What does the Autumn Budget mean for the insolvency sector

The Autumn Budget was Labour’s first in 14 years, delivered by the UK’s first female Chancellor of the Exchequer, Rachel Reeves. The Chancellor set out to raise a record £40 billion for the Treasury to fix broken public finances and restore economic stability.

To wipe away legacy debt and stabilise public finances, a range of business taxes were increased to drive money for the Treasury. This directly impacts the financial health of UK businesses and their insolvency risk.

Chris Bristow, a corporate insolvency and restructuring specialist at Real Business Rescue explains what the Autumn Budget means for the insolvency market.

Members’ Voluntary Liquidations

The Chancellor announced key changes to Capital Gains Tax and Business Asset Disposal Relief, both of which contribute to the tax treatment of a Members’ Voluntary Liquidation.

The lower rate of Capital Gains Tax increased from 10% to 18% and the higher rate from 20% to 24%. Following the increase, the UK continues to have the lowest Capital Gains Tax rates in any G7 country.

Business Asset Disposal Relief (BADR) will remain at 10% for this financial year, then rise to 14% in 2024 and to 18% in 2026. The lifetime limit of £1 million has not been changed.

What does this mean for solvent liquidations?

While these changes reduce the tax efficiency of a Members’ Voluntary Liquidation, an MVL continues to offer a highly tax-efficient exit route to company directors.

It is worth noting that the increase to Business Asset Disposal Relief is due to come into force in April 2025, which provides a window of opportunity for company directors to take advantage of BADR at 10% before it increases.

The insolvency market expects to see a rise in MVLs in the run-up to the 2025/26 financial year, while many pursued the MVL path ahead of the Autumn Budget in anticipation of major tax changes.

National Living Wage and Employers’ National Insurance Contributions

While the Labour Party ruled out any increases to Corporation Tax, Employers’ National Insurance Contributions will increase by 1.2 percentage points, from 13.8% up to 15% in April 2025. This is anticipated to raise £25 billion.

To help businesses absorb the NIC increase, the earnings threshold when businesses start to pay employers NICs will be reduced from £10,500 to £5,000 per year.

While this softens the blow for businesses, those unable to afford operational costs may consider voluntary company liquidation to protect creditor and shareholder interests. Following the Autumn Budget, an influx of businesses yet to recover from the pandemic or cost of living crisis may require urgent insolvency support to protect their financial position.

HMRC interest rate for late payments

The late payment interest rate for unpaid tax liabilities to HMRC will increase by 1.5 percentage points from 6 April 2025 to align with the Bank of England base rate, plus 4 percentage points. This measure aims to increase tax compliance and encourage faster payments.

Businesses unable to cover their tax liabilities including mounting interest may develop a greater need for professional guidance from a licensed insolvency practitioner to manage outgoings better and avoid insolvency.

Covid Corruption Commissioner

The Chancellor appointed Tom Hayhoe, a former Conservative cabinet adviser and a regulatory healthcare veteran to the role of Covid Corruption Commissioner.

As announced in the Autumn Budget, the new role involves to scrutinising public sector contracts and Covid-19 loan misuse and fraud. It is hoped that the Covid Commissioner will recoup £2.6 billion lost to Covid fraud and flawed contracts.  

The Covid Corruption Officer will work with other government agencies, including HMRC, the Serious Fraud Office and the National Crime Agency to examine £7.6 billion worth of Covid-19-related fraud.

The range of government grants and loans available during the coronavirus pandemic, including furlough and the Eat Out to Help Out scheme will be under the spotlight.

Public contracts awarded during the pandemic, such as for PPE (personal protective equipment), will also be examined after preferential treatment came to light, along with revelations that billions of pounds were spent on unfit PPE.

What are the repercussions of Covid-19 misuse or fraud?

If company directors are found guilty of Bounce Back Loan misuse or fraud, they can be held personally liable for the debt. Further repercussions may include a fine or even director disqualification which bans the individual from acting as a company director.  This could result in the demise of companies involved in Covid-19 loan misuse or fraud.

The government also previously introduced powers to retrospectively reprimand company directors under the Rating (Coronavirus) and Director Disqualification (Dissolved Companies) Act. This was swiftly introduced to claw back taxpayer money from the hands of fraudsters.

If a company director suspects that they misused a Bounce Back Loan or submitted a fraudulent application, they must seek clarity from a licensed insolvency practitioner.

What the Autumn Budget means for the UK insolvency market

The most significant measure announced in the Autumn Budget likely to influence activity across the insolvency sector includes changes to Capital Gains Tax and Business Asset Disposal Relief. These changes will determine the timing of Members’ Voluntary Liquidations for company directors.

While the Chancellor reassured that no spending cuts would be imposed, businesses did not come out unscathed. Only time will tell how the Autumn Budget will shape the financial health of businesses as impending measures come into force and businesses prepare for the Golden Quarter.

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