31/10/2024
From the Federation of Small Business-
Autumn Budget 2024:
Key points for small businesses
This week, the Chancellor delivered her Budget statement, which has a number of implications for small businesses. We’ve pulled together a run-down of the main
need-to-know measures which affect SMEs and what it could mean for you and
your business.
Employment Allowance
The Employment Allowance – which is a tax relief on employer National Insurance – will be more than doubled from £5,000 to £10,500 each and every year from April 2025. This will shield smaller employers from the effects of significant increases in employment costs (detailed below), and will, for example, mean a small firm can employ four people on National Living Wage without paying any employer National Insurance Contributions (NICs) at all. 865,000 small employers will not pay any employer NICs as their theoretical bill will come in at £10,500 or less.
The Employment Allowance was first established ten years ago, originally devised by FSB and adopted by Government to create a ‘work-based tax incentive’. Over the last two months FSB campaigned for a substantial increase in the Employment Allowance as our number one ask for the Budget. The 110% rise is a record increase in the Allowance and the Chancellor, Rachel Reeves, told the House of Commons that the decision was a direct result of FSB campaigning on behalf of its members.
It will shelter the smallest employers from the rise in NICs and provide an additional £5,500 to those businesses with more employees to help them with employment costs. For the first time since 2020, the Government has removed the employer NICs cap of £100,000 to access the Employment Allowance, which means employers of all sizes will now benefit from the £10,500 relief.
Employer National Insurance
The rate payable by employers beyond the Employment Allowance level will rise by 1.2 percentage points to 15% from April 2025. The rate effectively returns to the level of 2022, when it was 15.05%. At the same time, the employee threshold at which the employer National Insurance rate kicks in will be lowered to when an employee earns £5,000 rather than the current £9,100, adding to employment costs for many SMEs. These significant increases will add over £700 to the National Insurance costs of a full-time employee on the National Living Wage, and over £800 to the cost of an employee on an average salary (£29,800).
FSB has made very clear warnings to the Government in the run-up to the Budget that these rises, at the same time as increasing the National Living Wage, and with 28 planned employment law changes on the horizon, will be a struggle for many small and medium-sized employers. This will have an impact on jobs, pay, profit and prices. The threshold change is pernicious as it disproportionately affects those employers who take on lower-paid staff.
National Living Wage
The main adult rate of National Living Wage (NLW) will rise by 6.7% from April 2025, taking the hourly rate from £11.44 to £12.21. The hourly rate for 18-20 year olds will rise from £8.60 to £10.00.
In the context of the hike in employer NICs, and the upcoming employment law changes, many small firms will struggle outside of the protection afforded by the Employment Allowance.
Company Directors
Single directors of limited companies who don’t have any other employees will not benefit from the increase in the Employment Allowance. Therefore those paying themselves through payroll, above the new threshold of £5,000, will face a rise in their employer NICs. We did, however, prevent expected further tax moves on dividends.
Business Rates
The small business multiplier in England will be frozen once again for 2025/26 – cancelling the scheduled inflation-linked increase in rates. Much like with the Employment Allowance, this is a move to prioritise help for smaller firms across the economy, while the large firms’ multiplier rises. Small firms in retail, hospitality and leisure will have a further year of extra business rates relief in 2025/26, which is only for SMEs in those sectors in England.
However, this will begin to dial back at the lower discount of 40% relief rather than the current 75%, meaning businesses in these sectors will see their bills rise in April compared to 2023. This follows COVID years of 100% exemptions and was due over time to get closer to SME support in the rest of the economy. The Government will look at a longer-term structural discount for these sectors, as dramatic change every 12 months is not good to help plan your business.
(While these measures apply only to England, please see the note at the bottom of this email on consequential devolution payments for Scotland, Wales and Northern Ireland.)
Entrepreneurs’ Relief
Technically known as Business Asset Disposal Relief, this will be retained, discounting the Capital Gains Tax (CGT) payable on the proceeds of the sale of a business, up to the value of £1million. However, the rate of tax will still rise over time, from 10% to 14% in April 2025 and then 18% in April 2026.
FSB has campaigned hard to retain entrepreneurs’ relief, which was under significant threat with many commentators calling for it to be scrapped, which would have resulted in entrepreneurs paying the full rate of CGT. Although the rate will gradually rise, it is welcome that our campaigning has led to a discounted rate being kept, with a clear differential. This is really important for small business owners who have been planning to sell their businesses for their retirement in place of a pension.
Capital Gains Tax
The higher rate of Capital Gains Tax will rise from 20% to 24%. The lower rate will increase from 10% to 18%.
Corporation Tax
The Government confirmed that the Annual Investment Allowance will remain in place up to £1million, as will the Small Profits Rate for Corporation Tax. R&D tax reliefs will be maintained at their current levels. All of these were potentially at risk of being reduced.
Fuel Duty
Fuel duty remains frozen and a 5p cut in fuel duty on petrol and diesel, which had been due to end in April 2025, will now be kept for another year, saving the average driver around £60 next year. There will, however, be an increase in Vehicle Excise Duty for new petrol/diesel/hybrid cars.
Alcohol Duty
Tax on most alcoholic drinks will rise by the higher RPI-rate of inflation. However, alcohol duty on draught drinks is being cut by 1.7%.
Employer National Insurance
The rate payable by employers beyond the Employment Allowance level will rise by 1.2 percentage points to 15% from April 2025. The rate effectively returns to the level of 2022, when it was 15.05%. At the same time, the employee threshold at which the employer National Insurance rate kicks in will be lowered to when an employee earns £5,000 rather than the current £9,100, adding to employment costs for many SMEs. These significant increases will add over £700 to the National Insurance costs of a full-time employee on the National Living Wage, and over £800 to the cost of an employee on an average salary (£29,800).
FSB has made very clear warnings to the Government in the run-up to the Budget that these rises, at the same time as increasing the National Living Wage, and with 28 planned employment law changes on the horizon, will be a struggle for many small and medium-sized employers. This will have an impact on jobs, pay, profit and prices. The threshold change is pernicious as it disproportionately affects those employers who take on lower-paid staff.
National Living Wage
The main adult rate of National Living Wage (NLW) will rise by 6.7% from April 2025, taking the hourly rate from £11.44 to £12.21. The hourly rate for 18-20 year olds will rise from £8.60 to £10.00.
In the context of the hike in employer NICs, and the upcoming employment law changes, many small firms will struggle outside of the protection afforded by the Employment Allowance.
Infrastructure
The Chancellor promised “over £5billion of Government investment” in housebuilding, with a pledge to provide support to small housebuilders.
An extra £500m has been set aside to repair potholes in England next year. Meanwhile, a number of upgrades to rail infrastructure were announced.
All these announcements must be enacted and driven through alongside massive planning reform, to get building going and move the UK on from relatively weak growth prospects.
Inheritance Tax
From April 2026, Business Property Relief and Agricultural Relief will only apply to the first £1million of combined business and agricultural assets. While maintaining a core relief of up £1million is welcome, this does mean a number of businesses and farms worth more that will become liable for Inheritance Tax and some will need to be sold in order to afford it. Shares not listed on a recognised stock exchange will also have the rate of Business Property Relief reduced to 50%. From April 2027 unspent pension pots will be included in scope of Inheritance Tax.
Devolution Payments
Extra spending in England will lead to £3.4billion more for Scotland, £1.7billion more for Wales and £1.5billion more for Northern Ireland.
FSB’s teams in Scotland, Wales and Northern Ireland will be talking to Governments there about how best this can be spent to support small businesses.
