NEWS: UK Government Unveils Autumn Budget 2024. How Does it Affect UK SMEs?

On October 30th 2024 the government unveiled their first budget since they were elected. This is the first Labour budget in 14 years and the very first budget created by a female chancellor, Rachel Reeves.

The budget promises a tax hike of £40bn with money being re-invested into public services such as the NHS and education sector. Reeves told Parliament that this budget is the start of a decade of national renewal. 

Our article today will examine the key elements of the budget which specifically apply to SMEs in the UK. 

Key Changes 

There are three key changes to tax which will affect businesses in the UK. These are:

• National Insurance Contribution (NICs) for employers is rising from 13.8% to 15%. 
• The National Living Wage for those over 21 will increase to £12.21 per hour, the National Minimum Wage for those aged 18-20 will increase to £10 per hour, and the apprentice rate will increase to £7.55.
• Capital Gains Tax rates will increase from 10% to 18% for the lower rate and from 20% to 24% for the higher rate, effective 30 October 2024.

These increases are supported by a round of tax relief schemes specifically designed to protect small businesses and vulnerable industries. These are:

• Employment Allowance will go up from £5000 to £10,500 and the £100,000 eligibility criteria has been removed, allowing all businesses with employers NICs to benefit. 
• Fuel Duty will remain frozen at 5% for another year. 
• Retail, hospitality and leisure industries will receive a 40% relief on business rates up to a cap of £110,000 for the 2025/26 tax year, and the small business tax multiplier will be frozen at 49.9p for the next tax year.

Finally, there have been no changes to Corporation Tax which is paid by businesses earning over £250,000, companies will continue to pay this tax at a rate of 25%. 

Employers National Insurance Will Rise to 15%

One key change for most employers is the 1.2% rise in NICs for employers from April 2025.

The secondary threshold, the point at which employers start paying National Insurance on a worker's salary, will be cut from £9,100 a year to £5,000.

This means employers will be paying more to employ staff, while this has no immediate direct effect on employees, it will raise the staff cost. Ultimately, this may cause a lower employment rate or lower wages over time.

However, this tax raise will mainly hit larger companies. Small businesses will receive tax relief through the Employment Allowance. 

Employment Allowance Doubles 

The employment allowance will rise from £5000 to £10500 from October 30th 2024. This move is specifically designed to protect small businesses from the increase in National Insurance.

The employment allowance is a government scheme which allows SMEs to reduce their national insurance costs. Previously, a business’ NI tax bill must be below £100,000 to be eligible for employment allowance. However, this criterion has now been removed, so more small businesses can benefit from the employment allowance, allowing them to be protected by the NICs rise.

National Minimum Wage and Living Wage Increases 

Following on, the national minimum wage will be rising from April 2025. An employer must pay staff who are 21 and over a living wage of £12.21 per hour. The National Minimum Wage for employees between 18 and 20 will also rise by 16% from April 2025, £10 per hour. However, for 16 and 17-year-olds, the minimum wage will remain at £6.40 an hour.

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

Overall, an increase in wages will help employees but may make the bottom line a lot tighter for a lot of businesses. This can lead to an increase in the cost of goods and services or business owners may need to find ways to streamline their operations to make room for the increased wage bill. 

Capital Gains Increase 

Capital Gains Tax (CGT) are the tax you pay when you dispose of your non-inventory assets such as stocks, shares or houses. The disposal of assets applies to the selling, gifting or exchange of assets. The tax will be effective from 30 October 2024 onwards.

This is how the CGT tax rates will look going forward:

Don’t forget this tax will apply to the disposal of chargeable assets and other residential properties along with carried interest.

• The lower rate will increase from 10% to 18%
• The higher rate will increase from 20% to 24%
• The main rate (applies to trustees and personal representatives) will increase from 20% to 24%

While the increase is significant, the UK still has a relatively low rate of CGT, and the new rate is still lower than income tax rates. 

Business Asset Disposal Relief

Business Asset Disposal Relief (BADR), the Capital Gains Tax relief entrepreneurs get when they sell their business, will increase from 10% to 14% in 2025 and then to 18% in 2026.

Fuel Duty Remains Frozen and More Incentives for Electic Vehicles.

Fuel duty remains frozen for another year, alongside the 5p tax cut. This is good news for any businesses who rely on cars or other modes of transport.

However, the government is also continuing allowances for businesses and individuals to purchase electric vehicles (EVs). The government is strengthening incentives to purchase EVs by widening the differentials in Vehicle Excise Duty First Year Rates between EVs and hybrids or internal combustion engine cars.

The government is also maintaining EV incentives in the Company Car Tax regime and extending 100% First Year Allowances for zero-emission cars and EV charge points for a further year. 

Stamp Duty Increase on Second Homes

The government has announced a stamp duty increase for those buying second homes, buy-to-let residential properties, and companies purchasing residential property, from 3% to 5% from 31 October 2024.

This is to allow the housing market to be competitive for first-time buyers, however, this will put a squeeze on property businesses.

Tax Rates for Retail, Hospitality and Leisure Properties Will be Lower

Two lower tax rates for retail, hospitality, and leisure properties will be introduced from April 6th 2025.

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

Alcohol Duty Changes

While the duty on spirits, wines and non-draught alcohol will increase in line with the retail price index, the tax on draught drinks will drop.

The draught duty will drop by 1.7% in February 2025. That’s an average saving of 1p per pint. This means slightly cheaper pints for you and your team in the new year! 

Tougher Stance on Retail Crime 

To help deal with the rise in shoplifting, the chancellor said the government will "scrap the effective immunity for low-value shoplifting".

Additional funding will also be provided to "crackdown on the organised gangs which target retailers and to provide more training to our police officers and retailers to help stop shoplifting in its tracks".

This is welcome news for those running shops on the high street and in city centres. 

What Else Was in the Budget?

• Reeves announced these tax rises will be distributed as budgets for public services such as the NHS and public schools. 
• The government will be investing more in tech, sciences and local government. 
• The cap on bus fares has increased by 50% from £2 to £3. 
  Commitment to fund tunnelling work for HS2 high-speed rail line to Euston station
• Air Passenger Duty will go up in 2026, by £2 for short-haul economy flights and £12 for long-haul ones, and rates for private jets will go up by 50%
• Tax on tobacco will increase by 2% above inflation, and 10% above inflation for hand-rolling tobacco
• Defence spending will rise by £2.9bn next year
• Basic and new state pension payments to go up by 4.1% next year due to the "triple lock", more than the working-age benefit.

Conclusion

So there you have it! The new budget is full of tough choices, but allowances have been put in place to protect the small businesses which uphold our economy. However, a few tough choices will have to be made by every business.