Chancellor Rachel Reeves has unveiled the Autumn Budget 2024, introducing vital tax changes and spending plans to uplift the UK economy and drive support for small businesses. These initiatives are significant for small businesses across the UK, providing valuable opportunities for growth and stability with the challenge of dramatically increased overheads. Let’s explore the key measures that small businesses need to negotiate to thrive in this evolving landscape.
Fundamental changes small businesses need to focus
1. National Insurance changes for employers
Starting April 2025, the Employer’s National Insurance rate will increase from 13.8% to 15%. At the same time, the tax threshold will drop from £9,100 to £5,000. This change means small business employers will pay National Insurance on a more significant part of their employees’ earnings, impacting their cash flow and payroll management.
This update is significant for company directors, who often pay themselves low salaries and take dividends. Directors should adjust their salaries to reduce tax liabilities while following the new rules.
On the upside, the Employment Allowance will increase from £5,000 to £10,500. This change will help about 865,000 employers avoid paying National Insurance altogether. The previous £100,000 eligibility limit will be removed, providing significant relief for small businesses looking to manage their payroll costs better.
2. Business rates changes
A new business rates structure, to be implemented in fiscal year 2026/27, will introduce permanent reductions specifically for the retail, hospitality, and leisure sectors. Until then, eligible enterprises within these sectors may benefit from a substantial 40% discount on business rates, subject to a cash cap of £110,000.
3. National minimum wage increase
In April 2025, the National Living Wage is set to increase by 6.7%, rising from £11.44 to £12.21 per hour. The wage will also rise for adults aged 18-20 from £8.60 to £10.00. While this shows a push for fair pay, it also adds some stress for small business owners who need to tweak their budgets to cover these higher costs.
But paying employees well can bring some long-term perks. A workforce that feels valued usually steps up, becoming more engaged and productive, which can boost a company’s vibe and performance. Small business owners should look at their payroll and consider balancing salary hikes with ways to enhance productivity or make strategic price changes.
4. Business Asset Disposal Relief
Business Asset Disposal Relief lets business owners sell their businesses with a lower % tax rate of 10% on profits up to £1 million. However, this tax rate will increase in the coming years: to 14% in April 2025 and then to 18% in 2026-27. These changes have worried business owners and startups, who fear that higher rates could discourage entrepreneurship and investment in the UK.
Business owners considering selling should act quickly to maximise their returns and reduce their tax burden under the current tax rate. This may involve careful planning for the sale, discussing enticing offers with potential buyers, or considering moving to locations with better tax options.
5. Research and Development
The Labour Party has pledged to uphold the current rates of R&D tax relief until the conclusion of parliamentary proceedings. The increased funding allocated to compliance organisations significantly emphasises ensuring regulatory compliance.
The government has set aside £20 billion for R&D, including £6.1 billion earmarked for health and biotechnology and additional resources for industries like aerospace and electric vehicles.
Subscribe to our newsletter
6. Tax on company cars
Beginning in the 2025/26 tax year, the tax liabilities associated with company vehicles will undergo revision. Notably, the benefit-in-kind (BIK) charge for zero-emission vehicles is set to increase from 2% to 3%. In comparison, the BIK rates for all other vehicle categories will see a uniform increase of 1%. It’s important to note that the maximum BIK rate will remain capped at 37%.
This shift allows businesses to evaluate their vehicle fleets critically and explore adopting more sustainable, low-emission alternatives. Transitioning to a predominantly zero-emission fleet addresses anticipated regulatory changes and cost escalations and enhances the corporate brand by appealing to a growing segment of environmentally aware consumers.
7. Corporation tax
The UK government is committed to fostering a stable and predictable business environment, recognising its importance for economic growth and investment. Consequently, the Corporation Tax rate will remain set at 25%, thus providing consistency for businesses.
Additionally, the government will uphold the full-expensing Capital Allowance, which allows companies to claim the entire cost of qualifying capital investments as an expense in the year they occur. The Annual Investment Allowance (AIA), which offers substantial tax relief for investments in equipment and machinery, will continue to be in effect.
8. Corporate tax roadmap
The government intends to keep the Corporation Tax rate at 25% and the Small Profits Rate at 19% until 2026. Additionally, the pledge for full expensing, allowing businesses to deduct 100% of eligible expenses in the first year, continues to be essential.
These supportive initiatives foster an environment that encourages small businesses to innovate, grow their operations, and invest in new projects.
9. Freeze on fuel duty
The government has announced that it will maintain fuel duty rates for the 2025-26 fiscal year, resulting in a tax reduction valued at £3 billion. This decision translates to an average savings of £59 for car drivers. The temporary 5p reduction in fuel duty rates will also be extended for another 12 months until it expires on 22 March 2026.
10. Impact on umbrella companies
Workers will keep receiving their pay after tax and National Insurance Contributions (NICs), even if the company that provides their payslips changes. This measure aims to reduce problems with umbrella companies that do not follow the rules. Addressing these issues prevents workers from engaging in non-compliant tax arrangements, which could result in large, unexpected tax bills.
