Budget 2024: Consumer Update

Our content in this article:

• National Minimum Wage
• Action on Crime
• Income tax thresholds
• National Insurance
• Growth and Skills Levy
• Business Rates
• Plastic packaging tax
• Soft Drinks Industry Levy 
• Tobacco and Vaping
• Alcohol Duty
• Fuel Duty
• Air Passenger Duty
• Corporate Tax Roadmap 
• Tax compliance and tax avoidance 
• Umbrella companies
• Creative Tax Reliefs

National Minimum Wage

The Government had already announced on 29 October 2024 that it will accept the recommendations of the Low Pay Commission to increase the National Minimum Wage ("NMW"), including the National Living Wage ("NLW"). The new rates to apply from 1 April 2025 will be as follows:

The changes to the NMW rates form part of the Government's aim to work towards a single adult rate for all workers. The NLW changes are expected to affect more than three million workers and are part of the Government's plan to boost workers' rights.

Whilst many workers and young people will welcome this change some businesses are concerned that higher operational costs will result in decreased profits or higher prices for customers. The Government has suggested that this change will boost productivity but many businesses fear that this change together with the changes to workers' rights and additional employer national insurance contributions will result in increased prices or lower profits and reductions in the workforce or pay freezes for the remaining workforce.

There are concerns from the Confederation of British Industry that these changes will make it increasingly difficult for businesses, especially small and medium sized enterprises, to invest in tech and innovation needed to boost productivity.

There is particular concern being expressed by the UK hospitality and retail industries, which already face talent attraction and retention issues, citing threats to jobs and future investment, price increases for consumers and business viability.

Some of these issues may be addressed by the Government's commitment to delivering a fairer business rates system through permanently lowering business rates multipliers for retail, hospitality and leisure properties in England and Wales but the industries are still concerned about the NMW and NLW changes. The public sector has also expressed concern since the increased NLW is higher than the minimum wage paid to many public sector staff and may lead to staff leaving public sector jobs which can struggle to attract talent.

Action on Crime

Further support has been pledged to tackle the increasing problems of theft and retail crime, particularly organised crime and shoplifting.  This will be welcomed by the retail industry and perhaps help with talent attraction and retention. 

DWF offers services to support in the civil recovery of goods and our recoveries experts would be happy to provide more information and advice.

Income tax thresholds

The Chancellor has announced that the income tax thresholds for England, Wales and Northern Ireland will be increased in line with inflation from April 2028. The thresholds are currently frozen until April 2028 (a policy announced by the previous government in the Autumn Statement in 2022). The last increase to the threshold for basic and higher rates of income tax was in April 2021. This commitment will end the practice known as "fiscal drag" from April 2028 whereby the tax receipts are increased by virtue of increasing numbers of people being "dragged" into either paying income tax or paying a higher rate of income tax but fiscal drag will still be a factor until then.

National Insurance

The Chancellor has announced an increase in the rate for employer National Insurance contributions ("NICs") and a reduction in the salary threshold for when employer NICs become payable.

The rate will be increased from 13.8% to 15% and the salary threshold for when employer NICs will be payable will be reduced from £9,100 to £5,000 a year.

This increased liability for employers has been mitigated somewhat by the increase in Employment Allowance which currently allows employers with employer NICs bills of £100,000 or less to deduct £5,000 from their employer NICs bill. The changes abolish the upper limit of £100,000 and therefore will allow all eligible employers to deduct an increased amount of £10,500 from their annual employer NICs liability.

The changes will take effect from 6 April 2025.

These changes shift the immediate burden of the tax increases to employers but research shows that the cost of such a burden is likely to be passed onto employees in the long-term through lower pay increases and other cost-saving measures for businesses. This is acknowledged in the Budget which confirms that "the OBR expects part of the additional costs from the employer NICs rise to be passed through to lower real wages, which would reduce the supply of labour, and partly through to  lower profits."

The employer NICs increase is a neat way of indirectly taxing employees without it being immediately obvious from looking at a payslip. Whether or not this will be characterised as a breach of the Labour Party's manifesto commitment to not increase National Insurance is likely be a political battle over the coming days.

Growth and Skills Levy

The Government previously confirmed their commitment to replacing the existing Apprenticeship Levy with a new Growth and Skills Levy. The Budget pledges £40 million of investment to facilitate this change and encourage shorter apprenticeships in key sectors. Skills England are currently consulting to ensure the scheme meets the needs of employers, providers and learners.

Businesses should monitor this closely and ensure they understand the new levy and how it will affect their operations in the near future.

