Autumn Budget 2024: Key points for businesses and contractors
Overview of Autumn Budget 2024 for Small Businesses and Contractors
The Chancellor of the Exchequer, Rachel Reeves, presented the Labour government’s first Autumn Budget to the House of Commons on the 30th of October 2024. This announcement followed months of speculation over potential changes that the Labour party may make since taking over from the previous government. Prime Minister Keir Starmer had previously stated that this budget could be painful and that there were difficult decisions to be made in order to fund the increased public sector spending and address the issues in public finances that Labour had pledged in their manifesto.
The headline news in the Autumn Budget 2024 was that employer National Insurance Contributions are set to rise to 15% from April 2025 and that the annual threshold for employee earnings, over which employers must pay NICs, will fall from £9,100 to £5,000. Together with other tax changes announced, this is intended to provide more funds to the NHS and other public services.
Impact on Small Businesses and Contractors
For small businesses, there may be concerns over the increased costs of employing staff, meanwhile those planning to sell their businesses may be affected by the changes to Business Asset Disposal Relief.
Contractors, both inside and outside the scope of IR35, will be interested to hear that the chancellor announced a crackdown on non-compliance when using umbrella companies. This will encourage more businesses to utilise off-payroll workers, outside IR35,to curb the increase in their employer NIC bills.
Changes to Employers National Insurance rates and thresholds from April 2025
The headline announcement in the Autumn Budget is the rise in Employer National Insurance Contributions (NICs) a measure that Rachel Reeves claims will raise an additional £25bn in tax revenue for HM Treasury. From 6th April 2025, the rate employers must pay will rise from 13.8% to 15% on qualifying salaries.
This is paired with a reduction in the secondary threshold, above which employers must make NICs. This will decrease from £9,100 to £5,000. This will force employers to pay NICs for employees who previously would not have attracted employer NICs.
These rises will be somewhat alleviated for small businesses that qualify for the Employment Allowance, as this will be increased from £5,000 to £10,500 for qualifying businesses. The relief will also be available to more eligible employers thanks to the removal of the requirement that annual employer NICs be lower than £100,000 . If you are unsure whether you can claim this following the budget, please get in touch with your accountant or payroll manager.
The government claims that following the changes, businesses could in theory employ four full-time workers at the National Living Wage without paying employer NICs.
Although the revisions are intended to predominantly help fund the public sector, there are valid concerns over how they will affect businesses and economic growth. The Office for Budget Responsibility (OBR) forecasts that these changes will not increase the UK’s economic growth and will result in lower living standards for people by 2029.
Capital Gains Tax Reforms
The Autumn Budget also included increases in Capital Gains Tax (CGT) rates. There had been speculation prior to the announcement that CGT rates would be aligned with income tax rates; however, the reality is a little better for individuals than forecast.
The Chancellor announced that the 10% rate of CGT for basic rate taxpayers will rise to 18% for disposals made on or after 30 October 2024 and that the 20% rate for higher rate taxpayers will jump to 24% for disposals made on or after 30 October 2024.
These rises bring the general rate of CGT in line with the special CGT rates for residential property which were introduced in 2020. The CGT rate rises are a key part in Labour’s plan to raise government revenues in order to fund increased spending. There are also planned changes to Business Asset Disposal Relief which will affect business owners looking to sell on their business.
Business Asset Disposal Relief Adjustments
The Autumn Budget has brought changes to Business Asset Disposal Relief (BADR), formerly called Entrepreneurs’ Relief. This change will impact individuals looking to sell their business and is worth considering the implications if you are considering disposing of your business assets.
Before the Autumn Budget 2024, BADR would see business owners pay a reduced rate of 10% Capital gains Tax on all qualifying assets up to a lifetime allowance of £1,000,000. From April 2025, this rate will increase to 14%, and again in 2026, this will rise to 18%. The annual exempt amount of £3,000 is unchanged; this applies for individual taxpayers before any CGT liability is calculated at the relevant rates.
These changes will affect decisions for people selling their business or company assets. It is likely that we will see many small business owners bring forward the sale of their business in order to capitalise on the lower rates of CGT before the increases in 2025 and 2026. On the other hand, some business owners who were planning to sell in the next 3-5 years may instead opt to hold on in the hope that future governments and budgets will see the rate of BADR decrease or the lifetime allowance increase.
CGT Implications for Property and Asset Sales
The changes to CGT will not directly affect the sale of residential properties, such as second homes or buy-to-let investments. These rates will remain the same at 18% and 24%, respectively.
The increased rates will apply to the sale of other assets, like shares and business assets. This is something that is worth considering when discussing various ways to invest with a financial advisor.
Stamp Duty increase for Property Investors
Effective from 31st of October 2024, there will be an increase to the Higher Rates for Additional Dwellings surcharge on Stamp Duty Land Tax (SDLT) from 3% to 5%. These changes are on top of those previously announced on the reduction of SDLT thresholds, exposing buyers to larger SDLT bills from April 2025.
Landlords considering larger property investments through a limited company could face a higher premium, as the single rate of SDLT charged on the purchase of dwellings costing more than £500,000 by corporate bodies is rising from 15% to 17%. However, relief for rental businesses continue to apply and corporate landlords speak to their accountants for advice on the rate of SDLT arising in future property purchases.
Umbrella Payroll Liabilities Shift could drive Outside IR35 opportunities for Contractors
While the headline changes in tax rates took the limelight in the Autumn Budget 2024, planned changes are also expected to affect contractors.
In a big change to the existing rules, the Autumn Budget shares plans for recruitment agencies and end clients of contractors working under umbrella payroll schemes. The Chancellor is keen to crack down on non-compliance by umbrella payroll schemes by placing the burden of responsibility on the recruitment agency or, if there is none, the end client.
The government’s choice to change responsibility will help ensure taxes are paid correctly, but it will also likely disincentivise the use of these schemes, which may lead to a return to off-payroll working where possible.Coupled with the increase in employer NI, it is highly likely that we will see a move towards large companies opting to engage contractors ‘outside IR35’ rather than accept the growing cost and risk of payroll and umbrella arrangements respectively. This could create new opportunities for contractors using their own limited companies, who also stand to benefit from the freeze in corporation tax rates and dividend taxes.
Mentions of the Single Worker Status, which formed a large part of the Labour Party’s manifesto pledges earlier this year, were absent. Whether or not this means that changes will be brought into effect soon is unclear, but for the time being, there are no planned changes that aim to harm the off-payroll working community and their clients.
Commitments to Making Tax Digital
The chancellor also voiced a commitment to seeing the implementation of Making Tax Digital (MTD) for income tax and self-assessments. The aim is to have sole traders and landlords record and file their self-assessment returns online and provide quarterly updates to HMRC to ensure tax compliance. HMRC and the Treasury are introducing MTD with the aim of reducing the tax gap in the UK and have already launched MTD for VAT returns as the first phase of MTD targeted at small businesses.
MTD for Income Tax is being introduced in a phased approach, beginning on the 6th of April 2026. Those eligible with gross income revenues over £50,000 will have to begin providing quarterly updates and filing Self Assessment Tax Returns through MTD-compliant software. In 2027, the income threshold will be decreased to £30,000, and even more earners will have to file through HMRC. Rachel Reeves added to this commitment in the Autumn Budget 2024 that by 2029 the government will aim to reduce the reporting threshold to £20,000.
Changes to HMRC Late Payment Interest Rate
One announcement that has not made headlines but is very relevant to small businesses and contractors is the change to Late Payment Interest charged by HMRC.
Currently, Late Payment Interest stands at the Bank of England Base Rate plus 2.5%, giving a current rate of 7.5%. From the 6th of April 2025 this rate will increase by 1.5 percentage points to Base Rate plus 4% in an aim to reduce the amount of late payments that HMRC receives.
While the base rate may decrease at the next meeting of the Monetary Policy Committee, this represents a significant increase in the penalties businesses and individuals will face if they do not make payments on time.
Changes to business rates
The Autumn Budget has decided to keep business rates relief for retail, hospitality, and leisure businesses until 2026. For these industries, the relief will be reduced from 75% to 40% for the 2025/26 tax year.
While this is welcome news for these industries, the cut in tax relief will effectively mean that business rates will double for those claiming the relief. For businesses with premises claiming business rate relief, it is vital to ensure that cash flow will be sufficient to cover the increased liability in the next year.
Freeze in fuel duties
The Chancellor also announced that fuel duties will remain the same for the next year. A welcome announcement for businesses heavily involved with transportation or the trades.
Corporation tax rates
The Chancellor kept her promise from before the election. She announced that corporation tax rates would stay the same, giving businesses the stability they need.
The marginal tapering of Corporation Tax rates will also remain, aiming to help smaller businesses cope with recent increased cost pressures and alleviate concerns of tax rises.
Summary of the Autumn Budget 2024
The first budget announced by the new Labour government was certainly one that will affect the UK’s business landscape. The headline news of rises in employer NICs has fuelled debates over potential growth in the UK and will likely affect both wage growth and business profits over the coming years.
Aside from the changes outlined above, Labour is implementing other policies, such as the addition of VAT on private school fees, which will come into effect in January 2025; changes to inheritance tax and an increase in the national minimum wage. Increased public sector spending is the main goal of this budget, as almost half of the additional tax revenue forecast to be raised is committed to funding NHS day-to-day spending, with additional tax measures and funding announced for various other projects such as road and infrastructure improvements and wage increases for various sectors such as the armed forces.
For further clarification on how the Autumn Budget 2024 will affect you and your business specifically, you should speak to your accountant or financial advisor, who can recommend the best courses of action for you and outline how the changes will affect you.