. However, expenditure on plant or machinery for leasing is excluded from these allowances. The government will publish a technical consultation on extending these allowances for expenditure on plant or machinery for leasing when fiscal conditions allow.

VAT on cab rides

As announced in the Autumn Statement, the government will publish a consultation in April 2024 on the potential implications of the High Court’s ruling in Uber Britannia vs Sefton MBC.
That decision stated that, from a licensing perspective, private-hire operators must contract directly as principal with passengers (not as agents of drivers), requiring 20% VAT to be added and collected on passenger fares where no VAT had been collected previously. 

Cab operators have been lobbying the government to introduce a new 0% VAT rate for private-hire taxi transport in support of small businesses and communities. The government said it is committed to exploring a range of viable options to ensure that the decision does not have any “undue adverse effects” on the private hire vehicle sector and its passengers. This consultation is therefore extremely important, raising the prospect of significant changes.

Tackling non-compliance in the umbrella company market

The government will publish an update on 18 April 2024 on its recent consultation on tackling tax non-compliance involving umbrella companies. The government will also publish new guidance to support workers and other businesses who use umbrella companies later in the year.

Personal Tax

National Insurance Contributions (NICs)

As expected, and following previous reductions in last year’s Autumn Statement, the government has announced a further 2 percentage point cut to NICs for employees and the self-employed, effective from 6 April 2024. However, income tax and NI thresholds remain unchanged.

Employees will see the reduction in their Class 1 NIC rate (currently paid by employees on annual earnings between £12,570 and £50,270) from 10% to 8%.

For the self-employed, the reduction will be seen in the rate of Class 4 NICs, from 8% to 6%. This is in addition to the reduction to the Class 4 NIC rate (announced in the Autumn Statement) from 9% to 8%. This means that, from 6 April 2024, the main Class 4 NIC rate will fall from 9% to 6%.

The previously announced abolition of the requirement to pay Class 2 NICs remains effective from 6 April 2024. The government will also consult on abolishing Class 2 NICs entirely later this year.

Non-domiciled tax status

The remittance basis of taxation for non-UK domiciled individuals (non-doms) will be abolished, and replaced with a residence-based regime, from 6 April 2025. The abolition of the current regime is estimated to generate an extra £2.7 billion in tax revenues per year by 2028-29.

Under the residence-based regime, new arrivals to the UK (who opt into the regime) will not be required to pay any UK tax on foreign income and gains for their first four years of residency in the UK. After four years, those who continue to reside in the UK will pay the same tax as other UK residents.

For those classed as non-doms under the current regime, the government will put in place “transitional arrangements”, including a two-year Temporary Repatriation Facility to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.

The government has also announced reforms to Overseas Workday Relief (OWR), so that eligibility for OWR flows from the new residency-based regime. OWR will continue to provide relief on income tax for earnings from duties carried out overseas for the first three years of tax residence, and restrictions on remitting these earnings will be removed. 

A new “UK ISA”

A new type of Individual Savings Allowance (ISA) will be introduced, called the “UK ISA”.

The UK ISA will provide an additional £5,000 allowance (on top of the existing ISA allowance) for savers who will invest in the UK. The government believes this new allowance, along with other measures, will “support a culture of investment in the UK” and provide the “opportunity to invest and benefit from the UK’s vibrant capital markets and high-growth economies”.
The government has opened a consultation on designing and implementing the UK ISA and is accepting responses until 6 June 2024.

FinTech

Crypto-Asset Reporting Framework

The government is publishing a consultation to seek views on the implementation of the OECD’s Crypto-Asset Reporting Framework (CARF), the new international tax transparency regime for the automatic exchange of information on crypto-assets.

The consultation also seeks views on a potential extension of the CARF to include reporting on UK resident taxpayers by UK service providers. The consultation will close on 29 May 2024.

Real Estate Tax

Capital Gains Tax rate on UK residential property disposals

Gains made on disposals of residential property that do not qualify for Private Residence Relief (broadly, disposals of main residences) are chargeable to Capital Gains Tax (CGT). Gains that fall within an individual’s unused basic rate band are chargeable at a rate of 18%.

From 6 April 2024, where the chargeable gains exceed the unused part of the basic rate band, the higher rate of CGT will be reduced from 28% to 24%. The change will take effect from 6 April 2024.

