The Autumn Budget 2024, delivered by the Chancellor this week, has unveiled several key updates that will impact entrepreneurs and businesses across the UK. Here’s a summary of the most important changes and what they mean for business owners, employees, and other key stakeholders.

Key Changes Affecting Entrepreneurs and Businesses

Increase in Employer National Insurance Contributions

Starting in April 2025, employers will face a 1.2 percentage point increase in National Insurance contributions, raising the rate to 15%. This could have a significant impact on hiring and payroll costs, particularly for small to medium-sized businesses. Additionally, the National Insurance threshold for businesses will be reduced from £9,100 to £5,000, potentially affecting businesses with lower payrolls.

Boost to Employment Allowance

In response to rising costs, the government has increased the Employment Allowance from £5,000 to £10,500. This measure aims to relieve smaller businesses of some of the additional National Insurance burden. Business owners should familiarize themselves with eligibility criteria and take advantage of this relief to help with cash flow management.

Changes to Capital Gains Tax (CGT)

The Chancellor has raised the rates for Capital Gains Tax. The lower rate will rise from 10% to 18%, while the higher rate increases from 20% to 24%. These changes will affect entrepreneurs planning to sell business assets or exit their companies, and careful planning will be necessary to minimize the tax impact. Additionally, Business Asset Disposal Relief (BADR) remains at 10% for now but is set to gradually increase to 18% by 2026, giving business owners time to plan their exits more effectively.

Adjustment to Business Rates Relief

Business rates for sectors such as hospitality and retail will receive 40% relief, with a cap of £110,000, effective until 2026. While this relief is a reduction from the previous 75%, it prevents the anticipated increase, offering some relief to smaller businesses in these sectors. Business owners should review their expected rates to understand how this change will affect them.

No Immediate Changes to R&D Tax Credits

While no major changes were announced for R&D tax credits, there are discussions around expanding “advanced clearances,” which could bring more certainty to the claims process and help reduce potential clawbacks. The corporation tax rate remains capped at 25% for now.

Updates for Workers and Personal Tax

Personal Tax Threshold Freeze Extended to 2028

Personal tax thresholds will remain frozen until 2028, meaning more individuals will gradually find themselves in higher tax brackets as their earnings increase. Businesses should consider how this might affect their employees’ disposable income and adjust compensation strategies accordingly.

National Living Wage Increase

From April 2025, the National Living Wage will rise from £11.44 to £12.21 an hour. Employers will need to prepare for higher wage costs, which may have a particular impact on sectors reliant on lower-wage employees.

Other Noteworthy Changes

Capital Gains on Carried Interest

For venture capital and private equity firms, the CGT on carried interest will rise to 32% starting in April 2025. This change is aimed at higher earnings in the financial sector, potentially affecting returns on carried interest and altering investment dynamics.

Inheritance Tax (IHT) Changes

The IHT threshold will remain frozen at £325,000, with new tax measures for business and agricultural assets. Above £1 million, these assets will be taxed at 20%, which may affect estate planning strategies for individuals with substantial business assets.

Additional Announcements

VAT on Private School Fees

The long-expected introduction of VAT on private school fees will now come into effect, potentially influencing the affordability and future enrollment decisions for private schools.

Stamp Duty on Second Homes

The surcharge on second homes will increase to 5%, impacting buy-to-let investors and those purchasing additional properties.

Energy Profits Levy

Oil and gas companies will face an increased energy profits levy, now set at 38%, as the government seeks contributions from high-profit sectors to help fund economic initiatives.

Alcohol Duty Increase

Starting in February, alcohol duty rates will rise in line with the Retail Price Index (RPI), increasing costs for businesses in the beverage industry.

Non-Domicile Tax Changes

The non-domicile status will be phased out in April 2025, impacting individuals who currently benefit from this tax status.

Air Passenger Duty Increase

Air passenger duty will rise by 50%, which could result in higher travel costs for both businesses and individuals.

Fuel Duty Freeze

Fuel duty will remain frozen at 5p for another year, providing some relief amidst ongoing inflationary pressures.

HMRC Modernisation

The government has allocated additional resources to modernize HMRC, including hiring more staff, as part of a broader effort to improve tax compliance, clawback processes, and enforcement of penalties.

Investment Plans for Small Businesses & R&D

New Industrial Strategy and National Wealth Fund

The government has unveiled plans for a new “Modern Industrial Strategy,” alongside the introduction of the National Wealth Fund, which aims to catalyse over £70 billion in private investment. This fund will focus on developing key growth sectors like green technology and gigafactories, contributing to the UK’s commitment to sustainability.

Support for Aerospace and Automotive Sectors

The aerospace sector will receive £975 million over five years for R&D, while the automotive industry will be allocated £2 billion to facilitate the transition to greener technologies. These investments highlight the government’s commitment to driving innovation and sustainability in major industries.

Small Business Strategy

The government plans to publish a “Small Business Strategy” next year, detailing initiatives to support small businesses in areas such as scaling, access to finance, and market expansion. Additionally, more than £1 billion will be allocated to enhance small business funding, including loans and growth schemes.

Key Actionable Insights for Entrepreneurs

Reevaluate Payroll and Compensation Strategy

Given the increase in National Insurance rates and the rise in the National Living Wage, businesses should reassess staffing budgets and ensure they are prepared for these changes.

Capital Gains Tax Planning

Entrepreneurs looking to dispose of assets or shares should review their exit plans in light of the phased increases in CGT and BADR rates. Timing sales could help minimize tax exposure.

Leverage Employment Allowance

Businesses eligible for the Employment Allowance increase should update their claims to maximize the potential savings and reduce National Insurance liabilities.

The UK business environment remains challenging, but with proactive planning in response to these changes, entrepreneurs can better navigate the evolving landscape. For more tailored advice on how these changes affect your business, reach out to experts at Accountancy Cloud for guidance on optimizing finances and staying compliant.