How will this week’s budget affect small business owners?

This week’s budget was one of the most anticipated in recent memory and the first for our new PM Keir Starmer.

With every type of tax, a potential target for our latest Chancellor, Rachel Reeves, small business owners nervously waited for the chancellor’s speech.

By far, the biggest tax rise (worth £25bn to the Treasury) was an increase in the rate of employers’ national insurance—although the damage will be limited to some extent due to an increase in the employment allowance.

Corporation Tax rates and thresholds remain unchanged, and there were no changes to dividend tax. The Chancellor says taxes will rise by £40bn in this Budget.

So how will the changes affect small businesses?

We have listed the key points below.

The Treasury has published the ‘red book’ online here, which contains details about all the measures from Tuesday’s Budget.

• Employers NI to rise from 13.8% to 15% from April 2025.

• From April 2025, the secondary threshold at which employers start paying NI will be cut from £9,100 to £5,000.

• Employment allowance will rise from £5,000 to £10,500 to help small businesses with the employers NI rise.

• Corporation Tax – main rate will remain at 25% for the duration of the parliament.

• Corporation Tax Small Profits Rate and marginal relief maintained at their current rate and thresholds.

• The non dom tax regime will be abolished.

• From April 2026, major changes will be made to business property relief and agricultural property relief. IHT claims will face an effective rate of 20% rather than a nil rate. This could be of great concern to farming businesses.

• Pensions and IHT – from 2027, and funds left in your pension pot will be subject to IHT.

• Business Asset Disposal Relief changes. Lifetime £1m allowance remains unchanged.

• The Chancellor says taxes will rise by £40bn in today’s Budget.

• National Minimum Wage will increase to £12.21 per hour for 21+ employees from April 2025 – a 6.7% increase.

• Business Rates – for 2025-26, the small business multiplier in England will be frozen at 49.9p.

• Business Rates – standard multiplier will be uprated to 55.5p.

• No rise in fuel duty. No changes until at least early 2026.

• No changes to dividend tax.

• The BADR rate on disposals will rise from 10% to 14% in April 2025 and 18% in April 2026.

• National Minimum Wage will increase to £12.21 per hour for 21+ employees from April 2025 – a 6.7% increase.

• Business Rates – for 2025-26, the small business multiplier in England will be frozen at 49.9p.

• Business Rates – standard multiplier will be uprated to 55.5p.

• No rise in fuel duty. No changes until at least early 2026.

• No changes to dividend tax.

• Income tax personal allowance and national insurance thresholds will once again rise with inflation from April 2028.

• There was no mention of IR35 / the ‘Off Payroll’ rules.

• New measures to tackle non-compliance and fraud in the umbrella company industry. Recruiters and clients will be responsible for ensuring umbrella firms correctly deduct PAYE taxes from 2026 onwards.

• No changes to VAT, employee’s NICs, or Income tax.

Other interesting points include:

• Stamp Duty on second homes – from 31st October 2024, the higher rate for additional dwellings increases from 3% to 5%.

• The Inheritance Tax threshold will remain at £325,000 until 2030.

• The Annual Investment Allowance (AIA) £1m threshold remains unchanged.

• Capital Gains Tax (CGT) – basic rate has risen from 10 – 18%, higher rate from 20% to 24%. Effective immediately.

• CGT on residential property remains at 18% (basic) and 24% (higher).

• Alcohol duty will rise by inflation, and draught duty (on pints) will cut the cost of the average pint by 1p!

• Private school fees will be subject to VAT from January 2025.

How has the business world reacted to the budget?

The Federation of Small Businesses welcomed the increase in the Employment Allowance to compensate small firms for the employers NI rise and welcomed the freeze in the small business rate multiplier.

Tina McKenzie from the FSB said:

“The true test of today’s Budget will be whether small businesses can grow and end the economic stagnation the UK has been stuck in.”

Commenting on the employers’ NI rise, Julie Sherratt, Director of The Hollies Bookkeeping said:

“Small firms with employees will be among those hit hardest by the rise in employers’ NI. The employment allowance increase will offset some of this, of course, but smaller businesses typically bear the brunt of tax reforms like this.”

If you are concerned about how any of the changes in this Budget could affect your business, please contact The Hollies Bookkeeping Services on 01743 790086, email info@holliesbookkeeping.co.uk or visit www.holliesbookkeeping.co.uk

Image by Ronald Carreño from Pixabay

                                    .