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We look at the bottom line impact of the budget for a manufacturing, retail and pub business
Rachel Reeves unveiled Labour’s first Autumn Budget on 30 October. In this deep dive, we’ll look at how these changes impact three example SMEs. They are:
- A technical engineering company manufacturing network and communications systems and based in Coventry.
- A small chain fashion retailer based in Liverpool.
- A pub in Croydon.
| Characteristics of three example SMEs |
| Manufacturer | Retailer | Pub | |
| Locations | 1 Own their premises | 3 Lease premises | 1 Own their premises |
| Staff | 53 (5 on NLW) (4 directors) | 20 (10 on NLW) (3 directors) | 9 (5 on NLW) (2 directors) |
| Payroll cost (£) | £1.6m | £470k | £180k |
| Gross turnover p.a | £5m | £3.5m | £500k |
| Net profit % and £ | 9% – £450k | 15% – £525,000 | 10% – £50k |
Rise in employer National Insurance contributions (NICs)
Both the pub and the retailer receive Employment Allowance which reduces their exposure to the rise in employer NICs. The manufacturer does not. However, all three businesses are liable to pay NICs on all their employees, presenting a 1.2% increase across the board.
Here’s a rough example to show how that could play out in the next tax year (2025/2026):
| Manufacturer | Retailer | Pub | |
| Total payroll | £1,600,000 | £470,000 | £180,000 |
| Employees earning more than £5000 p.a | 53 | 20 | 9 |
| Payroll after threshold | £1,335,000 | £370,000 | £135,000 |
| Old NICs at 13.8% | £184,230 | £370,000 | £18,630 |
| New NICs at 15% | £200,250 | £55,500 | £20,250 |
| Difference | +£16,020 | +£4,440 | £20,250 |
Because they receive Employment Allowance, both the retailer and the pub can reduce their NICs cost by £10,500 per year – £5,500 more than in 2024/2025. The increase in EA wipes out the rise in NICs for both businesses and leaves them paying less than they did in 2023/24. The manufacturer is not so fortunate. They see a real increase of more than +£16k per year – equal to 3.6% of net profits.
Rise in National Living Wage(NLW) and National Minimum Wage (NMW)
All three businesses are impacted by the rise in NLW. For the sake of this overview we will assume all NLW employees are full-time (35 hrs per week). How does the increase from £11.44 to £12.21 per hour – £1,401 per year – impact these employers?
Manufacturer: 5 NLW workers – increase in wage cost (before NICs): £7,005
Retailer: 10 NLW workers – increase in wage cost (before NICs): £14,010
Pub: 5 NLW workers – increase in wage cost (before NICs): £7,005
What is the total added salary cost for each employer (NLW + NICs increase)?
Manufacturer: £16,020 + £7,005 = £23,025 (5.11% net profits)
Retailer: £14,010 – £1,060 (Rise in NIC Employer Allowance delivers net gain) = £12,950 (2.5% net profits)
Pub: £7,005 – £3,130 (Rise in NIC Employer Allowance delivers net gain) = £3,875 (7.75% net profits)
Business rates
All of our sample businesses will pay increased business rates from April 2025. However both the retailer and the pub will enjoy a 40% deduction on their business rates in 2025/26. The actual sum each business will pay depends on their unique rateable value.
Alcohol duty
Only the pub sells products that contain alcohol. The chancellor’s move to reduce duty on draught beers and cider by a penny per pint is good news for that business. They will not pass the cut on to their customers, as per pint it is almost meaningless to customers. However, if the pub sells £5,000 worth of draught beer and cider per week – estimated at 800 pints – that’s a small saving of £8.00 per week, they can keep £416 per year.
Full expensing
The budget maintained the full expensing allowance scheme, although it did not extend to cover leased equipment. Only the manufacturer benefits from full expensing, as the retailer and pub already claim tax relief on capital expenses through their annual investment allowance (up to £1 million in expenditures). For the manufacturer, who spends £1.2 million per year on equipment and services, (24% of turnover) the full expensing relief is worth 25% of qualifying expenditure – £300,000. Unfortunately, the manufacturer also incurs significant leasing costs on equipment that they cannot currently claim back.
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:
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