Autumn Budget 2024: a closer look at the impact on SMEs
With such intricate details, what do business owners need to consider in their budget?
The government has given us a large budget for investment, improving the country’s foundations and promoting long-term stability. A new tax of £40 billion was announced to fund the sunny forecast, but the key message is that this budget will not hurt workers. Instead, most of the new taxes will be imposed on companies both large and small – a strategy that may prove successful in the long term but will inevitably result in huge losses for many UK companies in the short term.
In this blog, we’ll look at the most significant additional costs facing SMEs in the coming year. To see three examples of how the budget will affect businesses in the manufacturing, retail and pub sectors, click here.
Increased Costs for Employers
One of the most significant changes for business is increased recruitment costs. The “Make Work Pay” initiative launched by the government, apart from aiming to increase workers’ income, will also increase employers’ National Insurance Contributions (NIC).
For example:
- A business with an annual payroll of £50,000 will pay an additional £1,106 in NICs per year.
- For businesses that have many employees on the National Living Wage, the impact could be more significant. A business with five full-time employees on the National Living Wage will incur additional costs of around £2,270 per year.
Other Fee Increases
Business Rates: While there is relief for retail, hospitality and leisure businesses, many other businesses will face increases in business rates.
Business rates are expected to increase by £26 billion by 2024-25 and account for a quarter of Local Government core purchasing power. They support essential local services, including social services for children and adults, but businesses have expressed concerns that the system will discourage investment and be slow to respond to changing economic conditions.
As a result, the Chancellor announced the first steps to reform the business rates system:
- Introducing permanently lower multipliers for retail, hospitality and leisure (RHL) properties with a rateable value (RV) below £500,000 from April 2026-27.
- Introducing a higher multiplier on properties with RVs of £500,000 or more, which includes most large distribution warehouses including those used by online giants such as Amazon.
- Support for retail, hospitality and leisure properties in the interim period ahead of the new permanent multiplier by providing RHL businesses with 40% relief on their business rates in 2025-26, up to a cash cap of £110,000 per business.
Capital Gains Tax: The increase in Capital Gains Tax rates will impact businesses selling assets or exiting.
This is bad news for many company directors and shareholders. CGT tax rates were increased, with the basic rate rising from 10% to 18% and the higher rate rising from 20% to 24%. Starting April 2025, the new schedule will look like this:
| TAX BAND | TAXABLE INCOME | % CGT |
|---|---|---|
| Base | £12,571 to £50,270 | 18% |
| Higher | £50,271 and above | 24% |
According to the Government, the Office for Budget Responsibility said changes to CGT would raise £2.5 billion by the end of the forecast and the UK would continue to have the lowest CGT rate of any European G7 country.
Alice Shaw, wealth planner at Succession Wealth, says:
“Increased CGT on asset sales/business sales could impact future retirement plans, meaning clients work longer or save more. Salary tradeoffs are now more attractive given that NI levels have increased.”
Stamp Land Tax: The increase in Stamp Land Tax for additional properties will affect business actors who buy property.
This is bad news for would-be property magnates: Higher Rates for Additional Dwelling Fees Stamp Duty Land Tax will rise from 3% to 5% on 31 October 2024, making things easier for those looking to move house, or buy their first property , a comparative advantage over second home buyers, landlords, and businesses purchasing residential properties.
Currently, buyers of homes worth less than £250,000 do not pay stamp duty. This amount has doubled from £125,000 under Liz Truss’ mini Budget in September 2022.
The threshold is £425,000 for those buying their first property. This fund was raised from £300,000 as part of the mini-Budget. This higher threshold will expire in March 2025, and will return to previous levels.
Current threshold:
- £0-£250,000 (£425,000 for first time buyers) = 0%
- £250,001-£925,000 = 5%
- £925,001-£1.5 million = 10%
- £1.5m+ = 12%Single rate of stamp duty charged when a company buys a residence worth more than £500,000 will also increase from 15% to 17%.
A single rate of stamp duty is charged when a company buys a residence worth more than £500,000 will also increase from 15% to 17%.
Positive Action
- Corporate Tax Stability: The maintenance of the corporate tax rate at 25% provides certainty for the business world.
- Research and Development Tax Credit: Government support of research and development tax credits can benefit innovative businesses. Many have been disappointed by HMRC’s crackdown on fraudulent claims, but this should not deter any business with a legitimate claim from making an application.
- SEIS and EIS: The scheme, which encourages investment in high-growth businesses, has been extended until 2035.
What Can SMEs Do?
- Review payroll costs: Analyze payroll costs to identify areas for potential savings, such as automating tasks or outsourcing non-core functions.
- Explore tax saving strategies: Consult a tax advisor to identify opportunities to minimize tax liabilities.
- Invest in technology: Investing in technology can increase efficiency and reduce costs.
- Seek professional advice: Seek advice from accountants and business advisors to navigate the complex tax landscape.
Want to learn more about how budgets impact your business? We hosted a webinar analyzing what budgets mean for SMEs. Andrea Reynolds and Ciaran Burke, co-founders of Swoop, join Sage’s Chris Downing. Watch the recording here:
