Wednesday 30th October 2024 saw Chancellor Rachel Reeves deliver Labour’s first budget since the new government’s election earlier this year. After weeks of speculation and rumours about potential incoming changes that would impact our clients, we are finally in a position to be able to shed some light on the matter.
Below is a summary of key points directly impacting contractors and small business owners. Our experts have broken down how these changes have an impact on Caroola clients going forward:
Employer’s National Insurance
The government announced the lowering of the Employer’s National Insurance (ERs NI) threshold from £9,100 to £5k and increasing the rate by 1.2% to 15% from April 25, meaning that more ERs NI will be payable by employers.
ERs NI is a company expense however, and so will qualify for Corporation Tax (which has been capped at the 25% rate) Relief, and ltd company directors will still have the ability to choose the most tax efficient salary for both their limited company and for them personally.
To help them work this out, we would recommend a chat with their accountant, who can discuss the optimum strategy for directors and their limited companies.
National Minimum Wage
Those with employees should be aware of the National minimum wage rising to £12.21 (6.7% up) from April 2025, an increase of circa £1,500 on a 37.5-hour average working week. By also increasing the 18–20-year-old pay rate to £10 per hour, and under 18’s and apprentice rates to £7.55 from £6.40, the government confirmed their intention to move towards a single wage rate.
Add to these increased wages the increase in amount that will be due in ERs NI, and it is clear to see the additional wage burden on a company post April 2025. However, there is some good news.
Although single director/employers are unlikely to benefit from Employment Allowance (EA), the £100k ERS NI wage bill threshold has been removed and so those companies with ‘qualifying’ employees could utilise up to £10.5k (increased from £5K) of Employers Allowance which will help to ease the burden of any ERs NI that would otherwise be due.
Pensions
While there were no changes announced to pensions, we did have confirmation of ongoing commitments to the triple lock, which is projected to rise to 4.1% in 25/26. So, the ability to claim Corporation Tax on company contributions remains, making it a continued tax efficient strategy for some. You may find it worthwhile to check in with your financial/pension advisor to see if any current plan needs tweaking.
Capital Gains Tax
Capital Gains Tax (CGT) will increase from 30th October 2024 with the lower rate of 10% increasing to 18%, and the higher from 20% to 24%. This will bring it in line with residential property, which stays at 18% and 24%. As this could have a direct impact on share transfers and disposals, it may be worth reviewing current assets or speaking to a financial adviser to make sure any disposal strategy you may have had is still going to work for you.
Business Asset Disposal Relief
The £1million lifetime limit remains, however, it will face an increase in rates from 10% to 14% from April 2025 and then again to 18% from April 2026. This will bring it in line with the lower rate of CGT, and so will erode some of the tax efficiency of the BADR scheme. It could already be too late to take advantage of any current BADR reliefs, but you can perhaps adjust your strategy for the future. This could include:
- Drip feeding more of your reserves out of the company over a number of years, if you have room to maximise the lower rate thresholds
- Adopting a company pension strategy in addition
- Exploring succession plans, or additional shareholder options, or indeed any other compliant tax efficient strategy
Inheritance Tax
IHT thresholds are being frozen until 2030, and again, perhaps time for those with a limited company to explore succession plans.
Property Investments
Those who have property investments will find increases in the Higher Rates for Additional Dwellings of Stamp Duty Land Tax from 3% to 5% from October 2024. With the change coming into effect today, unless you are exchanging contracts today, you will likely get hit with the increase, if applicable to you.
Our Technical Compliance Manager Joanne Thorne has given us her thoughts:
No matter how you feel about the Autumn Budget, it truly was a historic moment for women. Rachel Reeves delivered the budget confidently and coherently and you could sense the pride. It feels like a turning point, showing young women that their voices matter and that they can shape the future. Turning to what was announced, the increases to the National Minimum Wage (NMW) and National Living Wage (NLW) are certainly welcome news for younger workers and those earning lower wages.
However, businesses – especially smaller ones with employees – will be feeling the strain. While the rise in employers national insurance was expected, the drop in the threshold from £9,100 to £5,000, coupled with the rate hike from 13.8% to 15%, is a kicker. To ease the burden, the government is more than doubling the Employment Allowance to £10,500, helping over 800,000 businesses avoid National Insurance contributions next year. Still, it’s hard for companies to feel truly incentivised to grow and innovate when faced with such big cost increases, on top of navigating an already challenging landscape.
Ultimately the reality is now that businesses must accept the changes and adapt quickly to find ways to manage these rising costs and their finances effectively. Hopefully, these challenges now will pay off in the long-term and we’ll have a more stable economic future if Labour’s investment strategy achieves its growth goals by 2029.
Conclusion
While reactions to this budget day may be mixed, we wanted to take this opportunity to reassure our clients that we’re here to provide support and guide you through any changes in legislation.
The main points to take from the budget today, is that there are lots of changes on their way, and the only way to remained poised for their implementation is to get familiar with your finances, check your current strategies and tweak where you can in order to minimise the changes that have been announced today.
If you don’t know where to start, set up a call with your accountant who should be able to talk you through an efficient plan tailored to you.
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