Tax Hikes and Their Impact on Your Business
The Autumn Budget 2024 brought significant changes to the financial landscape for businesses across the UK. With rising taxes and new policies implemented, small business owners, entrepreneurs, contractors, carers, property investors and taxpayers all shape and size needed to understand what these changes meant for their operations and finances.
In this blog post, we explored the tax rises, examined key policy shifts, and discussed practical strategies that helped you adapt and thrive in the evolving economic environment.
Understanding the Autumn Budget 2024
On October 30th, Chancellor of the Exchequer Rachel Reeves took the stage to unveil the much-anticipated Autumn Budget 2024.
This annual fiscal event was accompanied by a comprehensive fiscal statement from the Office of Budget Responsibility (OBR). The Autumn Budget sets the government's economic direction and outlines tax policies that will shape the financial landscape for the coming year.
For business owners, staying informed about these developments is crucial. The decisions made in this budget can have a direct impact on your profit margins, tax obligations, and overall business strategy. It's not just about anticipating changes but also preparing to adapt your business model accordingly.
Employer National Insurance Payments
Employers now pay NI on their employees' earnings at a rate of 13.8%.
National Insurance Contribution will increase by 1.2% to 15% as of April 2025.
Chancellor also confirmed that income tax, employees' national insurance contributions and VAT will NOT change.
Employer National Insurance Contributions is now 15% of the margin between £9,100 and your employees' annual salary. So, for an employee earning £30,000 a year will cost £3,135 per year, which was previously £2,884.20
£30,000 - £9.100 = £20,900
£20,900/15 x 100 = £3,135 per year.
These are the income thresholds where people start paying National Insurance or income tax or face higher rates. Usually, these thresholds went up every year with inflation, but the Conservative government froze them in 2022. They were supposed to go back to annual increases from 2028, but now the chancellor has changed that course.
Fuel Duty Adjustments
The fuel duty rate in the UK has remained frozen at 52.95 pence per litre for both standard petrol and diesel since like in April 2023.
Carer's Allowance Rise
The removal of the carer's allowance cliff edge marks a significant policy shift. This change seeks to offer caregivers more consistent support by enabling them to receive benefits without sudden cutoffs. The allowance will rise from £81.90 per week to match the equivalent of 16 hours at the National Living Wage each week.
For businesses, this policy change highlights the importance of supporting employees with caregiving responsibilities. Consider implementing workplace policies that accommodate caregivers, such as flexible work arrangements or additional leave options. By fostering a supportive environment, you can enhance employee well-being and retention.
VAT Changes for Private Schools
One of the most anticipated tax hikes didn`t happen. Reeves said they will introduce VAT on Private School Fees as of January 2025.
Capital Gains Tax Hike: What It Means for Entrepreneurs
It has now increased from 10% to 18% at the basic rate and from 20% to 24% at higher rate.
The profit tax on sold assets for business and/or second homes was the much- anticipated change.
For entrepreneurs and business owners planning to exit their companies, the proposed increases in capital gains tax could significantly impact their personal finances.
One approach to managing this potential hike is through careful tax planning and exploring options for deferring or reducing capital gains taxes. Additionally, seeking input from financial advisors and tax specialists can help identify opportunities for optimizing your tax obligations while positioning yourself for future success.
Minimum Wage Ris
- Right now, it's valued at £11.44 per hour, and it's going up to £12.21 by April 2025.
- Young employees, aged 16 to 20 earn the National Minimum Wage. Currently, 18 to 20-year-olds get £8.60, but that will jump to £10 per hour in April 2025, marking the biggest increase ever. It’s part of the move toward a unified adult rate.
- For 16 and 17-year-olds , the wage is £6.40 per hour, though the April 2025 rate is still up in the air.
- The apprentice rate , for those under 19 or over 19 in the first year of an apprenticeship, is going up from £6.40 to £7.55, an 18% hike.
- The London Living Wage is getting a boost, going up by 70p to £13.85 an hour for workers in the city.
- In the rest of the UK, a 60p increase will take the rate to £12.60.
Income Tax
The Chancellor, as promised, didn`t make any amendments on workers` payslip but she also added that the freeze will NOT extend beyond 2028. That is another 3 and some years of extra pounds in the pocket. For now.
Alcohol Duty Cut
Duty on draft alcohol will be cut whereas on non-draught will increase as of February 2025. That is equivalent to a penny off the pints at the pubs as Chancellor Reeves put it.
Windfall Tax Increase
A windfall tax is a levy imposed by the government on companies that have benefited from unforeseen and significant profits, often due to economic circumstances such as sharp increases in prices or fluctuations in demand. In the UK, this tax is primarily targeted at sectors like energy, where companies may experience substantial profits due to market conditions. The purpose of a windfall tax is to ensure these unexpected gains contribute to the broader economy, often as a means of funding public services or addressing fiscal challenges.
Windfall Tax is to increase on oil and gas profits to 38% until March 2030. Also, the government will take off 29% investment allowance.
Conclusion
As the fiscal landscape evolves, business owners must remain vigilant and adaptable in their financial planning and tax affairs. Changes in National Insurance and Capital Gains Tax indicate higher operational costs and reduced profit margins, requiring a careful reassessment of financial strategies. Employers should integrate efficient payroll systems and exploit available reliefs to mitigate rising National Insurance obligations. The introduction of VAT on private schools and increased windfall taxes signals to various sectors to anticipate additional tax liabilities. Meanwhile, the Minimum Wage increase, while beneficial to employees, requires cost assessments and adjustments in budgeting and pricing strategies for businesses. Financial planning should take a proactive approach, leveraging tax specialists and financial advisors to navigate regulations and identify savings and growth opportunities. By understanding these changes, businesses can ensure resilience and prosperity in a dynamic
economic environment.
