On March 6, 2024, the UK Chancellor unveiled the Spring Budget, aiming to reduce taxes, boost investment, and enhance public services. The budget included several key policies primarily focused on individual taxation rather than corporate taxes.
In his opening address, Jeremy Hunt acknowledged the UK economy's resilience in overcoming challenges such as the financial crisis, the pandemic, and the energy crisis stemming from conflicts in Europe. While noting persistently high interest rates amid efforts to curb inflation, he emphasised the government's commitment to providing long-term support for families through both cost-of-living assistance and permanent tax cuts and characterised the budget as a strategy geared towards fostering sustained economic growth.
Some of the key developments in this budget include:
National Insurance: From April, the National Insurance Contribution (NIC) rate will be reduced from 10% to 8% of pay. Someone earning a full-time salary of £35,000 annually will save £450 per year.
Non-dom tax: Starting from April 2025, the non-domiciled (non-dom) tax status will be abolished and substituted with a modern, simpler, and fairer system. Individuals will be liable to pay tax on UK income but exempt from paying tax on their worldwide income.
Property tax: The government plans to decrease the rate of property capital gains tax from 28% to 24% and eliminate stamp duty relief for individuals purchasing more than one dwelling.
VAT registration threshold: Starting from 1 April 2024, there will be adjustments to the VAT registration and deregistration thresholds. The threshold, based on taxable turnover over a 12-month period, will rise from £85,000 to £90,000.
Various other announcements including extended household support, vaping products levy, alcohol duty and childcare funds also play a major role on the impact this budget can have on the economy.
The election effect
The recently unveiled budget marked the Conservatives' final opportunity to sway voters before the impending election storm engulfs the UK. It was viewed as a crucial moment for UK Chancellor Jeremy Hunt to infuse some much-needed economic optimism into British politics.
About whether he was able to woo the public or not, Ravi Shah, a partner at Vinod Shah & Co, the budget appears rather straightforward, with no extravagant measures or surprising revelations. About the budget aiming to impress the voters, he said “Indeed, the options are limited now, especially considering the conservative nature of the measures and the dwindling number of votes. Regarding the high-income Child Benefit, it's undoubtedly a significant relief for many parents, particularly those in the workforce.
“While the reduction in National Insurance contributions benefits a wide range of individuals, the crucial question remains: what tangible impact has it had? Another noteworthy aspect is the reduction in capital gains tax on property sales from 28% to 24%, resulting in a direct 4% saving, which higher rate taxpayers will surely appreciate. As for the effects of non-dom status abolition, while it's on the horizon, it's not yet in effect, with implementation slated for 2026, providing ample time for preparations.”
What’s in store for the SMEs and self-employed
The budget will affect the economy, businesses and individuals in different ways. Among these entities, the Small and Medium-sized Enterprises (SMEs) and self-employed individuals need more support and the NIC rate reduction and VAT thresholds will have a major impact. Analysing the offerings of the budget on these fronts, Ravi said, “For self-employed individuals and SMEs, there's a notable reduction in the NIC rate, from 10% to 8%. Regarding VAT thresholds, there's been a significant change. Previously set at £85,000, the threshold has now increased to £90,000, with the deregistration threshold also rising to £88,000. This is positive news and means businesses have an extra £5,000 before they need to register for VAT.
“However, for businesses like restaurants or takeaways, the impact can be challenging. For instance, if they sell a meal deal for £10, they're now required to add VAT, making the total price £12, which doesn't necessarily increase their profitability but rather maintains their status quo. Many business owners I’ve been in touch with feel that a slightly larger increase in VAT thresholds, perhaps to £100,000, would have been more aligned with the rising inflation.”
Budget’s impact on cost-of-living crisis decoded
The major and not-so-major policy changes made under this spring budget will, directly or indirectly, impact the cost-of-living crisis plaguing the UK. With the abolition of the non-dom status, relief in property tax, increase in public spending and extended household support among other measures will help ease the cost-of-living pressures and cash flow. Detailing the various policies that will help ease the situation, Ravi said, “There's optimism regarding interest rates potentially decreasing in the latter half of the year. This would benefit property owners seeking to remortgage or purchase their first home, as repayments would be comparatively lower than current variable rates. On the flip side, this may not bode well for savings, given historically low-interest rates and poor savings returns.
“However, there's hope that the government's efforts to reduce inflation to 2% in the coming months will positively impact the cost of goods, increasing disposable income for families and businesses. Additionally, while electricity and gas prices may remain stable for now, there's anticipation for a brighter economic outlook in the long term, with the OPR forecasting a 0.8% growth in the current year, rising to 1.9% by 2025. Despite this optimism, it's important to acknowledge that immediate relief may be needed for individuals and businesses facing financial challenges.”
About cash flow, he said, “In terms of cash flow, there are several noteworthy changes outlined in the budget. Firstly, the abolition of the £90 fee for debt relief orders, which assists individuals in relieving their debts. Additionally, repayment periods for universal credits will be extended from 12 to 24 months, aiming to expedite payment processes.
“Cash flow is vital for the viability of businesses, as it serves as oxygen for their operations. Despite significant financial support provided during the pandemic through government schemes and grants, the question remains whether these measures will suffice in the short term.”
