The Budget was announced by Chancellor Rachel Reeves yesterday, with the Chancellor forewarning that hard decisions would have to be made, and it was a Budget that she ‘did not want to repeat’. The document itself runs to some 170 pages, for those who were not avidly following the Budget yesterday we share the key points for start and scale ups:
National Insurance
The Government has made it clear they need to raise taxes, and the main avenue appears to be by increasing National Insurance. Rather than target individual taxpayers, the Budget seeks to raise £25 billion by raising employer NI contributions by 1.2% to 15%. In addition, there’s a drop in the threshold at where this becomes payable, from £9,100 to £5,000.
In real terms this means that the costs to many businesses will increase, impacting the bottom line. To try and reduce the impact, there has also been an increase in ‘employment allowance’ from £5,000 to £10,500 for small businesses and the removal of the £100,000 threshold. This £10,500 is an amount that an employer can claim back from the NI paid, with the Chancellor saying that this will help around 865,000 employers.
Business Rates
From 2026 a permanent 40% discount on business rates will be implemented, for retail, hospitality, and leisure business. There is a current 75% discount in place that is due to expire next year.
Business rates are charged if you use a premises or part of a building for non-domestic purposes. This relief will be capped at £110,000 per business.
Minimum Wage
As expected, the National Living Wage will raise for over 21s to £12.21 an hour from April next year. Additionally for 18-20s, the minimum wage will go up to £10.00 an hour and for apprentices it will be £7.55 an hour.
Corporation and Capital Gains Tax
As part of the Budget, the Government set out a Corporate Tax Roadmap. This confirmed that corporation tax would stay at 25%, keeping research and development relief as before and maintaining small profits rates and marginal relief rates for the duration of this parliament. No changes to dividend tax were announced.
CGT increased from 10% to 18% on the lower rate and from 20% to 24% on the higher rate. This is not as high as was originally feared.
Stamp Duty Land Tax (SDLT)
The rate for companies purchasing residential dwellings above £500,000 will increase to 17%, a rise of 2%. This has taken effect almost immediately, implemented on 31 October 2024, with little more than 24 hours’ notice.
Reliefs, Allowances and Tax Regimes
Business property relief will be reduced to 50% for shares that are not listed on the markets of a recognised exchange and to 50% for property valued at more than £1 million. The Annual Investment Allowance £1 million threshold remains unchanged as does the relief for VCT and EIS which is frozen until 2035. This is great news for the stimulation of new tech businesses, allowing investors to continue to look at innovative start-ups.
The non-dom tax regime is being abolished and replaced with a residence-based scheme with incentives for investors to come to the UK, at least temporarily.
So what does this mean?
Costs for business are increasing; some more than others. Companies with a higher proportion of staff on National Living Wage may struggle, especially with the increase to national insurance contributions, inflation and wage demands. CGT increases will hurt all entrepreneurs and non-EMI option holders, but the Employment Allowance increase for small companies will be welcome. It remains to be seen what impact on growth this will have, but what is certain is that business owners will need to carefully consider their operations going forward.
Practical Steps for Businesses
- Research and Development – as relief in this sector will remain the same, you could consider altering your business plan to invest more in this area.
- Evaluate your budgets – business rate changes, increased NI contributions and wages will all impact your bottom line. Look to re-evaluate your planned budget for the coming financial year taking these into account.
- Capital gains – The increase is being implemented slowly to allow business owners to react to the change. In practical terms you may need to change your current plans around disposal of assets and bring them forward.
- National Insurance Contributions – although for many start ups and smaller business the changes will make little difference, if you’re planning to grow your employee base in the near future this will ultimately lead to higher costs. Take the time to review how this will affect your budget and profit.
Written by:
Karl Foster– Head of Corporate and Commercial Alex Hill– Trainee Solicitor
At Lyons Davidson we can help you better understand how this will impact your business and what your options are. From the less publicised changes, such as an increase in Air Passenger Duty which could affect your business travel costs, to the major ones like NI contributions, we can decipher the technical language for you.