Stamp Duty Land Tax – Multiple Dwellings Relief

The government has set out that Multiple Dwellings Relief (MDR) will be abolished from 1 June 2024.

MDR is a bulk purchase relief in Stamp Duty Land Tax. The rate of tax is normally determined by the total consideration given for land. MDR is available to any purchaser buying two or more dwellings in a single transaction, or linked transactions, and allows the purchaser to calculate the tax based on the average value of the dwellings purchased as opposed to their aggregate value.

For contracts which exchanged on or before 6 March 2024, MDR will continue to apply, even where completion of the purchase takes place on or after 1 June 2024. This is subject to there being no variation of the contract after 6 March 2024. MDR will also continue to apply to contracts which substantially perform before 1 June 2024.

Abolition of the Furnished Holding Lettings tax regime

The government will abolish the Furnished Holding Lettings (FHLs) tax regime. Where landlords let out properties that qualify as FHLs, they are able to claim CGT relief for traders and are entitled to certain plant and machinery capital allowances, with the profits counting as relevant earnings for pension purposes. The FHLs regime has been abolished to bring them in line with landlords who let out residential properties to longer-term tenants. This will take effect from April 2025. 

Media, Entertainment & Sport

Creative reliefs

Further support for independent films is to be introduced via the Audio-Visual Expenditure Credit (AVEC). To qualify for the Independent Film Tax Credit (IFTC), a film will need pass a new test administered by the British Film Institute. The test is intended to target films that have projected core expenditure of £15 million or less. The test is also expected to require that either key talent on the film, such as the director and writer, must be from the UK, or the film must be an international co-production. The credit rate will be 53% of qualifying expenditure (capped at 80% of the film’s total core expenditure) giving a maximum credit of £6.36 million. Films that do not qualify as independent films can continue to claim AVEC at the basic rate of 34%, or the uplifted rate of 39% for animated films. The IFTC will be available on expenditure incurred from 1 April 2024, for films which commence principal photography on or after 1 April 2024. Claims can be made from 1 April 2025.

Following a call for evidence, the government also announced additional tax relief to visual effects costs in films and high-end TV. Under the AVEC, visual effects costs will receive tax credit at a rate of 39% from April 2025 and the 80% cap will be removed for qualifying expenditure for visual effects. A consultation is to be published on the types of expenditure that will be within the scope of the additional relief.

From 1 April 2025, the rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief will be permanently set at 40% for non-touring productions, and at 45% for touring productions and all orchestra productions.

Gambling sector 

Uncertainty remains for the gambling industry – the budget did not confirm when the government will publish its proposed consultation (announced in the Autumn Statement) on consolidating remote gambling into a single duty regime, which raises the prospect of general betting and pool betting duties being increased in line with remote gaming duty rates.

Energy

Energy Profits Levy (EPL)

In a move that is expected to raise approximately £1.5 billion, Jeremy Hunt revealed that the ‘sunset provision’ of the EPL will be extended by an extra year. This means the EPL’s end date is now 31 March 2029, instead of 31 March 2028. As a reminder, the EPL is a temporary tax introduced two years ago, which applies a windfall tax “on the exceptional profits of oil and gas companies” to address the global rise in energy bills.

To mitigate any resulting investor uncertainty in the domestic energy market, the Government announced that formal legislation will be introduced as part of the Spring Finance Bill 2024 to account for the Energy Security Investment Mechanism (ESIM) (which was officially announced in the Autumn Statement). The ESIM has been devised to end the EPL regime prematurely on the condition that the six-month average price for both oil and gas is at or below the ESIM threshold prices. Under the ESIM regime, the threshold prices will be adjusted from 1 April 2024, and annually thereafter, by the preceding December’s Consumer Prices Index figure.

Carbon Credits

The government plans to introduce legislation that will bring ‘carbon credits’ within the scope of the Terminal Markets Order (TMO). Under this regime, a zero rate of VAT is applied to certain derivative transactions in spots and futures commodity contracts (including compliance carbon emissions credits) by members, when traded on named commodity exchanges. The legislation will allow for further reform, including allowing trades of carbon credits to fall within the scope of the TMO and benefit from the zero rate for VAT purposes. However, certain carbon credit trading is not within the scope of VAT so these developments will require careful monitoring.

The responses to the July 2023 consultation on reforming the TMO legislation more generally will also be published shortly.

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