UK Autumn Budget - October 2024

Corporate Tax Roadmap and Employer National Insurance Contributions

Partner and Co-Head of Global Tax Ben Jones said: “The commitment to a Corporate Tax Roadmap should provide much needed stability, but Employer NIC rise delivers a mixed message. Low corporation taxes but high employer costs favours investment, holding and other passive activities over trading and operational activities with more significant employee requirements – is this really what the Government wants or what is best for the UK economy?”

Employee Incentives

Partner and Head of Employee Incentives Danny Blum said: "Companies which operate employee share incentive plans will not welcome the increase to Capital Gains Tax (CGT) or Employers’ National Insurance and adjustments to related thresholds. They should consider or re-consider the use of Government sponsored tax-advantaged share plans as a way of incentivising and retaining employees as well as benefiting from the valuable tax/NICs savings they offer."

“The modest increase to the CGT and the gap between CGT and income tax – when combined with the increase to employers' NICs – mean that rewarding employees using share incentive arrangements remains a valuable and very attractive way to incentivise employees and creates alignment with shareholders and the leadership of a Company. It will be interesting to see the outcome of the commitment to not impose stamp taxes on share transactions in PISCES and we can but hope that any review of employee benefit trusts, a vital component of many employee incentive arrangements, does not result in unexpected consequences for employers - our experience with Disguised Remuneration in 2010 would suggest that this cannot be assumed.”

Capital Gains Tax

Partner Colin Askew said: "The much anticipated increases to the rates of CGT take effect for disposal on or after today, with “anti-forestalling rules” being introduced. The increased CGT rates (now 24% for higher rate taxpayers) not only apply to disposals taking place on or after today but also to certain disposals pursuant to contracts entered into before today but not yet completed. The very wide drafting of the anti-forestalling rules appears to put the burden onto the taxpayer to demonstrate that any unconditional contracts not completed before today were not entered into for the purpose of obtaining a tax advantage (i.e. to take advantage of the general rule that the time of disposal of an asset under a contract is, for CGT purposes, the time at which the contract is unconditional). Taxpayers would be advised to keep contemporaneous records of their commercial motivations for entering into the contract at the time they did."

Energy Profits Levy and Carbon Border Adjustment Mechanism

Partner Helen Mackey said: “The Government has confirmed today that it will introduce a carbon border adjustment mechanism (CBAM) from 1 January 2027. This will impose a carbon price on emissions intensive industrial goods imported into the UK. It will originally target the aluminium, cement, fertiliser, hydrogen and iron and steel sectors, although this will be kept under review. There is broad support for a UK CBAM from a policy perspective, but compliance will be burdensome for affected businesses.”

Carried Interest

Partners Richard Surtees and Colin Askew and Principal Associate Benjamin Shem-Tov commented: “After weeks of speculation, the Chancellor has announced an increase in the special carried interest CGT rate from 28% to 32%. This increase will be effective in respect of carried interest arising on or after 6 April 2025. This may be seen as a compromise, however major change is on its way in April 2026 with some rather fundamental reforms on the agenda that were released shortly after the Chancellor’s Budget statement. We are delving into the detail of HMT’s Summary of Responses and Next Steps to the recent Call for Evidence on the tax treatment of carried interest, but it is already clear that from April 2026 ‘carry’ will be taxed under the Income Tax regime as trading profits.

“Moreover, there will be no concessions given for existing funds/structures (no exclusions/grandfathering and no transitional provisions). We expect that naturally, many within the investment management industry will be disappointed with the future landscape of the carried interest regime, and may wish to explore all alternative incentive structures, but it will be a while before the full extent of the changes and their practical impact will be known and felt. Watch this space!”

Cross-Border Arrangements

Partner Deepesh Upadhyay said: “The government has announced it will publish a further consultation on reforming the UK’s rules on transfer pricing, permanent establishments and diverted profits tax in spring 2025. The government’s Corporate Tax Roadmap, published today, confirms that it will introduce changes which will benefit taxpayers by providing improved certainty and better alignment with tax treaties, while protecting the UK tax base. This will helpfully include the potential removal of UK-to-UK transfer pricing. These developments offer UK corporates engaged in cross-border matters the hope of certainty and simplification of otherwise complex double tax treaty and domestic tax issues in relation to their cross-border arrangements.

“On the other hand, the same Corporate Tax Roadmap suggests the government will consult on additional obligations for multinationals within the scope of transfer pricing rules to report information to HMRC regarding cross-border related party transactions. Although the government has stated that any additional compliance burden will be proportionate and not beyond that imposed by other jurisdictions, this may be disheartening to affected taxpayers.

“UK corporates should carefully monitor the proposals in these consultations and consider the impact the changes may have on their existing cross-border arrangements.”