Business Rates

The Labour Party manifesto promised business rates reform in England. The Government has launched a discussion paper for future reform as well as making some more immediate changes to business rates in England aimed at supporting small businesses and the high street. One key measure is the permanent reduction of business rates multipliers for retail, hospitality, and leisure ("RHL") properties starting from 2026-27. This change is intended to provide long-term relief to these sectors, which have been particularly hard-hit in recent years. However, it will only apply to RHL properties with a rateable value under £500,000.

Additionally, for the tax year 2025-26, the small business multiplier (for those with rateable values less than £51,000) will be frozen, and RHL businesses will receive a 40% relief on their bills, up to a £110,000 cash cap per business. In the consumer sector, particularly for retail and hospitality businesses, the extension of the relief in England (albeit not as generous as in previous years) will be welcome.

Whilst these interim measures are good news for many in the RHL sector, the Government has announced that it will fund these cuts by introducing a higher multiplier on properties with rateable values of £500,000 and above. This change will disproportionately impact those with significant commercial real estate holdings. The Government highlights that this change will be a way of taxing online giants and their large distribution warehouses. However, there is pressure on the Government to go further and impose specific business rates on warehouses and fulfilment centres used by online retailers, regardless of their rateable value.

For those working in the Government & Public Sector, the Government has committed to ensuring that, as far as practicably possible, local government income is unaffected by business rates tax policy changes and that local government is compensated for administration costs. The promise to compensate local governments for administration costs is positive, but local governments rely heavily on business rates as a source of income, so the effectiveness of this compensation depends on how well it is implemented.

Alongside the Budget, the Government has published a discussion paper, Transforming Business Rates. The Government set out that it will consider any future reform against its objectives of: protecting the high street; encouraging investment; and creating a fairer system. Priority areas for reform include the relationship between making improvements to a property and an increase in rateable value, empty property relief and making the system more responsive. The Government will be engaging with stakeholders between November 2024 and March 2025. Initial expressions of interest are invited by 15 November 2024.  

Overall, while the Government’s efforts are welcomed by many who want to see the system reformed to reflect the modern economy, the delivery of a fairer system for business rates will not be determined by the immediate reforms announced in this Autumn Budget 2024. Instead, it will depend on the changes the Government has committed to consulting on over the term of this Parliament.

Plastic packaging tax

The Government announced that from 1 April 2025, the rate of plastic packaging tax ("PPT") will increase in line with the consumer prices index ("CPI"). The rate from 1 April 2025 will be £223.69 per tonne, an increase from the current rate of £217.85 per tonne.

Alongside the Budget, the Government published a response to the previous Government's consultation on the "mass balance approach" which considered the application of a mass balance approach to determine the amount of chemically recycled plastic in a plastic packaging component for the purposes of PPT.

The Government has confirmed that it will allow businesses to adopt a mass balance approach, which will make it easier for businesses to determine the amount of recycled plastic using chemical rather than mechanical recycling. The Government suggests this has the potential to increase rates of plastic recycling, as it enables more types of plastic to be recycled, and to a higher grade (which can be used in food contact packaging, for example). 

Whilst the change will be welcomed by various sectors, the Government has not yet confirmed when the change will take effect. The Government will undertake further technical consultation with industry and publish draft legislation for technical consultation.

Soft Drinks Industry Levy

The Government is committed to ensuring that soft drink manufacturers are incentivised to reduce their sugar content. To this end, both the lower and higher rates of the Soft Drinks Industry Levy ("SDIL") will be uprated over the next five years to reflect the 27% CPI increase between 2018 and 2024. Rate increases will happen annually on 1 April, starting from 1 April 2025, and will spread equally over the 5-year period from 2025 to 2029. The Government is also set to review the current SDIL sugar content thresholds and the current exemption for milk-based and milk substitute drinks meaning more products could become subject to the levy.

The SDIL has already led to significant change in the consumer area. Businesses must stay informed, potentially adapting their product offerings to comply with the levy and minimise its financial impact.

Tobacco and Vaping

The Government will maintain high tobacco duty rates to reduce smoking prevalence and is committed to gradually ending the sale of tobacco.

The tobacco duty escalator will be maintained, which will increase in line with the Retail Price Index ("RPI") plus 2% at each annual Budget. This will be accompanied by an additional 10% increase in the duty rate on hand-rolling tobacco starting from 30 October 2024. The increased rates will continue to affect manufacturers, importers, distributors and retailers. Although the increased costs will improve public health, businesses will bear the burden from this measure.

Manufacturers and importers will face additional administrative burdens and will require expert advice to ensure compliance with duty payment regulations to avoid penalties. Businesses may also face enhanced operational costs and need strategic operational advice.

