Today’s Budget by Chancellor Rachel Reeves (pictured) adds complexity to the tax system and increases the workload for both HMRC and taxpayers, says the Chartered Institute of Taxation (CIOT).
CIOT President Nichola Ross Martin said: “Rachel Reeves’ smorgasbord of tax changes could give HMRC indigestion. It will mean more taxpayers, more tax returns and more work for tax collectors, as well as taxpayers and their advisers. According to the OBR the extension of the freezing of income tax thresholds for another three years announced today will mean 780,000 more people being brought into paying income tax and 920,000 more paying the higher rate. Freezing of other allowances and thresholds will also mean those taxes affect more taxpayers.”
The Association of Taxation Technicians agreed that the Budget adds further complexity to an already stretched tax system. The big news stories for ATT was the creation of new rates of income tax for income from property, savings and dividends, and the introduction of pay per mile pricing for electric cars. It explained that with these there were over 60 other changes to existing tax regimes.
MAIN HEADLINES
- The tax-free personal allowance has been frozen at £12,570 since April 2021 and will now be extended to April 2031 In England, Wales and Northern Ireland, three years longer than planned. Other income tax thresholds were also frozen.
- Thresholds for NI paid by employers also frozen until 2031, increasing costs as wages rise.
- The basic and higher rates of tax on property, savings, and dividends income to increase by 2%.
- To address child poverty the 2-child benefit cap will be abolished from April.
- Training for under-25 apprenticeships completely free for small and medium enterprises.
- The minimum wage for over-21s will increase by 50p per hour from April 2026. That is a rise of 4.1% to £12.71. Those aged 18 to 10 will get a bigger increase of 8.5% to £10.85 an hour. For 16 and 17-year-olds the hourly rate goes up to £8, a 6% uplift.
- New mileage tax on electric vehicles from April 2028. It will be 3p per mile for EVs and 1.5p for plug-in hybrids.
- The 5p temporary cut in fuel duty on petrol and diesel extended until September 2026, when it will rise again over a six month period.
- Salary-sacrificed pension contributions above an annual £2,000 threshold no longer exempt national insurance – comes into force in April 2029.
- Cash IAS allowance reduced to £12,000 for under 65’s from April 2027. The rest of the £20,000 annual allowance is reserved for investments.
- In England property worth more than £2m will face a £2,500 annual charge, rising to £7,500 for property worth more than £5m.
- Tax charged on rental income increased by 2% from April 2027.
- The £1m allowance for 100% Business Relief (or Agricultural Property Relief) can now be passed to a surviving spouse or civil partner – even if the first death happened before the rule change.
- Tax on English universities’ tuition income from overseas students will be charged at £925 per student per year, from August 2028.
ALSO IN THE BUDGET
- Taxpayers who are required to take part in Making Tax Digital for Income Tax from next April will not be charged penalty points if they fail to submit any of their compulsory quarterly updates of income and expense late during the first 12 months. The penalty regime introduced alongside MTD will be extended to self assessment taxpayers from April 2027.
- E-invoicing will be mandatory for VAT regsitered businesses selling to Uk business customers from April 2029. Another big step in the digitalisation of the tax system, and according to the CIOT, comparable to the introduction of Making Tax Digital.
- A new relief removes the VAT cost entirely from goods donated to organisations that are HMRC-registered charities. The new relief due to take effect from 1 April 2026, is designed to stop unsaleable products being sent to landfill because businesses are required to account for VAT when gifting goods.
- All payments from the Infected Blood Scheme will be exempt from Inheritance Tax.
- Remote gaming duty be increase from 21% to 40% and online duty on online betting will increase from 15% to 25%.
- Milk drinks to be included in the Sugar Tax from 2028. There are currently two rates: 19.4p per litre on drinks with sugar content between 5g and 8g. And, 25.9p per litre on drinks with sugar content equal to or greater than 8g per 100 litres. Threshold reduced to 4.5g sugar per 100ml, with packaged milk-based drinks (milkshakes and lattes) with added sugar included. Plain milk and ‘open-cup’ drinks remain outside the scope.
- Tax on tobacco of 2% above the higher RPI rate of inflation.
- Tax on alcohol (includes draught beer) will increase by the higher RPI measure in February.
