How the Autumn Budget Affects SMEs – A Quick & Simple Guide

There were few surprises in the chancellor’s budget announcement. Rachel Reeves had long been bracing the nation for what the Prime Minister had described would be a “painful” budget, and although the measures announced weren’t quite as difficult to swallow as many first imagined, there will certainly be an impact on the UK’s businesses.

There’s plenty to sift through, but we’ve picked out the key points from the budget that are most likely to affect small businesses.

An increase in National Insurance contributions

Labour had already promised that there would be no increase in National Insurance contributions for employees but became increasingly coy when asked about employers.

As expected then, employers will be subject to an increase in the National Insurance they’re expected to pay. A rise of 1.2 percentage points will take place in April 2025, bringing the rate to 15%.

This increase is accompanied by a lowering of the threshold that contributions need to be paid. A drop from £9,100 to just £5,000 will compound the impact that companies will feel from this change.

National Minimum Wage

The other headline change that will be of interest to many companies is the increase in National Minimum Wage. Labour’s pre-election manifesto detailed a commitment to move the minimum wage closer to a true living wage, so it was no surprise to see this change in the budget.

Moving from £11.44 to £12.21 per hour will undoubtedly stretch some SMEs, but larger still is the increase for workers aged 18-20. As part of a long-term effort to achieve a single minimum wage for all adults, this age group will see a rise from £8.60 to £10 per hour.

Apprentices too, will be entitled to a higher wage, with their rate being moved from £6.40 to £7.55 per hour.

Employment Allowance

As a rare piece of good news for businesses in this budget announcement, there will be a rise in Employment Allowance for small businesses.

In a move designed to soften the impact of the National Insurance changes, the allowance will increase from £5,000 to £10,500. This, Reeves says, will allow SMEs to take on four full-time workers without having to pay any National Insurance. The chancellor claims that this change will see 865,000 employers not having to pay NICs at all, while over a million will pay the same they do now or less.

Currently limiting eligibility for this allowance to businesses with NICs bills of £100,000 or less, this threshold will be removed. What this threshold will be replaced with though, is still unclear.

Business rates reform for retail, hospitality and leisure

An attempt to help out the struggling British high street, business rates have been reformed to include a permanent 40% relief up to a maximum of £110,000.

Those in hospitality will have mixed feelings about this. Currently eligible for a temporary 75% relief, many in the sector were concerned about the ‘cliff edge’ approaching when it ran out in April. While the previous government’s reluctance to provide a permanent solution might have suggested a 75% rate wasn’t sustainable, there was still hope that it could be kept somehow.

The hospitality sector has seen many casualties over the last few years despite the 75% relief, so while a permanent cut is welcome, it may not be enough for thousands already struggling.

Capital Gains Tax changes

Business owners looking to sell soon will be disappointed to see the rate of Capital Gains Tax increased from 10% to 18% for the lower rate, and 20% to 24% for the higher rate.

What are business experts saying about the budget?

Rick Smith, founder and MD of Forbes Burton, commented that “the theme throughout the budget is that the government are looking to business owners rather than employees to plug the £22bn ‘black hole’.

“There’s a risk that in loading the burden onto business owners though, that the costs will end up being realised by the average working person anyway. This could be through increased prices or by a reluctance to make new hires”.

Senior Client Manager and Consultant, Ben Westoby, has concerns about changes to the National Minimum Wage. He suggests that “businesses that employ a large number of young workers will find the 16.3% jump in wages for those between the ages of 18-20 difficult.

“While a rise from £8.60 is a fair move, the timing of this increase among other changes could well see certain businesses struggle.

“We could also see the plight of distressed hospitality companies continue apace. While the upcoming ‘cliff edge’ for them has been addressed, the resulting 35% increase in the business rates they’ll pay still amounts to a drop from a very steep hill at least.”

Worried about some of the changes?

Despite the government’s attempts to make the clawing back of the £22bn deficit as comfortable as possible, it will inevitably hit some harder than others.

If you’re concerned that these changes may make it difficult for your business to remain viable, it’s crucial that you take action now rather than waiting until April. We offer free consultations to business owners that can provide you with a solid strategies that ensure your business is ready for incoming changes.

With a range of solutions aimed at making life easier for business owners, Forbes Burton can help you to successfully navigate any difficulties. Get in touch for a free consultation today to see how we can help. Call us on 0800 975 0380, or email [email protected] for your free consultation with no obligation.