Furthermore, a new Vaping Product Duty will apply to vaping liquids from 1 October 2026. This will apply a £2.20 flat rate per 10ml of vaping liquid, and be accompanied by a one-off increase in Tobacco Duty (£2.20 per 100 cigarettes/50 g of tobacco). The rationale behind the accompanying increase is to maintain the financial incentive to switch from tobacco to vaping, whilst discouraging those who have not previously smoked from taking up vaping (particularly the young).

This policy aim was articulated clearly in a consultation on vaping and tobacco duties undertaken by the previous Government between 6 March and 29 May 2024, the results of which were published today. A further policy objective was to raise revenue to fund public services such as the NHS and stop- smoking initiatives. The Budget estimates that the new duty will raise £5 million in 2026-27, £10 million in 2027-28, a further £10 million in 2028-29, culminating in receipts of £15 million in 2029-30. This would total £40 million in receipts. Whilst this may seem a modest sum, the Government appears to accept that policy success is not necessarily indicated by revenue receipts, but by falling numbers of vapers.

A further consultation on proposals for duty stamps on vaping products (and possible controls on the supply of nicotine) was launched on Budget Day, and will close on 11 December 2024.

Alcohol Duty

The Government has announced a reduction on alcohol duty on draught products and an increase on alcohol duty in line with RPI on non-draught products from 1 February 2025.

The way alcohol duty is calculated changed on 1 August 2023 with two new relief for small producers and draught products introduced. 

The Government has announced more favourable Draught Relief in the Budget to take effect from 1 February 2025.  The result of which is that alcohol duty on 60% of alcohol drinks sold in pubs will be reduced in an effort to support the UK's hospitality sector.

Draft Relief is increasing from 9.3% to 13.9% for qualifying beer and cider, and from 23% to 26.9% for qualifying wine, other fermented products and spirits.

Conversely, the Government has taken a more balanced approach to cutting alcohol duty across all categories of non-draught products, choosing to increase alcohol duty on non-draught products in line with RPI.

In addition, simplified duty rates used for calculating excise duty on alcoholic products sold into Great Britain (England, Scotland and Wales) for personal use will increase and the current temporary wine easement will end as planned in February 2025. Therefore, businesses involved in the manufacture, distribution and sale of non-draught products will face higher costs with a likely price increase on the end consumer. 

The Government intends to support small alcohol and spirit producers.

The Government will make the Small Producer Relief more valuable and will consult to find ways to encourage small brewers to access and maintain their presence in UK pubs and seek to encourage 'guest beers'. The Government will also increase the cash discount provided to small producers for non-draught products and will maintain the current cash discount rate provided to small producers for draught products from 1 February 2024.

Support for spirits producers, including the Scottish Whisky industry, will be extended by eliminating mandatory duty stamps for spirits and through industry consultation to ascertain how to support the delivery of the Spirit Drinks Verification Scheme ("SDVS").

Small businesses and spirit producers will need assistance to navigate the legal and regulatory changes and benefit from the duty reductions.

Fuel Duty

Coming as a relief to many businesses, Chancellor Rachel Reeves has confirmed a continuation of the freeze in fuel duty rates and the 5 pence per litre (ppl) temporary cut for another year. This freeze is crucial for businesses trying to manage their expenses and reduce their operational costs, and will particularly benefit small businesses or those relying on vehicle fleet.

Air Passenger Duty

The rates of Air Passenger Duty ("APD") will be increased for the tax year 2026 to 2027 to bring the rates in line with high inflation in recent years which has not been accounted for in previous rate increases. The highest increases will be for those travelling outside of economy class or in private jets. The Government has also published a consultation on potential reforms to APD for private jets with a particular focus on how increased rates of APD would impact the industry and align with the environmental goals of the Government

Corporate Tax Roadmap

Alongside the Budget, the Government published a Corporate Tax Roadmap, with the aim of giving businesses more stability and certainty about the Government's tax plans for the Parliamentary term, with a view to encouraging "investment, innovation and growth over the long term". The roadmap focusses mainly on the corporation tax regime, stating that there will be no fundamental or structural change to the regime, and making a number of commitments until the next general election:

• the main rate of corporation tax will be capped at 25%;
• the Government states its intention to engage with the Northern Ireland Executive on devolution of the corporation tax rate to Northern Ireland;
• to maintain the current exemption for gains on disposals of substantial shareholdings and exemption for dividends paid to UK companies;
• to keep the bank surcharge under review to ensure its objectives are appropriately balanced;
• to maintain the current full expensing for capital allowances, the annual investment allowance, writing down allowances and structures and buildings allowance;
• to explore concerns around predevelopment costs and whether these qualify for capital allowances – HMRC will initially discuss with stakeholders and launch a consultation by the end of the year;
• extend full expensing to assets bought for leasing when fiscal conditions allow;
• establish a research and development ("R&D") expert advisory panel and in 2025, consult on widening the use of advance clearances; and
• consult on reforms to UK's rules on transfer pricing, permanent establishments and diverted profits tax in 2025.

