The Labour government’s Autumn Budget on 30th October 2024 put an end to the period of speculation about what the government’s position on taxation and regulation was going to be. No one was expecting a strongly free-market budget and certainly no tax cuts, but a lot of people were hopeful that the Labour Party’s first budget for 15 years would mark a return to the pro-small business policies and growth agenda of the early Blair years.
It’s fair to say that these hopes haven’t been entirely fulfilled by the latest budget, but nor was it the ‘tax and grab’ highway robbery that some people were fearing, either. Let’s look at the parts of the Autumn Budget that are most relevant for small business owners and their companies.
Employers NI contributions are set to increase by 1.2% to 15% from April 2025. To offset this, the Employment Allowance will double from £5000-£10,500. This is good news for start-ups and micro businesses and could be a spur to recruitment for some SMEs, effectively removing the smallest companies from employer NI contributions altogether.
The change won’t be good news, however, for larger SMEs already struggling with recruitment expenses. The immediate impact of higher NI contributions will be increased operational costs, which could lead to a re-evaluation of hiring plans for businesses that operate on tight margins and a scaling back of growth plans. This will be disappointing for SMEs hoping to expand their operation to meet rising demand in their sector. Some SMEs may also find themselves with less capital to invest in other growth areas, such as product development, new technologies, and marketing.
The National Living Wage for workers over 21 will increase by 6.7% to £12.21 per hour in April 2025. There’s no getting around the fact that this will increase payroll costs for smaller companies. Faced with higher payroll costs, SME profit margins could be squeezed – especially for businesses that cannot easily increase their prices to cover their additional expenses. However, on the positive side, higher entry-level wages could improve employee satisfaction and productivity, and reduce turnover, enhancing the overall performance of the company. Some businesses will also need to adjust their business models to increase efficiency, rely more heavily on outsourcing to supply partners or diversify to explore new revenue streams.
The government announced permanent cuts in business rates for the hospitality, leisure, and retail sectors starting from the 2020-2027 financial year, with a 40% relief rate replacing the current 75% relief. This is welcome news for businesses in these sectors who operate physical premises, opening the door to increased profits, business expansion, and opportunities for reinvestment. The rate cut will also offset the increases in payroll expenses for some businesses, encouraging a more active recruitment and growth strategy. Independent retail SMEs may also be encouraged to open physical premises on the High Street, diversifying from a purely e-commerce business model to a hybrid model to attract more customers.
The current freeze on fuel duty will continue, maintaining the previous Conservative government’s 5p cut. This is welcome news for transport companies and fleet operators and allays the fear of some small business owners about a hike in fuel duty or swingeing road taxes that could have hampered their operations.
Corporation tax rates remain unchanged, as promised in the Labour manifesto, at 19% for companies with profits below £50,000, and the main rate of 25% for profits over £250,000.
The budget has been met with mixed responses from small business owners, with many company directors concerned about the rise in National Insurance contributions and increase in the National Living Wage. In the run-up to the budget, some SMEs had put recruitment plans on hold, and subsequently, some have been spurred to cancel or postpone them altogether. While the increase in Employment Allowance and the freezing of fuel duty and Corporation Tax are positive measures, many business owners are still sceptical about whether these measures will be sufficient to foster the growth projected by the government.
Government budgets are largely outside of an individual business’s control. If you’ve been affected by the latest budget and are concerned about rising costs, our first advice is to not panic. Your goals can still be achieved regardless of taxation or duties – there may simply be a need for strategic adjustment. If Starmer wants a bigger cut, then fine, let him have it. It just means that productivity might need to be increased by a certain amount, or efficiencies made up in other areas, to sustain your target profit margins. A strong marketing strategy will help maximise the competitiveness of your business model and your revenues so that you can still achieve your plans for growth, market diversification, technology, and inward investment.
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