Budget Breakdown
The recent Labour budget has landed hard on businesses, with policies that feel less like support and more like an uphill climb. Let’s dive into the highlights (or lowlights) most likely to impact you – the hardworking business owner.
Employer’s National Insurance (NI): Employer’s NI is set to rise to 15%, with the threshold lowered from £9,800 to £5,000. A small relief is that the Employment Allowance has been raised from £5,000 to £10,100. This will benefit a small minority of businesses with around three full-time minimum wage employees who’ll now be exempt from paying Employer’s NI. But for those running director-only payrolls, the options are grim: either face this new NI charge or reduce your salary to £5,000 annually. And though NI at 15% is arguably less painful than Corporation Tax at 19%-25%, this change will feel like a blow for many businesses, ramping up overall NI contributions to HMRC.
Here at Chadwicks, we’ve calculated that this change alone will add a five-figure sum to our own NI bill next year – and we’re a small business. I dread to think how this will impact some of our clients who have been through the strain of low sales during Covid, the cost-of-living crisis, and now face yet another significant expense. For some, this might well feel like the final straw. With these changes taking effect in April 2025, now is the time to consider strategies like cutting costs or adjusting prices.
Capital Gains Tax (CGT): Speculation was rife about CGT increasing to match income tax rates, so the unchanged property rates come as a relief. However, there’s bad news for those selling listed shares as a top-up to income. Rates for basic-rate taxpayers are rising from 10% to 18%, and for higher-rate taxpayers from 18% to 24% – both now aligned with property-based CGT rates.
Stamp Duty: If you’re planning a property move, budget for an extra £2,500 in stamp duty from April 2025. Second home purchases, however, face an even steeper hike: an increase from 3% to 5%. For those with property investments, myself included, this rise feels like a costly and unwelcome surprise, particularly as it took effect immediately. On a personal note, it’s added a few thousand pounds to my own upcoming completion bill – let’s just say I’m far from thrilled!
National Minimum Wage: Alright, here we go again—another budget, another national minimum wage hike. In April 2025, the minimum wage rises to £12.21 an hour, and while it's well-meaning, let’s not kid ourselves—this is likely to send ripples of cost increases across the board. Don’t get me wrong, I’m all for fair pay, but here’s the tricky bit: many on minimum wage also rely on Universal Credit. This wage increase tips more of them into tax-paying territory, trims their benefits, and with businesses passing on costs to cover the uplift, we’re looking at pricier everyday essentials. So who’s winning here? Not minimum wage earners, but HMRC, pocketing more taxes as benefits quietly shrink.
Umbrella Companies: Next up, the government’s cracking down on umbrella companies and tax avoidance promoters, and this one I can get behind. After all, why should some people dodge their dues while the rest of us fork out for roads, schools, and bin collections? Tax is inevitable, so if the law’s the same for all of us, let's keep it that way.
Inheritance Tax (IHT), Business Asset Disposal & Business Property Relief: For anyone considering selling a business, a little heads-up: Business Asset Disposal Relief is staying at £1m but will see its tax rate jump from 10% to 14% in April 2025. And if that’s not enough to get your attention, let’s talk inheritance tax (IHT). As of April 2027, your hard-earned pension funds will now form part of your estate for IHT purposes. So that SIPP (self-invested personal pension) you carefully set up to pass on tax-free to your kids? No longer safe. Could we see cash creeping back under mattresses soon? It might not be so far-fetched.
And for those with businesses to pass down, the news is not positive. Until now, we could pass on family trading businesses (property included) outside the scope of IHT. But under new rules, property in these businesses may fall into the taxable scope. There’s a small cushion: the first £1m is tax-free, and only 50% of any amount above that will be liable for IHT. For instance, on a property worth £2m, the £1m allowance applies, and of the remaining £1m, £500k could now face a 40% tax. Surveyors might be the only true winners here, as valuations will now be required more than ever. Farmers are reportedly fuming, though; I’ll admit, farming tax isn’t my field.
Speaking of IHT, the threshold stays frozen until 2030, meaning more people will find themselves caught by rising property values even if they aren’t exactly rolling in it.
EIS: On the plus side, the Enterprise Investment Scheme (EIS) remains till 2035, keeping the door open for tax-efficient fundraising—a rare bit of stability in an ever-moving target.
Retail, Hospitality & Leisure: The business rates discount—currently at 40% for retail, hospitality, and leisure—will stay for 2025/26, capped at £110,000 per business. This support could be the lifeline that keeps some of these sectors afloat through tricky times.
Corporation Tax: Corporate tax news is consistent with previous announcements: the main rate is capped at 25%, and small profits rate holds steady at 19%. Yes, it’s still a pretty steep rate, but at least we know what to expect for long-term planning.
Private Schools: For those who send their children to private schools, the removal of VAT exemptions and business rates relief in January 2025 is a shock. And I get it—private education is a luxury, and many will see this as a fair adjustment. But for families who’ve budgeted around this, introducing it mid-school year is bound to create some turbulence. Why not implement it for new students starting in September instead, giving current families a chance to adjust?
Non-dom status: Big changes for the non-dom community too, as their tax-free status takes a hit in April 2025. Currently, non-doms can avoid paying UK tax on foreign earnings unless they bring the money into a UK account. This tweak feels fair to me—if you live here, you should contribute to the running costs, right? Some argue this could push big spenders to pack up, but I say let’s prioritise tax fairness over exclusivity.
Fuel Duty, Tobacco Duty & Private Jets: Petrolheads will be pleased to know fuel duty is frozen next year—though, with most of us moving to electric, does anyone really notice? And on that note, tobacco duty will increase with RPI, while private jet passenger duty also rises. Frankly, I’m fine with both: cigarette taxes are on the decline anyway, and anyone flying by private jet probably won’t notice an extra pinch on their ticket.
Energy Profits Levy: Lastly, the Energy Profits Levy is set to increase, which sounds sensible—at least in theory. But we all know who’ll eventually feel the squeeze, right? Yep, it’ll be us consumers.
A Hard Budget for Business: This budget is a step backward for job creation, economic growth, and for businesses large and small. We all went to the metaphorical restaurant together (doing our bit for the eat out to help out scheme), but we were all offered very different menus once there. Employees received furlough, the masses received vaccines, and businesses received bounce back loans. We all dined out on what was offered, yet it appears that now the bill is due, only the business owners are expected to pay. And I only had a salad.