Businesses will welcome confirmation of the Government's corporate tax plans, and accompanying reassurance that the rates and regime will largely remain unchanged. There have been problems with the administration of the existing R&D regime, as we have previously highlighted, with particular concern around HMRC's volume compliance checks, which has led to many legitimate claims being rejected and companies being discouraged from claiming the reliefs they are entitled to. In its roadmap, the Government acknowledges these problems and we look forward to seeing more detail in due course on the Government's plans to make the system more efficient.  

Tax compliance and tax avoidance

As with its predecessors, the Government intends to increase revenue by focussing on increasing tax compliance, reducing tax debts and combatting fraud and tax avoidance. In support of this, it has confirmed a number of measures including:

• HMRC Staff and debt collection – As announced in July 2024, over the next five years, it will invest £1.4 billion to recruit 5,000 additional HMRC compliance staff and £262 million to fund 1,800 HMRC debt management staff. It also intends to invest £154 million to modernise HMRC's debt management case system and a further £12 million on acquiring credit reference agency data to enable better debt collection activities.
• Tax Advisers – The Government will invest £36 million to modernise HMRC's tax adviser regulation services and will mandate registration of tax advisers interacting with HMRC from April 2026. They intend to consult in early 2025 on HMRC's powers to take swifter and stronger action against advisers who facilitate non-compliance.
• Tax Liabilities – The Government will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5% with effect from 6 April 2025.
• Tax Avoidance and Fraud - The Government will increase collaboration between HMRC, Companies House and the Insolvency Service to tackle contrived corporate insolvencies used to avoid tax. It will also expand HMRC's counter-fraud capabilities to address high-value fraud and strengthen HMRC's scheme for rewarding informants to encourage reporting of high value tax fraud and avoidance. In addition, the Government will publish a consultation in early 2025 to tackle promoters of marketed tax avoidance. Additional resources will also be committed to tackling off-shore non-compliance including serious non-compliance and fraud.

Umbrella companies

There has long been a concern that so-called umbrella companies are both a vehicle for tax avoidance and can negatively impact on workers' rights. The previous government had already launched a consultation this issue. Today's budget approaches the issue head on and effectively negates most of the tax advantages of using umbrellas.

Umbrellas are employment intermediaries who act as employers on behalf of recruitment agencies and end clients. Umbrellas are generally also responsible for operating PAYE. HMRC's view is that although many umbrellas are properly operated there is also considerable error, avoidance and fraud.

The changes announced at the budget will shift the obligation to operate PAYE to the agency or end client from April 2026. Although this is a different regime to the off-payroll worker rules (often called IR35), it is likely to operate in a similar way. The current rules effectively insulate agencies and end clients from PAYE risk involving umbrellas. That insulation will no longer exist and agencies and end clients will need to take greater responsibility for how umbrellas operate.

This is likely to have a significant impact on the attractiveness of the umbrella company model and may even mean the end of the industry. Anyone employed by or engaging with (directly or indirectly) an umbrella company is likely to be affected. There is more than a year until these changes take effect and anyone impacted would be well advised to review their current employment arrangements and take any remedial action required well in advance.

The DWF tax team is familiar with all aspect of employment taxation and personal service structures. We are able to assist you review your current arrangements and provide solutions to ensure compliance with the new rules once in place.

Creative Tax Reliefs

In the Autumn Budget 2024, the Government committed to an estimated £15 billion in tax reliefs for the UK’s creative industries over the next five years. The current Government will retain these measures and it has committed to upholding those measures that have already been legislated.

Starting from 1 April 2025, an enhanced audio-visual expenditure credit will be available for UK independent films at a rate of 53% of qualifying film production expenditure. This credit is designed to incentivise film industry output on qualifying projects with budgets under £15 million.

Furthermore, the tax relief for visual effects costs in film and TV will increase to 39% (up from 34%), and the cap on qualifying expenditure for visual effects costs will be removed entirely.

Other measures for the creative industries include making tax reliefs for theatres, orchestras, museums, and galleries permanent at 45% for touring and orchestral productions and 40% for non-touring productions. These rates were due to reduce to between 20% and 25% by 2026 but will instead be maintained at these higher rates.