{"id":12942,"date":"2024-10-30T12:28:49","date_gmt":"2024-10-30T12:28:49","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=12942"},"modified":"2024-11-08T13:50:57","modified_gmt":"2024-11-08T13:50:57","slug":"2024-autumn-budget-report-for-smes","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/2024-autumn-budget-report-for-smes\/","title":{"rendered":"2024 Autumn Budget Report for SMEs"},"content":{"rendered":"

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\u2019s plans to reset the trajectory of public spending and taxation during their time in parliament.\u00a0<\/span><\/p>\n

Commenting on the inheritance of a \u201c\u00a322 billion black hole\u201d in missing funding from the previous government, Ms Reeves highlighted the need to \u201cinvest, invest, invest\u201d to drive economic growth in the UK.\u00a0<\/span><\/p>\n

This budget is set to raise taxes by \u00a340 billion, making it the biggest tax-raising budget in history.<\/span><\/p>\n

Below, we outline the key changes that will impact UK business owners.<\/span><\/p>\n

What hasn’t changed?<\/h3>\n

As expected, <\/span>employees\u2019 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.\u00a0<\/span><\/p>\n

Businesses will also not have to worry about any increases to Corporation Tax (CT). For the duration of Labour\u2019s 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.<\/span><\/p>\n

Employers’ National Insurance to rise to 15%<\/h3>\n

Employers currently pay National Insurance of 13.8% on a worker’s earnings above \u00a3175 a week.\u00a0<\/span><\/p>\n

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\u2019s salary will reduce from \u00a39,100 a year to \u00a35,000.<\/span><\/p>\n

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.\u00a0<\/span><\/p>\n

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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 employees’ salaries.\u00a0<\/span><\/span><\/p>\n

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.\u00a0<\/span><\/p>\n

Employment Allowance more than doubling<\/h3>\n

Employment Allowance, the government programme that helps smaller businesses reduce their employer\u2019s National Insurance costs, will more than double from 6 April 2025.<\/p>\n

Eligible employers will be able to reduce their National Insurance contributions by \u00a310,500, compared to the current amount of \u00a35,000. Additionally, the \u00a3100,000 threshold will be removed so more businesses with employer National Insurance bills can benefit.<\/p>\n

This change is intended to help small businesses offset the effects of the Employers’ National Insurance rise.<\/span><\/p>\n

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.\u00a0<\/span><\/p>\n

This is a cost-saving for a small business of the equivalent of 4 full-time workers on the National Living Wage.<\/span><\/span><\/p>\n

National Living Wage and National Minimum Wage increase<\/h3>\n

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 \u00a311.44 to \u00a312.21, more than three times the rate of inflation.<\/span><\/p>\n

The National Minimum Wage (NMW) for employees between 18 and 20 will also rise by 16% from April 2025, from \u00a38.60 to \u00a310 per hour. For 16 and 17-year-olds, the NMW will remain at \u00a36.40 an hour.\u00a0<\/span><\/p>\n

Apprentices will see the most significant pay bump, from \u00a36.40 to \u00a37.55 an hour, an 18% increase. Before this year, the apprentice wage was only \u00a35.28.<\/span><\/p>\n

These raises align with the <\/span>Labour government\u2019s commitment<\/span><\/a> to providing a \u201cgenuine living wage for working people.\u201d 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.<\/span><\/p>\n

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John Foster, chief policy and campaigns officer at the <\/span>Confederation of British Industry (CBI)<\/span><\/a>, said that although the National Living Wage protects the incomes of the poorest in society, \u201cwith productivity stagnant, businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line.\u201d<\/span><\/p>\n

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.<\/span><\/p>\n

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\u2019ve recently seen happen to <\/span>WHSmith, Marks and Spencer, Argos and Lloyds Pharmacy<\/span><\/a>.<\/span>\u00a0<\/span><\/p>\n

Capital Gains Tax to rise by up to 8 percentage points<\/h3>\n

As was widely anticipated, the government has announced that it will increase the rates of Capital Gains Tax (CGT), with the aim being to \u201cdrive growth, promote entrepreneurship, and [support] wealth creation while raising the revenue required to fund our public services.\u201d<\/span><\/p>\n

This measure introduces the following changes to disposals made on or after 30 October 2024:<\/span><\/p>\n