What the Autumn Budget means for business owners

The Autumn Budget on 30 October 2024 introduced significant measures, including plans to raise £40 billion through tax changes, which may impact your short-term profitability and long-term business plans. Here’s a look at the key changes and their potential impact:

Employer’s National Insurance contributions (NICs)

Employer NICs will increase from 13.8% to 15% from April 2025 and the limit at which the NI will need to be paid reduces from £9,100 to £5,000 from April 2025.. This represents a significant rise, aimed at addressing the public finance shortfall. To help smaller businesses reduce outgoings, the Employment Allowance – the amount a business can save on National Insurance – will increase from £5,000 to £10,500.

Business owners should evaluate their payroll costs and explore strategies to mitigate these increased expenses. Salary exchange schemes can help alleviate the impact by saving the employer national insurance on the savings employees make to their own pensions via payroll.

Capital Gains Tax (CGT)

The CGT rate for higher-rate taxpayers will increase from 20% to 24% in April 2025. This comes after the annual allowance fell from £6,000 to £3,000 from 6 April 2024.

For those selling businesses or shares in a business, the rate of Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) will rise from 10% to 14% in April 2025, and then to 18% from 6 April 2026. The government has confirmed that the lifetime limit for BADR will remain at £1 million.The changes mean business owners planning to sell their businesses or other assets will face higher tax liabilities, reducing net proceeds.

Inheritance Tax (IHT)

The IHT threshold will remain at £325,000 until 2030 meaning more estates could become liable for IHT due to the impact of inflation. Notably for business owners and farmers, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be subject to a £1 million combined cap of 100% relief. Values in excess of this amount will only benefit from 50% relief from April 2026.

Business owners should review their estate plans to maximise reliefs and prepare for potential tax liabilities. Consideration could be given as to whether with forward planning the effects of the increased tax can be mitigated.

Pensions tax relief

There are no changes to pensions tax relief and both income tax relief at the individuals’ highest rate and the entitlement to tax free cash as part of the retirement benefits options, have remained contrary to public fears.  The lifetime allowance which was abolished in 2024, and was replaced by a new regime which remains in place at this time. The annual contribution limit for personal pensions continues at a maximum of £60,000, subject to conditions being met.

Should contributions not have fully utilised the limits since 21/22 there can be opportunities to use up unused allowance from the last three years in addition to the current year to support an even greater payment.

Business owners should seek to maximise contributions within these limits to benefit from the tax advantages.

Pension and IHT

With the exception of dependant scheme pension death benefits, most pension death benefits, including the unused Private pensions fund values remaining on the death of the pensioner will fall be subject to IHT from April 2027 regardless of the age at which  the pension member dies. The age at which the pension member dies could affect whether the beneficiaries' marginal rates of income tax will also apply.

Business owners should review their legacy arrangements to understand the impact of this change and consider designating beneficiaries appropriately to manage potential tax liabilities. The existing rules which direct unused funds on death after 75 to be managed in accordance with beneficiary tax bands will continue until this point.

Business rates

For the hospitality, retail and leisure sectors, a new relief scheme offers a 40% discount on business rates, up to £110,000 per business. This relief aims to improve cash flow and profitability, helping businesses invest in growth and retain staff.

The Chancellor also promised an overhaul of retail business rates, and vowed to introduce permanently lower multipliers for high-street retail, hospitality and leisure properties. This change is likely to be funded through introducing a higher multiplier on the most valuable properties, which is thought to include distribution centres from ecommerce giants.

How new worker protections will impact UK business owners

The UK Employment Rights Bill, introduced to Parliament on 10 October 2024, aims to enhance workers’ rights by focusing on fair treatment, job security, and better working conditions. Key provisions include increased protection for gig economy workers, extended parental leave, and stricter rules on zero-hour contracts.

Business owners will need to adapt to new requirements, such as providing more predictable work schedules, improving job security for flexible workers, and enhancing parental leave policies. These changes are expected to increase compliance responsibilities for businesses, potentially raising costs but also promoting a more stable workforce.

Minimum wage increases

Starting in April 2025, minimum wage rates across different age groups will see significant increases to support workers and adjust for rising costs of living:

• National Living Wage for over 21s will rise by 6.7%, from £11.44 to £12.21.
• For 18- to 20-year-olds, the minimum wage will rise from £8.60 to £10.
• Apprentices will see an increase from £6.40 to £7.55 an hour.

The minimum wage increase from April 2025 will affect staffing costs. Business owners should adjust budgets accordingly and explore productivity improvements to offset increased labour costs.

General business plans and tax reforms

• Corporation tax rates remain at 25% for profits over £250,000 and 19% for profits under £50,000, with a tapered rate for profits between £50,000 and £250,000.
• No new windfall taxes for oil and gas businesses were introduced, but the existing levy on energy companies remains, which may limit their ability to reinvest.
• All the benefits of Salary exchange and sacrifice arrangements for pensions remain unchanged, and these schemes continue to enjoy their role as a cost-effective way to enhance employee benefits and reduce NIC liabilities.

Other considerations

• New investment zones were announced with targeted tax reliefs and grants to promote business growth in specific areas. These zones will offer incentives such as reduced business rates and enhanced capital allowances, which could significantly benefit businesses looking to expand or relocate.
• A new energy efficiency tax relief has been introduced, allowing businesses to claim deductions on investments in energy-saving technologies. This policy aims to encourage companies to reduce their carbon footprint while providing financial incentives for adopting greener practices.
• The freezing of income tax bands until 2028 means more workers will enter higher tax brackets as wages rise. Business owners should consider salary exchange to create pension contributions or dividend planning to minimise tax liabilities.
• Moreover the “triple lock” increase in the State Pension has continued to be honoured. The state pension will enjoy an increase of 4.1% in line with the triple lock increase based on September inflation rates. The freeze until 2028 exposes the possibility that the state pension may increase beyond the tax threshold making every state pensioner become a tax payer
• Reforms have made the apprenticeship levy more flexible, allowing businesses to fund other types of training programmes. This provides more options for workforce development.

We’re here to support you and your business.

Ascot Lloyd provides comprehensive business advice, helping owners manage financial planning, workplace pensions, employee benefits, group insurance, business protection, and more.

Please contact us if you have any questions or would like to explore ways to manage and mitigate the impact on your business and the unique needs of your workforce.

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