2024 Autumn Budget Report for SMEs

Rachel Reeves, Chancellor of the Exchequer, delivered the greatly anticipated 2024 Autumn Budget on 30 October. Her speech outlined the economy’s health and the Labour government’s plans to reset the trajectory of public spending and taxation during their time in parliament. 

Commenting on the inheritance of a “£22 billion black hole” in missing funding from the previous government, Ms Reeves highlighted the need to “invest, invest, invest” to drive economic growth in the UK. 

This budget is set to raise taxes by £40 billion, making it the biggest tax-raising budget in history.

Below, we outline the key changes that will impact UK business owners.

What hasn’t changed?

As expected, employees’ Income Tax, National Insurance contributions (NIC), and VAT will not increase for the time being. However, from 2028/29, personal tax thresholds will be uprated in line with inflation. 

Businesses will also not have to worry about any increases to Corporation Tax (CT). For the duration of Labour’s time in parliament, the government has committed to capping the rate of CT at 25%, maintaining the Small Profits Rate and Marginal Relief at current rates and thresholds, and maintaining Full Expensing, the Annual Investment Allowance, R&D relief rates, and the Patent Box.

Employers’ National Insurance to rise to 15%

Employers currently pay National Insurance of 13.8% on a worker’s earnings above £175 a week. 

The Chancellor announced that this will increase by 1.2 percentage points to 15% from April 2025. Also, the threshold at which employers start paying National Insurance on each employee’s salary will reduce from £9,100 a year to £5,000.

This change will not immediately impact employees, and they will see no difference in their take-home pay, but it will leave businesses with higher costs. This could result in companies limiting pay raises or reducing the pension contributions they make for new staff. 

This will also make the salary sacrifice system more attractive for employers. Salary sacrifice is an agreement where an employee’s salary in reduced in exchange for increased pension contributions or other benefits. By using this system, employers can effectively reduce the amount of National Insurance they must pay on an employee’s salary. 

Another potential side effect of higher employer NICs is that it may incentivise businesses to hire people as contractors rather than employees, and more people may become self-employed.

Employment Allowance more than doubling

Employment Allowance, the government programme that helps smaller businesses reduce their employer’s National Insurance costs, will more than double from 6 April 2025.

Eligible employers will be able to reduce their National Insurance contributions by £10,500, compared to the current amount of £5,000. Additionally, the £100,000 threshold will be removed so more businesses with employer National Insurance bills can benefit.

This change is intended to help small businesses offset the effects of the Employers’ National Insurance rise.

The Treasury measures that, with these changes taken together, 865,000 employers won’t pay any National Insurance, and over 1 million will pay the same as or less than they did previously. 

This is a cost-saving for a small business of the equivalent of 4 full-time workers on the National Living Wage.

National Living Wage and National Minimum Wage increase

The National Living Wage (NLW), the minimum wage employers must legally pay staff over 21, will rise by 6.7% in April 2025. This will increase the hourly rate from £11.44 to £12.21, more than three times the rate of inflation.

The National Minimum Wage (NMW) for employees between 18 and 20 will also rise by 16% from April 2025, from £8.60 to £10 per hour. For 16 and 17-year-olds, the NMW will remain at £6.40 an hour. 

Apprentices will see the most significant pay bump, from £6.40 to £7.55 an hour, an 18% increase. Before this year, the apprentice wage was only £5.28.

These raises align with the Labour government’s commitment to providing a “genuine living wage for working people.” However, industry groups have expressed concern over the financial burden on businesses, especially alongside the increase in the National Insurance contributions they must pay on wages.

John Foster, chief policy and campaigns officer at the Confederation of British Industry (CBI), said that although the National Living Wage protects the incomes of the poorest in society, “with productivity stagnant, businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line.”

As a result, business owners may have to raise their prices or cut operational inefficiencies to afford these increased staff costs. This could include outsourcing central functions, switching in-store premises to online sales, or reducing staff hours.

Remember, it is a criminal offence not to pay workers at least the National Living Wage or Minimum Wage for their age. Any employer found underpaying their staff can be fined by HMRC and told to reimburse workers, as we’ve recently seen happen to WHSmith, Marks and Spencer, Argos and Lloyds Pharmacy. 

Capital Gains Tax to rise by up to 8 percentage points

As was widely anticipated, the government has announced that it will increase the rates of Capital Gains Tax (CGT), with the aim being to “drive growth, promote entrepreneurship, and [support] wealth creation while raising the revenue required to fund our public services.”

This measure introduces the following changes to disposals made on or after 30 October 2024:

• The lower main rate of CGT increases from 10% to 18%. This will apply to the disposal of chargeable assets other than residential property and carried interest.
• The higher main rate of CGT increases from 20% to 24%. This will apply to the disposal of chargeable assets other than residential property and carried interest.
• The main rate of CGT that applies to trustees and personal representatives increases from 20% to 24%.

The rate of CGT that applies to Business Asset Disposal Relief and Investors’ Relief will also increase. We discuss this in more detail later in this article.

CGT rates on residential property will remain at 18% (basic-rate taxpayers) and 24% (higher-rate taxpayers). For those managing investment funds, the rate on gains from ‘carried interest’ remains at 28%.

Despite these increases, the UK maintains the lowest CGT rates of any European G7 member. Furthermore, the new rates remain lower than the corresponding Income Tax rates payable by individuals on earnings from other sources. 

CGT is charged on profits made from the sale of an asset that has increased in value, including personal possessions, second properties, company shares that aren’t held in an ISA or Personal Equity Plan, and certain business assets.

