Autumn Budget 2024: What it Means for Small Businesses

Chancellor Rachel Reeves unveiled the first Labour Budget in 14 years, presenting a bold vision to “rebuild Britain.” Her announcement included significant updates on tax rates, thresholds, and allowances affecting businesses and employees across the board, as well as the need to plug a well-publicised financial ‘black hole’ left from the previous administration.

As Cornwall-based accountants, many of these budget changes affect our small business clients in various ways, both positively and negatively. Below we have summarised how these could affect you.

Major Changes to Employer’s National Insurance

The most significant change for businesses in this budget is the adjustment to employers' National Insurance contributions. This change which will mean higher costs and thus financial pressures for any business employing staff. Employers will now pay an additional 1.2 percentage points on National Insurance, with part of the increased revenue directed toward a £10 billion fund aimed at reducing NHS waiting times.

In addition to the rate increase, the earnings threshold at which employers begin to contribute to National Insurance will drop to £5,000, which is expected to generate £25 billion in revenue. To aid small businesses in managing these changes, the Employment Allowance will be raised from £5,000 to £10,500.

Under the previous structure, employers paid a 13.8% rate on employee earnings above the £9,100 threshold. They also contributed Class 1A and 1B National Insurance on expenses and benefits provided to employees, which was likewise set at 13.8%. 

Increase in the National Living Wage

Another potential additional cost for employers is a 6.7% increase in the National Living Wage, raising wages for workers 21 and over to £12.21 an hour. This will mean around £1,400 extra annually for a full-time worker.

The National Minimum Wage for 18 to 20-year-olds is also set to rise to £10 an hour, moving closer to aligning all adult wages. 

Capital Gains Tax (CGT) Rate Changes

The Chancellor has revealed that the capital gains tax (CGT) rate on assets like shares will increase to 18% for the lower rate and 24% for the higher rate, up from the previous rates of 10% and 20%. The CGT rate for second properties will remain at 18% and 24%.

Furthermore, the rate for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) will gradually rise, reaching 14% from April 6, 2025, and aligning with the main lower rate of 18% from April 6, 2026. This adjustment may come as a setback for business owners who often work with the understanding that selling their businesses will be taxed at a lower rate. 

Commitment to Making Tax Digital for Income Tax (MTD IT)

The government is committed to rolling out Making Tax Digital for Income Tax (MTD IT). Starting in 2026, businesses and landlords with income over £50,000 will be required to keep digital records and submit quarterly updates through approved cloud accounting software like Xero or Quickbooks. Incomes over £30,000 will be included in 2027, and those over £20,000 by 2029. 

Business Rates Changes

Currently, the 75% discount for retail, leisure, and hospitality sectors is set to expire in April 2025. The government has announced plans to continue the discount into the 2025/26 year, but at a reduced rate of 40%, with a cap of £110,000 per business. 

While this is presented as a benefit for businesses, in reality, many small businesses will face a notable increase in their financial liabilities under the new rate. 

Fuel Duty Remains Frozen

Good news for those who rely on vehicles: fuel duty will stay frozen for another year. Extending the 5p cut first introduced in 2022, this freeze is projected to save the average driver about £59 in the 2025/26 period. 

Higher Stamp Duty on Additional Properties

The Higher Rate of Stamp Duty for second homes and buy-to-let properties will increase from 3% to 5% starting October 31, 2024, affecting those investing in additional residential properties such as second homes and AirBnBs. 

Personal Taxes

A more positive bit of news for employees, whilst Individual Income Tax, VAT, and National Insurance rates will remain the same, the current freeze on Income Tax and National Insurance thresholds will end in 2028, allowing thresholds to increase. 

Inheritance Tax Business Relief

Business Relief on Inheritance Tax will now cover 100% of the first £1 million in business and agricultural property, with a 50% relief applying above this threshold.

Unsure where the Budget Leaves you or your Business? Get in Touch

As always with any budget there is a whole raft of changes that can impact both business owners and employees.

At Linggard and Thomas, we work hard to communicate these changes to our clients so we can make any adjustments to their financial strategies. Our expert financial advice can empower your business to succeed, whether in Cornwall or nationally.

Get in touch today to see how we can help your business thrive.