Whilst a number of the measures announced by Rachel Reeves had already found their way into the public domain in advance of her speech, the budget still managed to deliver a number of unwelcome surprises.
Prospering generational family businesses – which form the backbone of the UK economy and foundation of local communities – were attacked from all angles by changes to employers’ NICs, inheritance tax and the reclassification of certain vehicles for tax purposes.
The effect of these new measures will be widespread indeed, with the impact likely to be felt most acutely by the agricultural sector.
An increase in the rate at which employers pay NICs on the earnings of their staff, from 13.8pc to 15pc from April 2025, came as no real surprise and, had this been the only change, would probably have been accepted by business owners as a necessary measure towards plugging the much talked-about economic ‘black hole’.
However, when coupled with the unexpected slashing of the annual earnings threshold at which employers’ NIC becomes payable, from £9,100 down to £5,000, these reforms mark a significant increase in the cost of employment for business.
Consider a small company with 10 employees, each of whom are paid an annual salary of £20k. Even after factoring in the newly announced increase to the employment allowance and the effect of corporation tax relief, these measures will cost the employer an additional £147 per employee per year.
Scale this up to a company employing 100 members of staff, at the same salary level, and the additional burden on the employer soars to £481 per employee per year.
For businesses operating in sectors such as hospitality, cleaning and the care sector, which typically employ large numbers of lower-paid staff, the impact of these measures will be amplified by significant increases to the National Living and National Minimum Wages.
Whilst there were no changes to the headline rates of IHT announced in the budget, significant amendments will be made to both business property and agricultural property reliefs from April 2026.
From that date, 100pc BPR and APR will be restricted to the first £1m of assets, with those valued above £1m only attracting relief at 50pc, resulting in liability to IHT at 20pc on qualifying business and agricultural assets that previously would have escaped charge.
These liabilities could be eye-watering for family companies that, to facilitate investment and growth, have not extracted profits over the years; not to mention farming businesses with considerable value tied up in land.
The question remains as to how these liabilities can possibly be funded without the need to either extract significant funds (triggering a liability to income tax and curtailing investment in the business), or to sell a substantial part of the business.
Those of us able to cast our minds back to the halcyon days of February this year may recall a brief flurry of excitement in the tax world, when HMRC updated its guidance on the tax treatment of double cab pick-ups (DCPUs).
It stated that from July 1, 2024, DCPUs with a payload of at least one tonne would be treated as cars, rather than goods vehicles, for both capital allowances and benefit-in-kind purposes.
Less than a week later, following outcry from farmers and the motoring industry, the guidance was withdrawn pending government consultation.
Fast forward to October 30 and the publication of the detail behind Reeves’s budget. Whilst no mention of DCPUs was, to my recollection, made in the speech itself, contained in the policy documents published after the Chancellor’s commendation of her statement to the House was confirmation that HMRC is now updating guidance to ‘clarify the position’ in respect DCPUs, such that, from April 2025, they will definitively be treated as cars.
This will see a significant reduction in the capital allowances that businesses can claim on their purchase and a considerable hike in the employment taxes suffered by employees to whom they are provided. It’s all rather depressing, and I haven’t even mentioned capital gains tax!
Katie Varney is a corporate tax partner at Ensors Chartered Accountants. She can be reached at katie.varney@ensors.co.uk or 01284 722300.
