SJB & Co Chartered Accountants

Autumn Budget – not as bad as feared?

Hello everyone

After months of speculation, we finally know what this big budget includes. It appears we also know who has the broadest shoulders: business owners, ultra-high net worth individuals and investors, but thankfully not tiny business owners…Below we set out how the budget will impact people and in particular business owners. 

Before discussing the changes and how they will affect individuals and businesses in detail, here are some thoughts.

To those most affected it may feel unfair.
Yes, it’s going to hurt many financially.
But, it actually wasn’t as bad as the media said it was going to be.

Most of the changes do not come into effect until April 2025, some later. There is time to absorb the detail and consider how we can adapt and plan to mitigate the effects of some of the changes.

We will be reviewing the impact of the budget over the coming weeks particularly for business owners and providing further commentary. Please do get in touch with us to discuss the impact of this budget on your personal finances or business.

Kind regards
Simon

Let’s now go into details:

Firstly, it should be noted that there has been no change to income tax, employee NIC or VAT as promised. The inheritance tax nil rate band and residential nil rate band remain unchanged. There has also been no mention of changes to tax relief for pension contributions or tax free cash. So, the standard annual allowance remains at £60,000 with a minimum for high earners of £10,000 and tax free limit remains £268,275 for those without protection.

So, what is changing?

For employers, your wage bill is going up
On the 29th of Oct the government announced the following changes to the National Minimum Wage which will apply from the 1st April 2025:

National Living Wage (21 and over): up by 77p to £12.21 per hour
18-20 Year Old Rate: up by £1.40 to £10.00 per hour
16-17 Year Old and Apprentice Rate: up by £1.15 to £7.55 per hour

This means if you employ someone to work 40 hours per week, on the National Living Wage their salary would be £25 396.80. Then you have National Insurance and pension costs on top of that…

The increases are in line with the Low Pay Commission’s recommendations.

On top of the rise of the national minimum wage, the government announced changes to Employer National Insurance contributions. Not only are wages being forced to rise, but the amount of NI contributions employers pay is also increasing, and the point at which Employer Contributions are due has also decreased. At this point you could be forgiven in thinking, that’s a triple whammy.

Employer National Insurance Contributions now are set at 15% – up from 13.8%, with the threshold that businesses will now start paying for employees when their salary gets to £5,000 – not £9,100.

However, the government has decided to cushion the impact of the increase in Employer National Insurance Contributions by increasing the Employment Allowance from £5,000 to £10,500. This means that most of the micro and small businesses could see a reduction in their Employee NI costs.

For example, if your payroll monthly was £10,000 and every employee was above the salary threshold of £5000, then your NIC payments would reduce by over £3000 across the year.

However, if you are a single director/shareholder company with no other employees, you are not eligible for Employment Allowance. This means that if you take a salary of £12,570 per year, your Employers’ NI contributions will go up in April from £39.90 to £94.63 per month.

Action:

  1. Review your wages: Whose pay needs to go up in line with the national minimum wage? Whose pay must also increase to remain fair, given the rise in the lowest-paid team members’ wage?
  2. Review your costs and business model: Do you need to change how you resource your business? For example, is the balance of contractors vs permanent employees right? Would you be better off as a sole trader rather than trading via a limited company?
  3. Review your operations to find efficiencies: How can your business use technology or slicker working practices to avoid hiring more permanent employees?

How will you pay yourself?
It’s all change. Actually, it’s been all change for a number of years now! In years gone by, dividend tax credits made it far more efficient to pay directors a nominal amount via PAYE then the remainder via dividends.

There was no announced change to basic, higher or additional rates of income tax, employee NICs or dividend tax rates or credits for 25/26. The basic rate income tax is still 20% vs dividend tax basic rate at 8.75%. Will paying yourself via PAYE or putting more aside into pensions be more tax-efficient in the short and long-term? With Capital Gains Tax rising, the tax you pay when selling your business has gone up. Which means less money in your bank account when or if you sell your business.

