As a business owner, the Autumn Budget delivered at the end of October 2024 could affect both your business and personal finances. Read on to discover the key changes you need to be aware of.
2 Budget tax changes that could affect your business’s finances
The good news is that despite speculation that Corporation Tax could rise, this didn’t materialise.
Indeed, the Corporate Tax Roadmap sets out the government’s intention to cap the headline rate of Corporation Tax at 25% for the duration of the current parliament. It also states it will maintain the Small Profits Rate and capital allowances.
However, two key announcements could affect your business’s outgoings.
The national living wage and minimum wage for young people will both rise in April 2025
If you have employees who earn the national living wage, your payroll expenses are likely to rise in April 2025.
From 6 April, the national living wage for employees who are aged 21 and over will increase by 6.7% from £11.44 an hour to £12.21. Younger workers aged under 21 who earn the national minimum wage will also benefit from a pay boost when it rises from £8.60 to £10 an hour.
Employer National Insurance will rise to 15%
Potentially having a larger effect on your business finances are the changes the chancellor unveiled to employer National Insurance (NI).
Effective from 6 April 2025, the employer NI rate will increase by 1.2% from 13.8% to 15%.
In addition, the threshold at which you will pay NI will fall. Under the current rules, employers pay NI on earnings above £9,100 a year. For the 2025/26 tax year, this threshold will fall to £5,000.
So, not only may your business be paying a higher rate of NI, but it will also be paying NI on a larger proportion of employees’ earnings.
On a more positive note, in 2024/25, employers with an NI bill of £100,000 or less may benefit from the Employment Allowance, which provides a £5,000 discount. In 2025/26, the threshold will be removed, so all eligible employers will now benefit, and the discount will rise to £10,500.
As a business owner, there may be steps you can take to reduce the effect the changes will have on your firm’s finances. For example, offering your employees a salary sacrifice scheme could be a useful way to reduce your NI bill and offer a perk that may benefit employees too.
If you’re interested in offering a salary sacrifice scheme, there are some potential implications to be aware of, including:
- Changes to contractual terms
- Employee lending options as their base salary will be reduced
- Eligibility of state benefits for employees
- Reduction of life cover of employees if their salary is lowered.
In addition, you would not be able to provide a salary sacrifice arrangement to an employee if the reduction falls below the minimum wage.
If you’d like to discuss the steps your business could take to improve tax efficiency, please get in touch.
2 Budget announcements that could affect your finances when you leave the business
Moving on from your business might not be part of your plans now, but it may still be important to consider your tax liability if or when you exit later. Understanding your tax position could help you create a tax-efficient exit strategy that suits your needs.
Some Budget announcements could affect your plans, and you may want to review them as a result.
The main rates of Capital Gains Tax have increased
Changes to the main rates of Capital Gains Tax (CGT) were effective immediately after the Budget and affect asset disposals made on or after 30 October 2024.
CGT is a type of tax you pay when you make a profit disposing of certain assets, including when you sell some business assets.
The basic rate of CGT has increased from 10% to 18% and the higher rate went from 20% to 24%.
The government revealed it would maintain the Business Assets Disposal Relief (BADR) – formerly known as “Entrepreneurs’ Relief” – at £1 million. However, the BADR rate of CGT will rise from 10% to 14% on 6 April 2025 and to 18% on 6 April 2026.
As a result, the tax bill you face when selling your business could be higher than you expect.
Changes to reliefs could affect your estate’s Inheritance Tax liability
If you plan to leave your business to a loved one when you pass away, changes to Inheritance Tax (IHT) reliefs could affect your estate’s tax liability.
After 6 April 2026, Agricultural Property Relief will be capped at £1 million and assets that exceed this threshold could be liable for IHT with a 50% relief applied. Business Property Relief will also fall from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange.
There are often steps you can take to reduce a potential IHT bill, but you usually need to be proactive. If you’d like to discuss how you could pass on your business and minimise a potential IHT bill, please get in touch.
Get in touch to understand how the Budget may affect you
If you’d like to talk about how the Budget could affect your finances and those of your business, please get in touch. We can work with you to understand what announcements mean for you and the steps you might take to reduce the effect changes could have.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate estate and tax planning.
