On 30 October, the chancellor, Rachel Reeves, delivered the much-anticipated first Labour Budget in 14 years.
Reeves announced a wide range of tax measures aiming to raise £40 billion of additional revenue to plug a significant fiscal “blackhole”.
Some of the most significant changes announced will affect business owners, who may need to adapt their financial plans accordingly.
So, read on to learn how some of the tax measures announced in the Autumn Budget could affect your business-owning clients.
Employers’ National Insurance contributions increase, but more businesses may be eligible for Employment Allowance
Labour honoured its manifesto pledge not to increase National Insurance contributions (NICs) for employees. But the chancellor did increase employers’ NICs from 13.8% to 15%, effective from 6 April 2025.
What’s more, the earnings threshold for paying NICs will be reduced from £9,100 to £5,000 from 6 April 2025. It will then increase in line with the Consumer Prices Index (CPI) from 6 April 2008.
This could mean that your business-owning clients may need to pay NICs for a larger percentage of their workforce – in addition to paying at a higher rate. In turn, these changes may represent a significant rise in costs for many business owners who may be forced to make tough decisions.
According to the Guardian, the bosses of more than 200 of the UK’s largest restaurant, pub, and hotel businesses have signed a letter to the chancellor warning that the rise in employer NICs could result in many businesses cutting jobs and investment, or closing altogether.
However, in more welcome news, the Employment Allowance – which allows eligible employers to reduce their annual NI liability – will increase from £5,000 to £10,500 from 6 April 2025.
Additionally, the £100,000 threshold will be removed from 6 April 2025, making the Employment Allowance accessible to all eligible employers with NICs bills.
Currently, only businesses and charities that have Class 1 NI liabilities below £100,000 in the previous tax year can claim Employment Allowance.
So, business owners may be able to offset some or all of their additional NICs costs by claiming this allowance.
Indeed, the government says that taken together, these measures could mean that 865,000 businesses will pay no NICs at all, and more than half of employers with NI liabilities will either see no change or will gain overall next year.
Business owners might need to budget for a rise in the National Living Wage
The chancellor introduced several wage increases that could push costs up for business owners.
The national living wage, payable to workers aged 21 and over, will increase from £11.44 to £12.21 an hour from 6 April 2025.
In addition, the national minimum wage, payable to those aged 18 to 20, will increase from £8.60 to £10 an hour. Apprentices will benefit from the most generous pay increase, with hourly pay rising from £6.40 to £7.55 an hour.
How much these changes affect a business owner will depend on their specific circumstances. Business owners who have several employees paid at the national minimum or living wage will need to budget for an increase in their pay from April 2025.
In addition to the rise in employer NICs, these changes could significantly increase a business’s outgoings.
The Employment Allowance may mitigate these additional costs for those who are eligible.
However, where the director of a limited company is the only employee paid above the secondary threshold for Class 1 NICs, the company can’t claim the allowance. So, single-director companies may need to look elsewhere to fund any increase in their employer NICs and staff wages.
Eligible retail, leisure, and hospitality businesses may continue benefiting from business rate relief
Business rate relief was introduced in 2020 to help businesses operating in the retail, leisure, and hospitality sector, which were hit particularly hard by the coronavirus pandemic.
The relief effectively reduces business rate bills for eligible businesses, who currently benefit from a 75% discount, capped at £110,000 for each business. This was due to expire in April 2025.
In her Budget, the chancellor announced that business rate relief will be extended, with two permanently lower business rates for these industries to be introduced in 2026/27.
While this is positive news for businesses in this sector, the relief will fall from 75% to 40% for the 2025/26 tax year. The cap of £110,000 for each business remains.
This means that many business owners may see their business rates nearly double next year.
Business owners might benefit from revisiting their estate plans
Currently, your business-owning clients could claim up to 100% Inheritance Tax (IHT) relief on qualifying business and agricultural assets.
But from 6 April 2026, the existing 100% relief will apply only for the first £1 million of combined agricultural and business property.
Any such assets that exceed this threshold will usually only attract 50% relief. As the standard IHT rate is 40% in 2024/25, this means that any qualifying assets above £1 million are likely to attract a 20% IHT charge.
Historically, many family businesses have relied on Business Property Relief and Agricultural Property Relief for tax-efficient succession and estate planning.
So, the reforms announced in the Budget represent a major change for some businesses, estates, and trusts.
However, the number of estates that will make claims for relief that exceed £1 million, may be relatively small. Additionally, 100% relief on the first £1 million plus 50% thereafter, could still be a significant IHT reduction for most estates.
Yet, if you have business-owning clients who are likely to be affected by these changes, it’s well worth them reviewing their estate plan to ensure their wealth is passed on as tax-efficiently as possible.
Get in touch
If you have any questions about how we could work with your clients, or if you have business-owning clients who need help navigating the Budget changes, please get in touch.
Email hello@sovereign-ifa.co.uk or call 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, or trusts.
Approved by Best Practice IFA Group 19/11/2024
