The Comprehensive Guide To The Autumn 2024 Budget For Small Businesses
The Autumn 2024 Budget has introduced a series of sweeping changes that will impact small businesses in the UK.
From tax hikes and compliance measures to wage increases and sector-specific reliefs, the changes are extensive! This guide covers everything you need to know to plan effectively and prepare for what’s ahead.
1. National Insurance Contributions (NICs)
Get ready for higher payroll costs. From April 6, 2025, the employer NIC rate will increase from 13.8% to 15%, while the threshold for paying employer NICs will drop from £9,100 to £5,000. This means businesses will start paying NICs much earlier and at a higher rate.
For the self-employed, Class 2 NICs remain at £3.45 per week for those earning under £6,725. However, Class 4 NICs on profits between £12,570 and £50,270 will also continue to impact self-employed cash flow, making it critical to budget for these additional outgoings.
“The word contributions makes it sound voluntary, It’s not; it’s a tax!” - Chris Irving
Businesses should take the time to reassess their budgets, especially for payroll expenses. Strategies to minimise the impact could include looking towards AI tools to improve operational efficiencies
2. Employment Allowance
In response to rising NIC costs, the Employment Allowance will double from £5,000 to £10,500 starting April 2025. This change could help over one million small businesses across the UK.
Who Wins and Who Loses?
Previously, companies with an annual NIC liability exceeding £100,000 were excluded. This cap is now lifted, allowing larger businesses to benefit. However, sole directors of limited companies without additional employees are still ineligible.
“It’s like being invited to a party but being asked to watch from outside,” Chris jokes, underlining the frustration of this exclusion.
Make sure to consult with your accountant to determine how best to use this allowance. Restructuring your payroll to maximise relief could make a significant financial difference.
3. Capital Gains Tax (CGT)
The budget has raised CGT rates effective immediately from October 30, 2024:
- Basic Rate: Increased from 10% to 18%.
- Higher Rate: Jumped from 20% to 24%.
This rate hike could severely impact business owners and investors planning to sell assets. The sudden implementation leaves no time at all for strategic planning.
4. Inheritance Tax Changes
Starting in April 2027, inherited pensions will be brought within the scope of inheritance tax.
For small business owners looking to pass wealth onto their families, this change could be a game-changer. It’s crucial to revisit your succession plans and speak to an estate planning specialist.
If inheritance is important to you, you’ll need to consider alternative ways to shield your assets from tax.
5. Frozen Income Tax Allowances
The personal allowance, basic rate, and higher-rate income tax thresholds will stay frozen until April 2028. This freeze may sound benign, but as inflation rises, it pushes more people into higher tax brackets.
Additionally, the dividend allowance will be slashed to £500 from April 2024. This means that if you’re a business owner who pays yourself through dividends, brace yourself for higher taxes.
“Call it what you like; it’s a tax increase dressed up in a nice outfit,” Chris observes with a chuckle, pointing out that the freeze effectively increases tax burdens over time.
Make plans to review your compensation strategy before April 2024. Balancing salary and dividends smartly can mitigate some of the coming impact, but it’s going to be a game of constant adjustment.
6. Corporation Tax
While the budget didn’t introduce new corporation tax rates, the structure remains complex:
- 19% Tax Rate: Applies to profits up to £50,000.
- Tapered Rate: Businesses with profits between £50,000 and £250,000 face a gradual increase, with an effective tax rate of 26.5%.
- 25% Tax Rate: Kicks in for profits over £250,000.
Chris humorously describes this complexity: “They took something simple and made it a Rubik’s Cube. Thanks for that.”
If your business operates close to these profit thresholds, consider proactive tax planning. Contributions to pensions or reinvestments can help manage taxable income.
7. Business Asset Disposal Relief (BADR) Adjustments
Formerly known as Entrepreneurs’ Relief, BADR will see its tax rate rise from 10% to 14% in April 2025 and then to 18% in April 2026. The £1 million lifetime limit remains, but these changes make asset sales far less attractive.
For business owners eyeing a sale, timing is crucial. Selling before April 2025 could save substantial tax.
If you’re thinking about selling your business or major assets, consulting with an advisor could be more valuable than ever…
8. National Living Wage
From April 2025, the National Living Wage will increase from £11.44 to £12.21 per hour for workers aged 21 and over. The National Minimum Wage for 18 to 20-year-olds will also jump from £8.60 to £10 per hour.
“For some businesses, this isn’t a pay rise; it’s a knockout punch.”
For industries like hospitality that rely on minimum wage workers, this could force a complete rethinking of your business models.
Assess whether price adjustments, automation, or operational efficiencies can absorb these costs without sacrificing your business’s viability.
9. Stamp Duty Land Tax (SDLT) Hikes
The SDLT surcharge for second properties has increased from 3% to 5%, effective October 31, 2024. This will directly impact property investors and landlords.
“Imagine buying a second property and being hit with an unexpected tax bill overnight,” Chris notes. The sudden hike could lead to aborted property deals or reduced investment appetite.
10. Electric Vehicles (EVs) and Fuel Duty
The benefit-in-kind rate for electric company cars will increase, reaching 9% by 2030. While EVs remain a tax-efficient option compared to diesel, the gap is narrowing.
On the brighter side, fuel duty has been frozen yet again. Chris jokes, “Frozen like that soup in the back of your freezer,” but even small wins matter in today’s economic climate.
If you’re considering fleet upgrades, EVs are still a good choice, but make sure to factor in the gradual tax increase.
11. High Income Child Benefit Charge
The High Income Child Benefit Charge now starts at £60,000 and extends to £80,000.
The government chose not to reform this charge to a household-based assessment, despite its well-documented unfairness. If you earn between these figures, expect to lose a portion or all of your child benefit.
When it comes to Child Benefit it’s important to be aware of where you stand. This charge can result in unexpected tax bills, especially if household income structures change during the year.
12. Making Tax Digital (MTD) for Income Tax
MTD will roll out to sole traders and landlords with income over £20,000 by the end of this Parliament:
- April 2026: Applies to those earning over £50,000.
- April 2027: Extends to those earning over £30,000.
This means more businesses will need to adopt digital record-keeping and reporting systems. The administrative burden may be significant, so prepare early.
Review your accounting software and processes now. The transition to digital could increase costs and require staff training. We always recommend either Xero or Quickbooks for your accounting & bookkeeping needs.
13. Sector-Specific Reliefs and Additional Taxes
- Business Rates Relief: Retail, hospitality, and leisure sectors will receive a 40% relief on business rates, capped at £110,000 per business. This is a crucial reprieve for sectors hit hard during the pandemic.
- HMRC Compliance and Interest on Late Payments: HMRC will recruit 5,000 more staff to combat tax fraud and improve debt collection. Additionally, interest on late tax payments will rise by 1.5 percentage points to the Bank Base Rate plus 4%.
Chris has a warning: “Now is not the time to play hide and seek with HMRC.”
Ensure your tax affairs are in order. Late payments or errors are becoming increasingly costly.
Final Thoughts
The Autumn 2024 Budget is a wake-up call for small business owners to tighten their strategies and engage in proactive financial planning.
From rising NICs and capital gains tax to increased scrutiny from HMRC, the need for good practices and well thought out planning has never been greater.
Chris’s final bit of wisdom: “Tax planning isn’t just about saving money; it’s about sleeping better at night.” Consulting with your accountant or financial advisor regularly is not just a good idea—it’s essential.
Remember, while the budget may seem full of challenges, there are always opportunities for those who are well-prepared and willing to adapt.
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