Yesterday, the Chancellor delivered what must be one of the most highly anticipated and politically charged Budget announcements in recent years. There has been a great deal of speculation of what was to be included and so it is good to know, with certainty, what tax changes are to be implemented so that organisations can operate with some certainty.
While many of the widely trailed tax changes are to be implemented, there are also some notable areas where the change is less than might have been expected, and a few areas where there were unexpected announcements. This is a bold Budget, with the changes expected to raise around £40bn, and the Chancellor acknowledged that this included many ‘difficult choices’, although there will, of course, be claims that more could have been done to support the economy and key programmes around public services and international support.
Sector specific announcements
As has been common in recent Budget announcements, charities and social enterprises did not feature significantly in the content of the announcements, with a few notable exceptions which include:
- New legislation will be introduced in 2025 to prevent abuse of the charity tax rules. This is a result of the consultation which took place back in 2023. Likely changes include amendments to the tainted charitable donations rules, along with a tightening of how charities must assess the way they spend their funds through both the charitable expenditure and Approved Charitable Investment rules. The response indicates that the changes may not be as extensive or wide ranging as might have been envisaged. Many charities which work hard to be compliant with the existing rules will be grateful for this as the additional compliance requirements should be less onerous than may have otherwise been the case.
- Confirmation that private school fees will be subject to VAT with effect from January 2025, and the removal of business rates relief from these schools with effect from April 2025. The Government has released its response to the recent consultation on this and we will be working through this, and its impact for affected schools over the next few days.
- Tax reliefs for creative industries will provide £15 billion of support over the next 5 years, which may benefit some sector organisations.
Changes affecting employers
While there were few sector specific announcements, many of the most significant changes will affect all employers, including those within the charitable and not for profit sectors, where employment costs can represent a significant proportion of annual spend:
- An increase to employers National Insurance contributions from 13.8% to 15%
- The point at which employers National Insurance contributions become payable will reduce from £9,100 to £5,000 per year
- The minimum wage for over-21s will increase from £11.44 to £12.21 from April meaning an additional £1,400 of income for those in full time employment.
- The rate for 18-20 year olds will increase to £10 per hour (and additional £2,500 per year) with an intention to harmonise the rates for all adults over time.
Other changes
The Chancellor also announced a number of other changes that include:
- Rates of income tax, employee National Insurance and VAT will not change.
- The freeze on income tax and National Insurance thresholds will continue until 2028.
- An increase in Capital Gains Tax from 10% to 18% at the lower rate and 20% to 24% at the higher rate – rates on residential property sales will not change.
- The freeze on inheritance tax thresholds will remain until 2030.
- Pension assets with be brought within the scope of inheritance tax from April 2027.
- Non-domicile status will be replaced by residence based tests. New rules will be deal with those entering or leaving the UK.
- The SDLT surcharge, paid on second home purchases in England and Northern Ireland, will go up from 3% to 5%.
We will be putting together a deeper dive into these changes and what they mean for our charity clients, but if you have immediate questions, please do get in touch.
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The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further information.