This tax is payable by individuals, sole traders, partners in business partnerships, and company shareholders. Limited companies do not pay CGT on profits made from the disposal of business assets. Instead, they pay Corporation Tax (CT).

Fuel Duty frozen for another year

The government has announced that Fuel Duty will be frozen for another year, meaning “no higher taxes at the petrol pump” until at least March 2026. The ‘temporary’ 5p cut introduced in March 2022 by the previous government has also been extended for another year. 

This will be welcome news for all drivers, particularly business owners using vehicles for work or providing fuel expenses to their employees.

The current rate of Fuel Duty for petrol and diesel, which includes the 5p cut, is 52.95 pence per litre. Prior to this, the rate remained unchanged at 57.95 pence per litre between 2011 and 2022. 

The Chancellor said: ”I have concluded that in these difficult circumstances, while the cost of living remains high and with the backdrop of global uncertainty, increasing Fuel Duty next year would be the wrong choice for working people.”

Following this announcement, RAC’s head of policy, Simon Williams, commented: 

“Drivers will breathe an enormous sigh of relief after all the speculation that the 5p cut would be scrapped at the same time as pushing duty up beyond the long-term rate of 57.95p.

“It’s also worth remembering that even as of today, 56% of the total price of a litre of petrol is already taxed in the form of fuel duty, and the VAT that is charged on top.”

Business Asset Disposal Relief and Investors’ Relief to increase

Investors’ Relief (IR) and Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, will gradually increase over the next three years. These reliefs let entrepreneurs reduce the Capital Gains they pay when they sell (or ‘dispose of’) all or part of their business.

The rates will remain at 10% this year, before rising to 14% in April 2025, and then 18% from April 2026. 

The lifetime limit for BADR is £1 million, meaning a reduced rate of Capital Gains Tax is charged on the first £1 million of qualifying gains over your lifetime. The lifetime limit for IR will be reduced and brought in line with the lifetime limit for BADR, at £1 million for all qualifying disposals made on or after today.

Changes to alcohol duty

The alcohol duty rates on non-draught products will increase in line with the Retail Price Index (RPI) from February 2025. 

However, considering that nearly two-thirds of alcoholic drinks sold in pubs are served on draught, the Chancellor also announced that she will cut draught duty by 1.7% in February 2025. That’s an average saving of 1p per pint. 

Workers to receive greater protections

The Budget included the government’s intention to protect working people from unfair dismissal. This isn’t brand new information as such, as the government had introduced the Employment Rights Bill on 10 October 2024. 

However, Reeves solidified the government’s long-term commitment to making flexible working the default, strengthening bereavement leave rights, and issuing paternal leave to employees from day one of starting a new job.

Inheritance Tax threshold frozen until 2030

The previous government froze the £325,000 threshold on Inheritance Tax (IHT) until 2028, and the Budget announced this government will extend that freeze until April 2030. This means the first £325,000 of any estate can be inherited tax-free until April 2030.

This freeze will help make succession planning easier, so business owners thinking of passing down their companies to descendants or considering gifting company shares don’t have to worry about changing their current plans—at least not for another few years. 

Agricultural Property Relief and Business Property Relief

The government will reform Agricultural Property Relief and Business Property Relief. From April 2026, the first £1 million of combined business and agricultural assets will be Inheritance Tax-free, but owners must pay 50% on any additional amount. 

Tax rates for retail, hospitality and leisure properties reduced

Two permanently lower tax rates for retail, hospitality, and leisure properties will be introduced from the 2025/26 tax year.

These industries will receive a 40% relief on business rates up to a cap of £110,000. Alongside this, the small business tax multiplier will be frozen at 49.9p for the next tax year (2025/26).

Stamp Duty Land Tax will increase to 5%

In England and Northern Ireland, the Stamp Duty Land Tax charge for second homes (known as the higher rates for additional dwellings) will increase by 2 percentage points to 5% from tomorrow, 31 October 2024. This will make purchasing a residential property outside of your primary domicile more expensive. 

The Treasury has expressed that this change is intended to give those looking to move home or purchase their first property an advantage over second-home buyers, landlords, and businesses purchasing residential property.

Clamp down on shoplifting on high streets

Reeves acknowledged the state of the UK’s high streets and that they need support to tackle the sharp rise in shoplifting in recent years. 

Starting in Greater Manchester and the West Midlands, the Chancellor confirmed that local governments will receive new funding in 2025 in a bid to crack down on the organised gangs which target retailers. Additionally, both retailers and police officers will receive additional training to help reduce shoplifting.

Plastic packaging tax rates increased

Currently, businesses need to register for Plastic Packaging Tax (PPT) if they:

• Have manufactured or imported more than 10 tonnes of plastic packaging into the UK in the last 12 months, or
• Expect to manufacture or import more than 10 tonnes of plastic packaging into the UK in the next 30 days.

PPT is payable on packaging components that contain less than 30% recycled plastic. To encourage businesses to use more recycled materials, the government will increase the PPT rate in line with inflation for the 2025/26 tax year. 

Relevant business owners should ensure they keep up to date with the rate of inflation and check which packaging is subject to PPT. Where feasible, it’s also advised to update supplier relations and switch to more sustainable forms of packaging. 

Conclusion 

As predicted, the Autumn Budget has indeed introduced several tax rises that will affect UK businesses. Capital Gains Tax, Employers’ National Insurance, and Inheritance Tax are among the main changes that will impact SMEs from as early as today, 30 October.

Other important announcements include the rise in National Living and Minimum Wage rates, which will affect employers’ cash flow and recruitment plans. 

But there is some good news, with several reliefs increasing and tax thresholds being frozen for the foreseeable future. 

This blog was originally published on 1st Formations.