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With the devil in the details, what do business owners need to be aware of in the budget?
The Government has given us a budget that was big on investment, repairing the nation’s foundations and promoting long-term stability. Up to £40bn in new taxes were announced to pay for this sunny forecast, but the overriding message was that this budget would not hurt working people. Instead, the vast bulk of the new taxes are to be levied on businesses both large and small – a strategy that may prove successful in the long run but will surely cause significant pain for many UK businesses in the short-term.
In this blog, we’ll look at the most significant additional costs facing SMEs in the coming year. For three worked examples of how the budget will affect businesses in the manufacturing, retail and pub sectors, click here.
Increased Costs for Employers
One of the most significant changes for businesses is the increased cost of hiring. The government’s “Make Work Pay” initiative, while aiming to boost worker incomes, will increase employer National Insurance Contributions (NICs).
For example:
- A business with a £50,000 annual payroll will pay an additional £1,106 in NICs per year.
- For businesses with multiple employees on the National Living Wage, the impact can be even more significant. A business with five full-time employees on the National Living Wage will see an additional cost of around £2,270 per year.
Other Cost Increases
Business Rates: While there is some relief for retail, hospitality, and leisure businesses, many others will face increased business rates.
Business rates are forecast to raise £26 billion in 2024-25 and they make up a quarter of Local Authority core spending power. They support critical local services, including child and adult social care, but businesses have raised concerns that the system disincentivises investment and is slow to respond to changing economic conditions.
As a result, the Chancellor announced first steps to reform the business rates system:
- Introduce permanently lower multipliers for retail, hospitality and leisure (RHL) properties with a rateable value (RV) under £500,000 from April 2026-27.
- Introduce a higher multiplier on properties with RV of £500,000 and above, which includes the majority of large distribution warehouses including those used by online giants such as Amazon.
- Support for retail, hospitality and leisure properties in the interim period leading up to the new permanent multiplier by providing 40% relief to RHL businesses on their business rates in 2025-26, up to a cash cap of £110,000 per business.
Capital Gains Tax: The increase in Capital Gains Tax rates will impact businesses selling assets or exiting.
This is bad news for many company directors and shareholders. CGT tax rates were increased, with the basic rate rising from 10% to 18% and the higher rate rising from 20% to 24%. As of April 2025, the new schedule will look like this:
| TAX BAND | TAXABLE INCOME | CGT % RATE |
|---|---|---|
| Basic | £12,571 to £50,270 | 18% |
| Higher | £50,271 and over | 24% |
According to the GOV, the Office of Budget Responsibility says the changes to CGT will raise £2.5billion by the end of the forecast and the UK will continue to have the lowest CGT rate of any European G7 country.
Alice Shaw, wealth planner at Succession Wealth, said:
“The CGT increase on asset sales/business sales could affect future retirement plans, meaning clients are working longer to some degree or saving more heavily. Salary sacrifice is now more attractive given that NI rates have increased.”
Stamp Duty Land Tax: The increase in Stamp Duty Land Tax for additional properties will affect businesses purchasing property.
This is bad news for budding property barons:the Higher Rate for Additional Dwellings surcharge of Stamp Duty Land Tax will rise from 3% to 5% as of 31 October 2024, providing those looking to move home, or purchase their first property, with a comparative advantage over second home buyers, landlords, and businesses purchasing residential property.
At the moment, buyers of homes worth less than £250,000 don’t pay stamp duty. This was doubled from £125,000 under Liz Truss’s mini-Budget in September 2022.
The threshold is £425,000 for those buying their first property. This was raised from £300,000 as part of the mini-Budget. These higher thresholds will end in March 2025, when they will revert to their previous levels.
Current thresholds:
- £0-£250,000 (£425,000 for first-time buyers) = 0%
- £250,001-£925,000 = 5%
- £925,001-£1.5m = 10%
- £1.5m+ = 12%The single rate of stamp duty charged when firms buy dwellings worth more than £500,000 will also increase from 15% to 17%.
The single rate of stamp duty charged when firms buy dwellings worth more than £500,000 will also increase from 15% to 17%.
Positive Measures
- Corporation Tax Stability: The maintenance of the corporation tax rate at 25% provides some certainty for businesses.
- R&D Tax Credits: The government’s support for R&D tax credits can benefit innovative businesses. Many have been put off by HMRC’s crackdown on fraudulent claims, but this should not deter any business with a legitimate claim from putting in an application.
- SEIS and EIS: These schemes, which encourage investment in high-growth businesses, have been extended until 2035.
What Can SMEs Do?
- Review payroll costs: Analyse payroll costs to identify areas for potential savings, such as automating tasks or outsourcing non-core functions.
- Explore tax-efficient strategies: Consult with a tax advisor to identify opportunities to minimise tax liabilities.
- Invest in technology: Investing in technology can improve efficiency and reduce costs.
- Seek professional advice: Seek advice from accountants and business advisors to navigate the complex tax landscape.
Want to learn more about how the budget will affect your business? We hosted a webinar analysing what the budget means for SMEs. Andrea Reynolds and Ciaran Burke, co-founders at Swoop, were joined by Chris Downing from Sage. Watch the recording here:
yet? Register here!