In this special edition blog post, we dive deep into the recent UK budget and its impact on businesses. From policy shifts to strategic opportunities, here’s everything business owners need to know.
The UK Budget's Shift to Long-Term Investment
The latest budget, presented by Rachel Reeves, introduces a crucial shift towards long-term planning for UK businesses. By differentiating between day-to-day spending (such as the NHS and benefits) and long-term investments (like infrastructure projects), the government aims to foster sustainable growth. This distinction is designed to support the economy without burdening the annual budget with large, one-off expenses—a promising move for stability-focused businesses.
A Return to Annual Budget Cycles
One significant change is the return to an annual budget cycle. For businesses, this means increased consistency, making it easier to align with their planning timelines. However, with the October budget announcement date, larger companies that set budgets earlier in the year may find it challenging to adapt quickly, potentially leading to cautious spending and slower growth.
Budget Wins for UK Businesses: Key Policies
The 2024 budget offers several benefits for UK businesses. Here are the key wins:
Dividend Tax - The dividend tax allowance remains unchanged, avoiding potential increases that were anticipated by some. This is good news for business owners who rely on dividends for income.
Corporation Tax Stability - Corporation tax remains capped at 25% for the current parliamentary term, providing stability and helping companies plan long-term.
Annual Investment Allowance - The Annual Investment Allowance is capped at £1 million, allowing businesses to write off qualifying investments in the first year—a clear incentive for growth.
Fuel Duty Freeze - Fuel duty remains frozen, a relief for logistics and transport-heavy businesses facing volatile fuel costs.
Electric Vehicle Tax - Benefit-in-kind tax for electric vehicles will gradually increase until 2030, offering stability for businesses investing in a greener fleet.
Business Rates Relief for Retail, Hospitality, and Leisure - These sectors benefit from a 40% rate relief. However, there’s some uncertainty around which properties will bear the cost of this relief, potentially exposing mid-sized businesses to higher rates.
Budget Losses for UK Businesses: Key Challenges
While the budget includes favourable policies, there are also notable challenges. Here are the key policies that may impact business profitability:
Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR)
CGT has increased from 10% to 18% and from 20% to 24% on shares in businesses, affecting owners planning for retirement or major exits.
BADR, previously known as Entrepreneurs’ Relief, now offers a 10% tax rate on gains up to £1 million. However, this will increase to 14% next year and to 18% in the future, still lower than income tax but higher than before.
Rising Employment Costs - Employment costs are one of the biggest budget impacts on businesses, especially for those with a significant workforce. Key changes include:
National Minimum Wage Increase
For employees aged 21 and over, the wage increase is 6.7%, translating to an additional £1,400 per year for employees on the National Living Wage.
The 18-20 age bracket sees a 16% increase, adding an estimated £3,500 in annual costs per young worker.
National Insurance (NI) Contributions
Employer NI contributions will rise from 13.8% to 15%.
The NI threshold has lowered from £9,100 to £5,000, meaning employers now start paying NI on salaries above £5,000. This will add about £800 annually for an employee earning £25,000 and around £1,000 for those on a £40,000 salary.
Employment Allowance Increase - To offset rising costs, the Employment Allowance has more than doubled, from £5,000 to £10,500. For small businesses with a limited number of employees, this could effectively cancel out the increase in NI contributions.
Strategic Tips for Small Business Owners
For small business owners, navigating these changes thoughtfully is essential. Here are some key strategies:
Optimise the Employment Allowance - If you have fewer than four or five employees, the raised Employment Allowance could absorb the impact of increased NI contributions. For larger workforces, however, expect higher payroll expenses.
Review Director Compensation - With the changes to NI thresholds, directors may need to reconsider their compensation structures. Many directors rely on low salaries plus dividends to minimize NI. Consulting a tax advisor can help determine the most tax-efficient approach.
Reassess Employee Pay Reviews - Rising employment costs may lead businesses to adjust employee raises to offset the NI increase. Balancing cost control with competitive compensation is vital for retaining talent in a tight labour market.
Looking Ahead: Stability and Predictability in the UK Budget
The 2024 budget reflects a broader government focus on stability and predictability for UK businesses. While challenges exist, the budget’s emphasis on long-term investment and its shift to an annual cycle offer promise for more sustainable growth.
In conclusion, adapting to these changes will require strategic planning, particularly for small businesses and companies with significant payrolls. Whether it’s leveraging the Employment Allowance or reassessing tax strategies, this budget offers both opportunities and challenges for UK business owners.
Stay informed and stay proactive—these are essential steps for success in the evolving UK economic landscape.
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