The trick of today's budget was to plug the fiscal gap while making people feel better off. No mean feat!
Will this budget encourage people to spend money to boost the economy? Time will tell.
With thanks to Katy Veevers at Dominic Hill Accountants for a clear synopsis of the budget, attached below.
Check the budget policies which we think will affect Chamber members here:
- National Insurance (NI) - expected to bring £25bn into the Exchequer
While employees will not pay any more NI, employers will. The employer's contribution is increasing by 1.2% to 15% from next April.
The government is also reducing the annual threshold for employers to start paying NI from £9,100 per year to £5000. This means that they will be paying 15% NI on wages of £96 per week rather than from £175 per week.
On its own, these changes might seem small however, coupled with the increase in the Minimum Wage, which matched the National Living Wage from April this year, many businesses will see their cost base increase, especially businesses with lower paid workers. See details of increases to the National Living Wage below.
The employment allowance will increase from £5000 to £10500 which means that the smallest businesses won't pay Class 1 NI until their NI bill reaches £10.5K in the tax year.
- Income Tax
Personal tax thresholds will increase in line with inflation from 2028/29. This means staff will be able to earn more before paying tax and NI in four years time. Is it soon enough?
- The National Living Wage (NLW)
The Minimum Wage was increased to match the NLW in April this year. This will be increased again by 6.7% to £12.21 for an over 21 worker from April next year.
The lower rates for under 21 workers will also be brought in line with this NLW to remove age discrimination and equalise pay for the under 21s.
To put this into perspective, the rate for 21 year olds was £6.70 in 2016 so this rate will have increased by over 80% next April.
This will increase the cost base for retailers, restaurants, hotels and the care sector where many employees are paid the NLW. Time to check your cashflow!
Hopefully this increase will make people feel better off and stimulate the economy.
- Business Rates and other taxes - raising £6.5bn for the Exchequer
Permanently lower business rates will be introduced for retail, hospitality and leisure businesses from 2026/27. Until then they can claim 40% relief up to a cap of £110,000.
The levy on oil company profits will be increased to 38% and extended for the foreseeable future.
The concept of 'non-doms' will be abolished from April, however, there will still be a new 4 year foreign income and gains regime for individuals who become UK tax resident after a period of 10 years non-UK residence.
The government will be targeting tax avoidance, including umbrella companies. They aim to raise £6.5bn here!
- Capital Gains Tax - raising £2.5bn for the Exchequer
The lower rate is being increased from 10% to 18% and the higher rate from 20% to 24%; there will be no increase on the 18% or 24% rates for second properties.
This will keep UK rates relatively low by international standards.
- Private School Fees
VAT will be charged from January next year. Will private school students leave to join state education?
While this is unlikely to affect Harrow and Eton, what effect will it have on smaller private schools where oligarchs and the super wealthy do not send their children?
- Tobacco and Alcohol
Vapes will be levied in line with tobacco.
Tobacco tax will rise 2% above the Retail Price Index.
Hand rolled tobacco tax will rise by 10%.
Draft beer tax will be reduced by 1p per pint. Other alcohol tax will rise inline with the RPI.
Tax will be increased on sugary soft drinks too.
For details of increases to public spending, the NHS, transport infrastructure, pot holes, energy, defence, Post Office and blood infection compensation, plus increases to air travel duty, and details of government borrowing, read here, courtesy of the Guardian Newspaper.
Check out the concise synopsis Dominic Hill Accountants have provided on the file attached below.
