On 30th October 2024, Rachel Reeves made history as the first female Chancellor of the Exchequer to deliver the UK Budget. After 14 years under Conservative leadership, the Labour government has presented a Budget aimed at addressing a £40 billion spending gap while honouring pre-election promises not to raise the main rates of income tax, VAT, or employee National Insurance contributions.
While the Budget focuses on investment and growth, it introduces several significant changes that will impact small businesses. In this article, we'll break down the key points and provide actionable steps to help you navigate the new landscape.
From April 2025, employer National Insurance contributions (NICs) will increase from 13.8% to 15%. Additionally, the Secondary Threshold—the point at which employers start paying NICs for each employee—will decrease from £9,100 to £5,000. This means employers will pay NICs at a higher rate and start paying them sooner, increasing overall employment costs.
This change is expected to raise £25 billion annually for the government but will significantly impact businesses facing higher wage bills. Sectors with high labour demands, such as hospitality and care, may feel the strain more acutely.
Review your payroll expenses to understand how this increase will affect your staffing costs. Consider conducting a financial analysis or consulting with a financial adviser to explore strategies for managing these additional expenses without compromising your workforce.
To help mitigate the impact of increased NICs on smaller employers, the Employment Allowance will rise from £5,000 to £10,500. This allowance reduces your employer NICs bill. With the increased threshold, many small businesses will be exempt from paying employer NICs altogether.
This uplift in the Employment Allowance is a pro-jobs measure designed to shield the smallest employers from the increased jobs tax. Over one million employers are expected to benefit from this change.
Verify your eligibility for the Employment Allowance to ensure you're maximising this benefit. This could significantly reduce your employer NICs liability, easing the financial burden on your business.
What's changing?
From April 2025, the National Living Wage for employees aged 21 and over will increase by 6.7%, reaching £12.21 per hour. Meanwhile, the National Minimum Wage for 18 to 20-year-olds will see a significant rise of 16.3%, bringing it to £10.00 per hour.
While this is positive news for employees, it means higher wage bills for employers. Business associations have expressed concerns that this could cause job losses, particularly in sectors like hospitality and care. However, research suggests that moderate increases in minimum wage levels do not necessarily lead to reduced employment.
Incorporate these wage increases into your budgeting and financial planning. Evaluate your pricing structures and operational costs to determine if adjustments are necessary to maintain profitability.
Businesses in the retail, hospitality, and leisure sectors will receive a 40% relief on business rates in 2025–26, capped at £110,000 per business. Additionally, the small business multiplier will be frozen, preventing an inflationary increase in business rates.
This relief is intended to support small businesses that have been hit hard by economic challenges and consumer spending pressures. It aims to level the playing field against larger competitors and online giants.
If your business is eligible, calculate the anticipated savings from this relief. Factor these savings into your financial plans and consider reinvesting them to strengthen your business.
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs' Relief, enables business owners to pay a reduced rate of Capital Gains Tax (CGT) when selling all or part of their business. However, changes introduced in the Budget will gradually reduce the level of relief. The relief rate will remain at 10% for this year, increase to 14% from 6th April 2025, and rise further to 18% from 6th April 2026. Additionally, gains exceeding the £1 million threshold will be taxed at higher rates, and the lifetime limit for this relief will be reduced.
These changes mean that more tax will be paid on business sales in the future, potentially affecting your retirement plans or business exit strategy. It's important to factor in these changes when planning for the long term.
If you're considering selling your business or any part of it, consult with a tax professional to understand how these changes may affect your proceeds. Early planning can help you optimise your tax position.
From now on, Capital Gains Tax (CGT) rates on financial assets will rise, with the lower rate increasing from 10% to 18% and the higher rate climbing from 20% to 24%. These changes bring CGT rates on financial assets in line with those on residential property, which remain at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers.
If you plan to sell business assets or shares, you'll face higher tax rates on any gains, which could affect your net returns.
If you're considering disposing of assets, factor in these increased tax rates. Seek advice from a financial adviser or accountant to explore tax-efficient strategies.
What's changing?
The government plans to boost public investment by over £100 billion in the next five years, focusing on infrastructure projects, public services, and supporting emerging industries like clean energy and technology.
This investment could open doors for contracts and opportunities across various sectors. Businesses involved in construction, technology, or services supporting these initiatives may find new avenues for growth.
Stay informed about government-funded projects relevant to your industry. Engage with local business networks and industry associations to identify potential opportunities for your business.
While the Budget introduces measures that will increase operational costs—such as higher NICs and wage increases—it also provides reliefs and demonstrates a commitment to supporting smaller businesses through increased allowances and public investment. It's important to balance these challenges with potential opportunities for growth and to plan accordingly.
Navigating these changes can be challenging, but proactive planning can help mitigate potential negative impacts. Here are some steps to consider: