In her recent budget announcement, Rachel Reeves, the UK’s first female Chancellor of the Exchequer, outlined several changes that will significantly impact business owners. We have outlined the main takeaways relevant to the business community below.
National Insurance Contributions
One of the most substantial changes for business owners is the increase in employers’ national insurance contributions. Starting in April 2025, the contribution rate will rise by 1.2 percentage points to 15%. Additionally, the secondary threshold for contributions will drop from £9,100 to £5,000. This measure is projected to raise £25 billion annually by the end of the forecast period, and while it aims to bolster public services, it also raises concerns about its potential impact on hiring and growth.
Minimum Wage Increase
The national living wage will rise by 6.7% to £12.21, which could impact payroll expenses for employers. While this move is generally well-received, it’s crucial for business owners to consider how this increase might affect their operational costs and employment strategies, particularly as a single-adult rate is set to be phased in to equalise pay for those under 21.
Capital Gains Tax (CGT)
The budget includes an increase in capital gains tax rates, with the lower rate rising from 10% to 18% and the higher rate from 20% to 24%. Importantly, the tax on the sale of second homes will remain unchanged, but these adjustments may influence business owners’ decisions regarding asset disposal and reinvestment strategies. Additionally, capital gains tax is expected to yield modest revenue, but the changes are designed to keep UK rates relatively competitive internationally.
Business Asset Disposal Relief (BADR)
Reeves has reassured business owners that the relief available under BADR will remain unchanged despite the increases in capital gains tax. This means that qualifying business owners can still benefit from the reduced 10% rate on gains up to £1 million when disposing of eligible business assets, encouraging entrepreneurship and investment while balancing taxation shifts.
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA)
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) requires businesses and landlords with qualifying income to maintain digital records and update HMRC each quarter using compatible software.
For individuals, MTD for ITSA will be introduced in two phases:
- from April 2026, for those with qualifying income over £50,000
- from April 2027, for those with qualifying income over £30,000
The government remains committed to the future introduction of MTD for ITSA to partnerships.
Tobacco and Alcohol Levies
Business owners in the retail sector should note the implementation of a new levy on vapes and the increase in tobacco taxes, which will rise by 2% above the retail prices index (RPI). Taxes on alcohol will also increase in line with RPI, although there is a slight cut in draught duty by 1.7%. The move to increase taxes on these products might affect pricing strategies and consumer purchasing behaviour in related businesses.
Fuel Duty
Reeves announced that there will be no increase in fuel duty for the coming year, maintaining the government’s previous 5p cut. This decision aims to minimise the financial burden on businesses reliant on transportation and logistics, providing some reprieve in a climate of rising operational costs.
Our Thoughts
Following on from the budget, Wayne McCormack (Director and co-founder of Zoo Accounting) gave his thoughts. “I have significant concerns regarding the current budget and its profound impact on businesses. It is evident that many businesses are being severely squeezed at present, grappling with increased prices, the burden of repaying Covid-19 support loans, and the rising demands for higher wages from both staff and subcontractors.
While the government has commendably (and arguably) adhered to its election pledge of not raising taxes for the working individual, this approach has inadvertently placed an undue strain on businesses. The current economic climate is such that many businesses are being forced to consider drastic measures, including staff reductions, in order to maintain operations and stay afloat.
It is disheartening to observe that the primary beneficiaries in the current scenario appear to be those who are not contributing to the workforce but instead are receiving various benefits, including the controversial PIPs. While acknowledging that many of these claims are genuine, there is a substantial amount of fraud within this system, which should be the focus of governmental efforts to reduce the huge black hole created over the last few decades.
The ongoing financial pressures on businesses are unsustainable and threaten to stifle economic growth. It is crucial for the government to reassess its approach and implement measures that support businesses rather than constrict them.
I urge the government to consider these pressing issues and take prompt action to address the concerns of the business community. The prosperity of our economy depends on the health and vitality of our businesses, and we must ensure they are given the necessary support to thrive.”
Get In Touch
As businesses navigate these changes, it’s essential to reassess financial plans and operational strategies to adapt to the new economic landscape set forth in this budget. If you’d like to discuss any of the changes announced in the budget, please reach out to your account manager today.
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