Spring Budget 2024: plans for long-term growth

Ahead of the general election, Chancellor Jeremy Hunt delivered the 2024 spring Budget, and with it came some welcome changes, one of which is to support millions of workers across the UK with a 2p cut to National Insurance (NI).

The Budget, Hunt exclaimed, will unleash people power and put this country back on the path to lower taxes with a plan to "grow the economy".

Below, my colleague Jenny Strudwick and I have examined a few key areas from this spring Budget.

Fresh cut to National Insurance

For the second time in less than four months, the Chancellor announced a fresh cut to National Insurance contributions from 6^th April.

Hunt says they will cut the rate by a further 2p in the pound, taking class 1 national insurance to 8% from 6^th April 2024 – the start of the new tax year.

This change follows the initial cut from 12% to 10% in January.

Also from April 2024, the class 4 self-employed NICs rate will reduce from 9% to 6% – a bigger reduction than had been planned.

For employees, the cut is worth on average around £450 a year and £350 for those self-employed.

When combined with the autumn reduction, it means 27 million employees will get an average tax cut of £900, and 2 million self-employed will get an average tax cut of £650.

Why cut National Insurance rather than Income Tax?

Some people have been vocal, wanting a cut in Income Tax rather than National Insurance.

However, a cut in the basic rate of income tax would be more expensive as it impacts a greater number of people.

In contrast, National Insurance simply affects those actively in work.

To put this into perspective, a cut in the basic rate of income tax from 20p to 19p would cost the Treasury around £7bn per year, while a 1p cut in National Insurance costs around £4.7bn per year.

Some criticism states that this cut only partially offsets the income tax thresholds being frozen until 2028-29, meaning while workers may get a pay rise, it could drag them into a higher tax bracket.

VAT registration threshold increase

From 1^st April 2024, the VAT registration threshold will increase from £85,000 to £90,000, and the VAT deregistration threshold will increase from £83,000 to £88,000.

Not quite the change some were hoping for as many were looking for a threshold increase to £100,000.

It is expected that 28,000 SMEs will be taken out of VAT registration altogether in the hopes that it will encourage them to invest and grow.

Is it enough to compensate for the seven-year freeze?

Dharshini David, Chief Economics Correspondent stated: “The increase in the threshold at which small businesses and self-employed people have to register for VAT eases one form of fiscal drag and increases incentives for work.

“But it had been frozen for seven years; the rise of £5,000 doesn’t compensate entirely for that.”

Furnished Holiday Lettings

The Furnished Holiday Lettings tax regime will be abolished from April 2025, raising £245 million a year while making it easier for local people to find a home in their community.

The leaked FHL announcement shocked many over the weekend, potentially posing issues for accountants, particularly in relation to Making Tax Digital for income tax self-assessment (MTD ITSA).

Caroline Miskin from the Institute of Chartered Accountants in England and Wales (ICAEW) raised that the change would make Making Tax Digital for income tax self-assessment (MTD ITSA) easier to design but could lead to disputes over whether there is a property trade.

Multiple Dwellings Relief

From June, Multiple Dwellings Relief will be abolished after showing no evidence of promoting investment in the private rented sector.

Capital gains tax on residential property

The higher rate of Capital Gains Tax (CGT) on property will be cut from 28% to 24% from April 2024, firing up the residential property market and supporting thousands of jobs that rely on it.

Child benefit changes

From April 2024, the Government will raise the threshold for the High Income Child Benefit Charge to £60,000, taking 170,000 families out of paying this tax.

The rate of the charge will also be halved so that Child Benefit is not repaid in full until you earn £80,000.

The Government estimates that nearly half a million families will gain an average of £1,260 in 2024-25 as a result.

New UK ISA announced

The Chancellor says he will reform the ISA system to encourage more people to invest in UK assets.

The Government will create a UK ISA allowing an additional £5,000 annual investment in UK equities tax-free.

This introduction will be on top of the existing ISA allowances, aiming to help ensure that British savers can benefit from the growth of UK businesses, in addition to supporting them with the capital to help them expand.

Changes to “full expensing”

Draft legislation will be published within weeks to extend full expensing to leased assets when affordable to do so, strengthening one of the most attractive capital allowance regimes of any major country.

Hunt recalls the Autumn Statement, in which he announced permanent full expensing (a £10bn tax cut for businesses) stating he is taking further steps to boost investment.

Growth up, taxes down

The internal forecaster, the Office for Budget Responsibility (OBR), stated inflation will go below the Bank of England target of 2% in a few months, nearly a year ahead of the previous OBR statement.

“That did not happen by accident,” says the Chancellor.

Hunt concluded the Budget, stating: "Growth up, jobs up, taxes down. I commend this statement to the House."

However, their opposition does not share the same positivity, with Keir Starmer stating he supports the fuel duty freeze but taxes remain at "a 70-year high" and British people are having to pay more for less.

To see everything that was covered in the budget, click here.