Chris Connors, corporate tax specialist looks at the key takeaways from this year’s Autumn Budget for corporate and commercial B2B clients.
This year’s Budget has the policy equivalent of the hokey-cokey – proposed tax changes have been leaked into the public sphere for what seems like months, only for many of them to be swept back under the carpet as soon as they started to receive backlash. You may remember that there was, at one point, going to be a rise to general income tax rates and a proposal for employers’ NICs to be levied on LLPs, both of which vanished pretty rapidly.
To add to the drama, the OBR leaked the key new measures before the Budget had even happened, so please bear in mind that no matter how hard or stressful your day has been, at least you aren’t the person who’s responsible for that!
So here are the key corporate tax highlights –
Income tax thresholds frozen
The personal tax thresholds are going to be frozen for a further three years (now lasting until 2030-31). That means the rates are, for the foreseeable future, going to be as follows:
- Personal allowance – £12,570;
- Higher rate – £50,270; and
- Additional rate – £125,140.
Freezing thresholds is known as “tax creep” – rates don’t go up, but more people pay more tax as their salaries/wider income increase. As a tax-raising tactic, it’s much more in the public consciousness nowadays as it’s been used increasingly in recent years, and no doubt there will be some political discourse about this in the weeks to come.
Some income tax rates going up
- It’s not all just about freezing current rates – dividend rates are on the rise… effective April 2026, the basic rate of income tax on dividends will go up to 10.75%, and the higher rate will be 35.75%.
- Dividend rates are lower than the “standard” income tax rates, so there’s usually a benefit for a company owner/director in maximising their return through dividends rather than employment income. Those rates are now getting closer to each other, but dividend rates lower – and there are also NICs benefits to dividends as compared to other income. So, whilst the rates for dividends are going up, I wouldn’t expect a massive change in behaviour or any planning opportunities due to the rise.
- From April 2027, savings income rates are also going up (22%, 42% and 47% for basic, higher, and additional rates respectively).
- Again, from April 2027, the rates applying to property income are going up (to 22%, 42% and 47%). Not great news for landlords holding property as an investment, and also potentially for tenants if there is a passthrough of the cost via higher rents.
Salary sacrifice capped
One of the most well-established methods for individuals looking to keep their income in the lower tax brackets is to sacrifice some of their salary for other benefits – for example, payment into a pension, which has historically been very tax-efficient.
However, a new cap is being introduced, meaning that contributions over £2,000 that are part of a salary sacrifice scheme will be subject to both employer and employee NICs.
What does that mean in practice? When the NIC rates went up last year, most employers passed on at least some of the cost to employees, but the headline you’ll possibly see in the newspapers is how this will be another blow to recruiting, retaining, and incentivising employees, especially for small businesses (and doubly so when paired with the rates freezes).
Mansion tax (a.k.a. the High Value Council Tax Surcharge, or HVCTS)
- Effective from April 2028, owners of properties being valued over £2m (by the valuation office) will be subject to a charge of no less than £2.5k, rising up to £7.5k if your house is worth more than £5m. That’s an annual charge, and every year there will be a CPI uprating.
- There are so many questions about how this will work (for example, will mortgages and other incumbrances be considered in valuing the property?). The government are very aware of this, and there’s a consultation on the implementation of the HVCTS on its way next year.
Writing Down Allowances (WDA) for capital allowances
- The WDA is going down from 18% to 14% from April 2026.
- There will also be a new 40% rate for first year allowances from January 2026.
- The idea of an increased first year allowance rate isn’t new, it’s something that has been done before – and don’t forget that full expensing (which is even better) may be available.
Mileage charge on electric cars (and other car-related items)
- There’ll be a new mileage-based charge on electric cars. For all those reading who own an electric vehicle – don’t worry (for now), it doesn’t come into effect until April 2028.
- On the plus side, but of no real comfort to individuals owning EVs, there will be a 10-year business rates relief for EV charging points (100% relief, in fact).
- Employee car ownership schemes are being brought within the benefit in kind rules. This isn’t a new measure, but the latest news is that it now won’t be implemented until 6 April 2030, delayed from 2026.
Employee Ownership Trusts – capital gains tax relief
When selling a company into an employee ownership trust, the sellers have historically received a 100% reduction on the capital gains tax charge, but that is reducing to 50% with effect from today. Suddenly one of the major tax drivers for selling into an EOT has become a lot less attractive, although still a solid prospect – they are still more tax-efficient than sales to third parties, and there are a number of non-tax reasons why someone might want to sell into an EOT, which remain as relevant as ever.
The best of the rest
Every year, there’s a few things that aren’t mentioned as headline items and are hidden away in the small print and may be of interest. Here’s a selection for this year:
- VAT treatment of land intended for social housing. The government is, in the near future, going to be consulting to see how the VAT rules can be changed to incentivise development of land for social housing;
- By April 2029, VAT invoices will need to be issued in a prescribed electronic format; and
- In the 2025-26 Finance Bill, there will be the next steps in the modernisation of stamp duty by implementing (for testing) a new digital service for the securities transfer charge (the replacement of stamp duty and stamp duty reserve tax).
And finally – mind the tax gap
Apart from the above, the new government seems to be keenly focussed on minimising the tax gap (the difference between the amount of tax collected and what should be collected based on and applying the current legislation). That makes sense – when you’re having to raise a record tax figure, it’s fairly fundamental that you would want to avoid tax leakage, and improving collection and reducing fraud is an obvious way to plug some of the hole without having to raise tax rates.
The Autumn Budget contained several policies to try and close that tax gap, by (i) cracking down on tax avoidance and evasion, and (ii) tackling abuse and exploitation of benefit and welfare systems through the introduction of programmes to prevent, detect and correct fraud and errors in the benefit system.
Measures being introduced this year include:
- Strengthening compliance in relation to Construction Industry Scheme fraud;
- Increased resourcing for tackling rogue directors;
- Raising standards in the tax advice market…
… and a raft of other announcements.
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