Capital Gains Tax Increases with immediate effect
It was predicted that Capital Gains Tax would go up in this budget. It did, but not as much as feared.

Capital gains tax: lower rate increases from 10% to 18%.
Capital gains tax: higher rate increases from 20 to 24%.

Capital Gains Tax rates for Business Asset Disposal Relief, i.e. selling your business, and Investors’ Relief, i.e. investing in other businesses, will rise gradually to 14% from 6 April 2025 and match the main lower rate of 18% from 6 April 2026, to allow business owners time to adjust to the changes.

The lifetime limit for Investors’ Relief will be reduced to £1 million for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for Business Asset Disposal Relief.

These new rates will match the residential property rates, which are not changing.

What does this mean? It means that, going forward, you are going to be more heavily taxed if you sell an asset or come into some money. Whether this means shares, business, property, inheritance or something else. It also means that getting independent advice on your tax affairs is even more important now than ever. We can help you with this.

Inheritance tax
The current inheritance tax thresholds are due to be frozen until April 2028, and the government is extending these threshold freezes for a further two years to April 2030.

The government is also removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning by bringing unspent pots into the scope of inheritance tax from April 2027.

The government will reform agricultural property relief and business property relief from April 2026. In addition to existing nil-rate bands and exemptions, the 100% rate of relief will continue for the first £1 million of combined agricultural and business assets to help protect family farms and businesses and will be 50% thereafter. The government will also reduce the rate of business property relief to 50% in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM.

Business rates
There is further help for the retail, hospitality and leisure sector. Businesses in this sector will enjoy the small business multiplier (the amount used to work out your business rates bill) being frozen at 49.9p. Then when the current 75% reduction in rates ends at the end of this tax year, a 40% reduction in business rates up to a £110k cash cap.

Driving and fuel costs
The 5p temporary cut to fuel duty is being extended into the 25/26 tax year.

Company car tax rates have now been set for until 29/30. It’s still going to be much more tax efficient to have an electric car, but not as much as before.

Fully electric cars BIK % rises to 7% in 28/29.

However, the hybrid car BIK in 28/29 rises to 18% and in line with the new company car BIK tax rates for petrol and diesel cars.

Zero emission cars will pay the lowest first year rate at £10 until 2029-30.

Immediate changes to stamp duty
Stamp duty is going up from 3% to 5% for those buying second homes, buy-to-let residential properties and companies purchasing residential properties. However, if the property is worth over £500,000 and being bought by a company then stamp duty will rise to 17% from 15%.

Non-domicile tax regime is being scrapped
The government is removing the non-dom tax regime from the tax system and replacing it with a new residence-based regime from 6 April 2025.

Closing the tax gap
The government is recruiting an additional 5,000 compliance staff – with the first 200 starting training in November – and providing funding for 1,800 debt management staff. This will ensure more of the tax that is owed is paid and that more taxpayers pay outstanding tax due.

The government is also investing in modernising IT and data systems to improve HMRC’s productivity and improve taxpayers’ experience of dealing with the tax system, delivering the modern and digital service businesses and individuals expect.

The government is also committed to taking stronger action on tax fraud, including by expanding HMRC’s criminal investigation work and legislating to prevent abuse in non-compliant umbrella companies.

As ever it is important to pay attention to the detail with your tax and accounts, maintain good records and take advice where necessary as increases in HMRC resourcing will mean closer scrutiny of businesses and individuals tax affairs. Tax investigation insurance should be considered to protect against the risks of tax enquiries.

For more information or to discuss any issues raised above please contact Simon Bell by phone on 01376 571358 or email [email protected] .

Please feel free to forward this newsletter to any colleagues or friends who may be interested in it.

This newsletter is written in general terms and therefore cannot be relied on to cover specific situations; applications of the principles set out will depend on the particular circumstances involved and it is recommended that you take professional advice before acting or refraining from acting on any material in the newsletter

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