Autumn Budget 2024 for small business owners – Not as bad as it could have been – or was it?
Fair play to Rachel Reeves, for someone not known for her public speaking skills we thought her first Budget speech overall went pretty well.
The jokes were a distinct improvement on Jeremy Hunt’s (a low bar admittedly) and the political points were quite sharply crafted.
However, what of the content?
For a while we’ve felt that the plan was for the pre-Budget chat to give the impression that the world was about to come to an end, so when it was just pretty awful everyone would feel relieved.
At this stage we suspect that is the feeling most people have – but we also suspect once the dust has settled some real thinking has been done that this will prove to have some longer term nasties hidden in there, either deliberately or in some cases by virtue of Brown’s Law of Unintended Consequences…
Employers take the hit
Objectively it feels hard to take issue with a measure which means the least well paid earn more, so in that sense the increase in the National Living Wage (and the eventual alignment at the same rate for all adults) is a good thing – an extra £1,400 per year for a full time employee on the lowest pay rates.
However, it is employers who have to pay for this and for many (hospitality businesses, care providers and the like) this will result in a very significant increase in cost when it kicks in.
Add to the increase in the employers’ national insurance rate from 13.8% to 15% and the drop in the secondary threshold (the point at which employers start to pay NI) from £9,500 to £5,000 and this means employers are bearing a huge part of the burden of the £40 billion of tax hikes that the Chancellor announced.
Ultimately though surely the consumer will bear this cost in the form of increased prices as employers have little option but pass these costs on just to maintain profitability.
The increased (and now unrestricted) employment allowance will compensate for this to an extent, but barely a drop in the ocean for many larger employers.
One interesting quirk which may be addressed in the Budget papers – many owner managers pay themselves a salary which is enough to get their state pension credits for the year but not enough to mean they pay either employer or employee NIC.
That level this year is £6,936.
When the lower employer threshold kicks in this means that the will be employers’ NIC payable on the excess over the new lower £5k threshold.
Not a huge amount but another admin headache if nothing else…
And, having run the numbers, regardless of the admin headache, if you are one of the many single person limited companies, and therefore do not have access to the Employment Allowance, you will still be slightly better off when you consider both personal and company taxes and profits if you take your full personal allowance by way of salary and the remainder in dividends.
Finally, we are surely going to see an increasing temptation for employers to try to classify their employees as self employed now that the cost of employment is much increased?
This is already a minefield with case law being at best confusing and at worst incomprehensible – yet employers are meant to self-assess the status of those workers who do not clearly fall on one side or the other of the employed/self-employed threshold.
Taxes on income
To the surprise of many the Chancellor indicted that the current freeze on the increase in the personal allowance and other income tax thresholds will end in 2028 – many had expected this to be extend to 2030.
Of course 2028 is a long time away and things have a habit of changing but perhaps a tiny glimmer of light at the end of a long tunnel.
From a corporation tax point of view we are to see a CT roadmap setting out the government’s plans for the tax into the future.
The capping of the rate at 25% was also re-affirmed, but of course many companies pay tax at the lower 19% rate on profits up to £50k.
What price a uniform CT rate of 25% by the end of this parliament?
Indirect taxes
The much predicted increase in fuel duty and the reversal of the “temporary” 5% cut were seen as a certainty – but didn’t eventuate, being put back until at least 2026 it seems.
This seems like a sensible move but will cause a lot of petrol retailers some work changing their pricing for tomorrow (although how many might try to sneak in a rise anyway?).
VAT on private school fees was confirmed from January 2025 to non-one’s surprise as well las the removal of business rates concessions.
The amounts quoted as being raised by this move seemed very high to us, but no doubt they have been rigorously calculated on the back of a spare treasury envelope as opposed to a fag packet…
A new and improved HMRC
Anyone who has to deal with HMRC should rejoice that their systems will be improved and they are going to recruit more staff – they will also redouble their efforts to tackle tax avoidance (good!).
Of course, the same was said in every Budget for years without any discernible effect – but maybe this time will be different…🤷🏽♀️
Capital Gains Tax
This was one area that was clearly in the sights of the Chancellor in the lead up to the Budget.
The main rates of CGT will increase from 10% and 20% to 18% and 24% respectively – so nowhere near the 39% that was being bandied around.
These changes though kick in from Budget day (which was not at all obvious from the speech) – so not as bad as feared but earlier than hoped.
These now align with residential property rates.
Business Asset Disposal Relief also stays as is until April when the tax rate increases from 10% to 14% and then to 18% in April 2027.
There is then still some reward for those who create value by building trading businesses although and the increase in rate is somewhat slower than for the main rates.
I just hope that those who have rushed to sell in the lead up to the Budget are not now getting a sense of sellers’ regret as a quick deal is not always a good deal.
Inheritance tax
Another clear Budget target and one here where the changes at first sight may seem reasonably minor but in fact could have very far reaching consequences.
Firstly, to no-one’s surprise, the nil rate band remains frozen at £325k until April 2030.
This is as classic a case of fiscal drag as you could look for – as property prices increase more and more estates will be dragged into IHT…
The more this is the case, the greater the proportion of people who will simply not be ready to deal with this tax which they probably never expected to pay.
The other measures however create the biggest hits.
At the moment an individual’s pension fund is entirely outside of their estate for IHT purposes.
This will change from April 2027 when inherited pension funds will form part of an individual’s estate for IHT purposes.
This will again drag many more people into the IHT net and has to cause many to question their strategy around saving for retirement.
You have to imagine that there will be a mechanism to use the funds in the scheme to pay the tax but even so this is going to be a massive change for many people.
Currently, those investing in shares on the UK’s Alternative Investment Market also get IHT relief on the full value of their shares once they have been held for two years – this makes AIM shares a valuable tax planning tool.
This relief is to be reduced to 50% meaning that the value will be taxed at 20% – presumably meaning some shares will have to sold to pay the tax.
Still, the fact the AIM market seems to have jumped after the announcement means that the expectation was that the relief would be withdrawn in full – so it seems the market feels it has dodged a bullet…
Coupled to this are the changes to the IHT Business Relief and Agricultural Relief.
At the moment qualifying businesses and agricultural assets qualify for 100% relief from IHT irrespective of value.
However from April 2027 only the first £1 million of value will attract full relief, with any value in excess of that being taxed on death at 20%. Where the estates are supposed to find the cash to pay this tax is unclear – my guess is that it will be payable by instalments but even so it’s a cash hit which may have to be funded by realising some or all of the value of the business.
Not as bad as we feared?
On the whole the answer seems to be “yes.”
CGT rates have increased but to penal levels, fuel duty changes have been delayed and income tax bands may actually increase again one day (perhaps).
However employers have taken a big hit and my fear is the IHT changes will have much greater and longer term consequences than the thro away comments in the speech might imply…
Certainly the approach to succession planning for owner managers may change significantly as we head towards these changes – death, it seems, may no longer be the best form of tax planning…
For the full brief please see the link below:
And for the HMRC microsite with all budget related policy documents, please find this below:
https://www.gov.uk/government/collections/autumn-budget-2024-tax-related-documents
For any advice or guidance, please do contact the team at IN Accountancy who will be happy to help you:
