After weeks of anticipation, Chancellor Rachel Reeves has unveiled her Autumn budget, packed with updates on taxes, wages, and benefits.
The Chancellor opened her speech with a bold claim: this budget aims to raise taxes by £40 billion. But what exactly does that mean for you? Here’s everything you need to know about the key changes in this budget.
National Minimum Wage Increases
One of the biggest announcements in this budget is the rise in the National Minimum and National Living wage from April next year.
National Living Wage (age 21+): up by 6.7%, from £11.44 to £12.21 per hour
Minimum Wage ages 18-20: up by 16.3% from £8.60 to £10 per hour
Minimum wage for Apprentices: up by 17.2% from £6.40 to £7.55 per hour
While these increases provide a much-needed boost for workers struggling with the cost of living, they also mean added costs for employers, particularly small businesses that may struggle to absorb these hikes.
Tax Freeze on National Insurance, VAT, and Income Tax
Good news for working people- the Chancellor confirmed that National Insurance, VAT, and Income Tax rates will not be changed. Additionally, the income tax and National Insurance thresholds will remain frozen as planned until the 2028/29 tax year, when they will then increase in line with inflation. This will help prevent pushing workers into higher tax brackets as their wages increase (fun fact- this is called 'fiscal drag', and is often used as a sneaky way to increase taxes!).
Employer National Insurance
In a significant change for employers, employer National Insurance contributions are set to increase by 1.2% to 15%. Additionally, the threshold for when you begin to pay these contributions will drop from £9,100 to £5,000. This means that employers will pay a higher rate of contributions on a larger share of their employee's earnings.
There is some relief for small businesses, thanks to an increase in the Employment Allowance. The Employment Allowance is the amount employers can reduce their National Insurance contributions by per tax year. This allowance is increasing from £5,000 to £10,500, a move that will see 865,000 employers pay zero National Insurance contributions next year, and a further one million businesses pay less or the same as they paid in the previous year. This will essentially reverse the effects of the National Insurance increase for small businesses.
Corporation Tax
In another move to boost business stability and planning, the government has confirmed that Corporation Tax will be capped at 25% for the duration of this parliament, maintaining its status as the lowest in the G7.
Changes to Stamp Duty, Capital Gains, and Inheritance Tax
This budget saw multiple changes affecting property and asset owners:
Stamp duty on second homes: increased from 3% to 5% from 31/10/24
Capital Gains Tax: The lower rate will increase from 10% to 18%, and the higher rate will rise from 20% to 24%.
Inheritance Tax: Thresholds will stay frozen for an extra two years, as they have been extended to 2030. Inherited pensions will also be subject to IHT from 2027.
Air Passenger and Fuel Duty
Air Passenger Duty: Economy flights to short-haul destinations will increase by £2, while the higher rate for private jets will increase by 50%
Fuel Duty: This has been frozen for another year, and the government will maintain the 5p cut for a further year. This is set to save the average car driver £59 in 2025/26.
Alcohol and Tobacco Duty
From February 2025, Alcohol Duty will see mixed changes:
Draught Alcohol: Duty is being reduced, providing a 'penny off the pint' at the pub.
non-draught Alcohol Products: Duty will be increased in line with inflation.
From April, the government is reinstating the tobacco duty escalator, meaning that tobacco duty will increase by inflation plus 2%. Additionally, the tax on hand-rolled tobacco will increase by 10% this year.
From 2026, they will introduce a flat-rate duty on all vaping liquids. When they do this, there will also be a one-off increase in tobacco duty (on top of the other increases) to maintain the incentive to give up smoking and transition to vapes.
Pensions and Benefits
In response to the rising cost of living and inflation:
State Pension and Pension credit will increase by 4.1% from April
The Carer's Allowance Earnings Limit will increase, allowing carers to earn up to £10,158 per year while still receiving benefits
Working-age benefits will increase in line with September's inflation figure of 1.7%
To help those on Universal Credit, a new Fair Repayment Rate will limit monthly debt repayments to 15% of a household's monthly payment, decreasing from 25%. This will help low-income households retain more of their benefits each month.
Conclusion
Overall, this budget has included a blend of tax freezes, rises, and income increases, which will certainly have a mixed impact on economic growth and will likely affect everyone in different ways, both good and bad.
If you have any questions on how the budget will impact you and your business, make sure to contact us!
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