There’s always a lot of talk about the government’s budget and this year was no different. On October 30th, Chancellor Rachel Reeves took centre stage and delivered the autumn budget to MPs in the House of Commons. As Labour’s first budget in many years, there was a lot of speculation in the lead up to the statement, with business owners wondering what big changes were coming.
What is the Government Budget?
Each autumn, the government announces its budget, a statement given by the Chancellor of the Exchequer to the House of Commons. The budget sets out the government’s financial plan going forward, including how they plan to spend money in the upcoming financial year. It includes how the government plans to allocate funding to healthcare, education, defence and infrastructure. It also details any changes to taxation, welfare and duties on goods, such as alcohol and tobacco. This week, Chancellor Rachel Reeves delivered the Labour’s first budget in 14 years, and a lot of changes were announced. As a business owner, a lot of what’s mentioned in the budget is likely to impact you going forward, which is why it’s important to take note of what’s announced.
Budget 2024: Key Points Announced
Chancellor Rachel Reeves announced a lot of changes in the autumn budget, and a number of them are likely to impact your business.
- Minimum Wage is Going Up – One of the biggest things for business owners to take note of is that minimum wage is going up. As part of the budget, Reeves announced that minimum wage will increase by 6.7% in April 2025, rising to £12.21 for workers aged 21 and up. This equates to a payrise of £1,400 a year for a full time employee. For workers aged between 18 and 20, minimum wage will rise by 16%. This is good news for employees, but it does mean that businesses are going to be spending more on staffing. This could mean a significant increase in costs for your business when it comes to paying employees and covering the cost of expanding your team.
- Personal Tax Freezes Won’t Be Extended – In 2021, the previous government put a freeze on income tax and National Insurance thresholds, but Reeves announced that this will be coming to an end in 2028. By freezing the thresholds, many workers pay higher rates of tax as their income increases, as they move into higher tax bands. Reeves is changing this and from 2028, income tax and National Insurance thresholds will be increased at the rate of inflation.
- Increasing Employer National Insurance Contributions – As a business owner, you currently pay National Insurance contributions at a rate of 13.8%. As announced in the budget, this will be increasing to 15% in April 2025, an increase of 1.2%. At the moment, employers start paying National Insurance on employees’ earnings over £9,100 per year, but this is dropping to £5,000 per year. Reeves explained that this will raise £25 billion for the economy, but it does mean that if your business employs people, you could see your outgoings increase.
- Reduced Business Rates for Retail, Hospitality and Leisure – A lot of businesses struggle to keep up with online rivals, and high street shops and brick-and-mortar businesses often struggle to keep up. The budget included plans to combat this by offering 40% relief on business rates in 2025 – 2026 for businesses in retail, hospitality and leisure. This reduction in business rates could help your business to keep up with rising costs, giving you the chance to keep up with online competitors.
- Employment Allowance is Increasing – In 2014, the government set up Employment Allowance, which allows businesses to reduce their employers’ National Insurance contributions by up to £5,000. To help businesses to manage the rise in employer National Insurance contributions to 15%, Employment Allowance is being increased from £5,000 to £10,500.
- Rising Capital Gains Tax – When you sell an asset – such as property, shares or investments – and that asset has increased in value during the time that you’ve owned it, you have to pay Capital Gains Tax. Currently, the lower rate of Capital Gains Tax is 10%, but Reeves announced that this will be increasing to 18%. The higher rate of Capital Gains Tax is 20% at the moment, but this will be increasing to 24%.
What Does the Autumn Budget Mean for Your Business?
A lot of what’s announced in the budget won’t directly affect your business – unless you work in a specific area, such as healthcare or education – as the changes are more focused on your personal circumstances. But, there were some things in the budget that will have a direct impact.
- Minimum Wage Increase – With the minimum wage for workers set to increase, your business could be faced with higher salary expenses. You might need to adjust your budget to cover higher wages, especially if you were planning to expand your team and hire more people in the future. This is likely to impact small businesses and those with limited staffing budgets the most. Many businesses will find themselves having to consider changing staffing levels or passing the additional costs on to customers.
- End of Personal Tax Freezes – This isn’t likely to have an impact straight away, as the end to personal tax freezes doesn’t come into effect until 2028, where thresholds will begin to rise with inflation. But, eventually, you might find that consumer spending increases, and your employees could end up with slightly higher disposable incomes, depending on which tax bracket they fall into. As a business owner, you’ll need to understand how the tax rates change with inflation, and factor this into pay rises. It’s not uncommon for an employee to want a pay rise, but to also want to avoid their tax bill going up too much.
- Increased National Insurance Contributions – If your business employs people, you will soon be paying a higher rate of National Insurance. The rate will rise from 13.8% to 15% in 2025, and the earnings threshold at which you start paying is dropping from £9,100 to £5,000. This means that you will pay more in employer contributions which, if you employ a lot of people, could mean significant increases to your payroll costs.
- Reduced Business Rates – The reduced business rates for retail, hospitality and leisure will help brick-and-mortar and high street businesses to remain competitive. This could ease overhead costs if you’re in one of those sectors, allowing you to put more money into your day-to-day operations and competing with online competitors. For businesses struggling with high property costs, this is likely to be a huge cost saving and could help to boost profitability.
- Increased Employment Allowance – By increasing the Employment Allowance you’re likely to find it easier to cover the cost of rising employers’ National Insurance contributions. If your business qualifies for the allowance, you can reduce your employer National Insurance contributions, freeing up funds for reinvestment in other areas of your business, such as expansion and growth.
- High Capital Gains Tax Rates – For businesses or business owners looking to sell assets like property or shares, the increased Capital Gains Tax rates mean more significant tax implications. This change might influence when you decide to sell assets or when you choose investment, as some businesses are likely to speed up or delay the process to work around the increase. You’ll need to plan your Capital Gains Tax obligations to make sure you maximise the returns on asset sales.
As you can see, there was a lot to take note of after the budget, as many of the key points are likely to directly impact your business. Of course, there’s no reason for it to hinder your growth. To find out more about continuing to grow, expand, and thrive going forward, get in touch with the Profici team.
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