UK Budget 2024: Key Highlights for Small and Medium-Sized Businesses
The UK Budget announcement for 2024 brings a host of changes that will impact small and medium-sized businesses (SMEs). Here’s a breakdown of the key points and what they mean for SMEs navigating this evolving financial landscape.
1. National Insurance Changes: Rate Increase and Threshold Adjustment
Starting in April 2024, businesses will face new rules regarding National Insurance (NI) contributions:
- Rate Increase: The employer NI rate will increase from 13.8% to 15%.
- Lower Threshold: The threshold at which businesses start paying NI on workers’ earnings will decrease from £9,100 to £5,000.
These changes mean that employers will contribute a higher percentage of salaries toward NI and start paying these contributions on a larger portion of their employees’ wages. For SMEs, this may impact payroll budgeting and potentially influence hiring plans. Small businesses should plan for these adjustments and consider budget reviews to manage the NI increase.
2. Increase in Employment Allowance
In response to the NI rate hike, the government announced an increase in the Employment Allowance from £5,000 to £10,500. This change will provide some relief for smaller businesses by allowing them to reduce their NI liability, which could alleviate some of the additional costs brought about by the rate and threshold adjustments.
This expanded Employment Allowance is expected to benefit an estimated 865,000 businesses, many of which won’t pay any NI at all next year. For small business owners, this increase can free up funds for other business investments and day-to-day expenses, making it essential to review eligibility for the allowance and plan accordingly.
3. Capital Gains Tax (CGT) Increase on Shares
The budget outlines an increase in Capital Gains Tax (CGT) rates on the sale of shares. The maximum CGT rate on profits from selling shares will rise from 20% to 24%. However, the CGT rates for selling additional properties will remain unchanged.
This increase in CGT is particularly relevant for business owners who plan to sell shares or other financial assets. For those looking to exit or partially divest from their businesses, this rise in CGT will impact their net gains. Businesses may want to consult with tax advisors regarding asset sales or other tax-saving methods to manage the increased CGT costs effectively.
4. Corporation Tax Rate Remains Steady
The main rate of corporation tax will stay at 25% for companies with taxable profits over £250,000. This stability in corporation tax rates provides predictability for businesses as they plan their financial strategies. However, companies below the £250,000 profit mark will continue to benefit from lower corporation tax rates, which could provide more flexibility for smaller businesses looking to reinvest earnings.
5. Personal Tax and Inheritance Tax Thresholds Freeze
Personal income tax and NI thresholds will remain frozen until 2028, with the freeze on inheritance tax thresholds now extended to 2030. This continued freeze on personal tax thresholds means that employees may see their earnings inch closer to higher tax bands, especially as wages increase. For business owners, it’s worth noting that higher wages could result in higher personal tax contributions for both themselves and their employees, a factor to consider in financial planning and wage negotiations.
It is also worth noting that from 6th April 2027 most unused pension funds and death benefits will be included within a person’s estate for Inheritance Tax purposes.
UK Budget 2024 Summary
The UK Budget 2024 brings a variety of changes that impact small and medium-sized businesses in both direct and indirect ways. Key takeaways include:
- Higher Employer NI Rate and Lower Threshold: Increased employer NI rate from 13.8% to 15% and lower NI threshold from £9,100 to £5,000.
- Increased Employment Allowance: Relief increase from £5,000 to £10,500, allowing many businesses to offset NI costs.
- Higher Capital Gains Tax on Shares: CGT on profits from shares to increase from 20% to 24%, impacting exit and investment strategies.
- Corporation Tax Steady at 25%: Main corporation tax rate remains the same, providing predictability for larger companies.
- Personal Tax and Inheritance Tax Threshold Freezes: Extended freezes on tax thresholds through 2028 and 2030 respectively, potentially pushing employees into higher tax bands.
With these updates in mind, SMEs will need to adapt to changing tax obligations and review financial strategies accordingly. At McKenzies Accountants, we’re here to help you navigate these changes, maximise available allowances, and ensure your business remains financially resilient in the years ahead. Contact our team to explore how we can support your business in optimizing your tax planning and strategic financial decisions.