The Autumn Budget, delivered on 30th October 2024, provided a comprehensive outline of the UK government’s plans for taxation and spending in the upcoming year. While various measures aim to stimulate economic growth, many will have significant implications for small businesses. Below is a detailed breakdown of the key takeaways for small business owners to consider:
Tax changes impacting small businesses
1. Employer National Insurance Contributions (NIC)
Starting April 2025, the Employer’s National Insurance rate will increase from 13.8% to 15%. In addition, the threshold for paying this tax will be reduced from £9,100 to £5,000. As a result, employers will incur charges on a more significant portion of their employees’ earnings.
This change will mainly affect company directors who pay themselves a minimum salary supplemented by dividends, as they will need to adjust their salaries to stay beneath the new threshold. Concurrently, the Employment Allowance for small businesses will be raised from £5,000 to £10,500, eliminating the previous £100,000 limit on NI contributions for eligibility.
This adjustment is expected to benefit approximately 865,000 employers, allowing them to avoid paying NI. However, single-employee limited companies in which the employee is also a company director will not qualify for this allowance.
2. Business Asset Disposal Relief (BADR)
Changes to Business Asset Disposal Relief, formerly known as entrepreneurs’ relief, have led to concerns among business owners. Currently, BADR applies a 10% tax rate on profits from the sale of businesses up to £1 million.
While this rate will remain at 10% for the current year, it will increase to 14% in April 2025 and 18% in 2026-27. Many startups fear these changes may diminish the UK’s appeal as a location for starting and selling businesses, prompting some to consider relocating or selling their businesses before the new rates take effect.
3. National Living Wage (NLW)
Effective April 2025, the National Living Wage for adults will rise 6.7%, from £11.44 to £12.21 per hour. The hourly wage for adults aged 18-20 will increase from £8.60 to £10.00. Rising employer NICs and evolving employment laws may create challenges for many small businesses, particularly without the backing of the Employment Allowance.
4. Research and Development
The Labour Party has assured that current R&D tax relief rates will remain intact until the end of the Parliament. However, increased funding for the R&D compliance department may lead to heightened compliance scrutiny.
Additionally, £20 billion earmarked for R&D will be safeguarded, with £6.1 billion allocated for core engineering, biotechnology, and medical science. The aerospace sector is set to receive £1 billion in multi-year funding, and the automotive industry will benefit from £2 billion aimed at supporting electric vehicles. Furthermore, £520 million will be directed towards life sciences and innovative manufacturing.
5. Business rates
Starting in 2026/27, a new business rate structure will be implemented for the retail, hospitality, and leisure sectors, which will see a permanent rate reduction. Until this new system takes effect, businesses within these categories can benefit from a 40% discount on their business rates, with a maximum limit set at £110,000.
For the financial year 2025/26, eligible properties in England’s retail, hospitality, and leisure (RHL) sectors will receive a 40% relief on their business rates liabilities. Each business can access support up to a cash cap of £110,000. Additionally, for 2025/26, the small business multiplier will be maintained at 49.9p, while the standard multiplier will rise to 55.5p.
6. Increased interest rates for late tax payments
For unpaid taxes—including income tax, capital gains tax, and specific National Insurance contributions—interest on late payments currently stands at the Bank of England base rate plus 2.5%, equating to a 7.5% overall interest charge. Beginning April 6, 2025, this rate will increase by 1.5 percentage points, resulting in an adjustment to the base rate plus 4% to reduce the tax gap.
7. Taxable benefits for company cars
New rates for company car taxation will be implemented in the 2025/26 tax year. Specifically, the charge for zero-emission vehicles will increase from 2% to 3%. Additionally, the tax charge for other types of cars will increase by 1%.
It is important to note that the maximum benefit-in-kind rate will remain capped at 37%. Furthermore, the government has announced that these benefit-in-kind rates for company cars will be subject to further increases through the tax years up to and including 2029/30.
8. Changes in creative industries
Starting April 1, 2025, film and high-end TV productions will be eligible to claim an enhanced rate of 39% for Audio-Visual Expenditure Credit (AVEC), specifically for their UK visual effects (VFX) costs. UK VFX costs will be exempt from the AVEC’s standard 80% cap on qualifying expenditures. Additionally, expenses incurred on or after January 1, 2025, qualify for this credit.
In the same timeframe, UK films with under £15 million budgets that feature a UK lead writer or director can take advantage of an enhanced AVEC rate of 53%, referred to as the Independent Film Tax Credit.
From April 1, 2025, the rates for theatre tax relief, orchestra tax relief, and museums and galleries exhibitions tax relief will be adjusted to 40% for non-touring productions and 45% for touring productions and all orchestra productions, applying across the UK.
9. Corporation tax
The UK government prioritises stability and certainty in the business sector, acknowledging their significance for economic growth and investment. Hence, the corporation tax rate will remain at 25%, providing a stable tax environment for companies.
Furthermore, the government will retain the full-expensing capital allowance, allowing companies to claim the total cost of qualifying capital investments as an expense in the year they are made. Additionally, the Annual Investment Allowance (AIA), which provides generous tax relief on equipment and machinery investments, will remain in place.
Conclusion
The Autumn budget offers a combination of advantages and disadvantages for small businesses. While some measures offer support, such as the R&D relief and corporation tax freeze, others, like the NI and NLW increases, will increase employment costs. Small businesses must consider these changes carefully and assess their impact on financial planning. Consulting with an accountant can guide you through these changes and help you make informed decisions for your business.
