The Chancellor, Rachel Reeves, delivered her first Budget speech on Wednesday and messaging in advance had been around stability and “fixing the foundations”. The Government had been warning that they needed to make tough decisions and, (obviously), blamed their predecessors for the damage done during their time in office.
In her Budget speech the Chancellor said that she had identified a £22bn black hole in the finances and, at that point, we were braced for the worst. So, how does she intend to fill the gap?
Employers National Insurance Contributions
This had been widely trailed in advance, but we didn’t know the scale of the proposed increase. Now, we know that with effect from 6 April 2025 these contributions will be made at the rate of 15%, up from 13.8%.
At the same time as increasing the rate of contributions, the threshold at which contributions for each employee must start has been significantly reduced, down from £9,100 per year to £5,000 per year.
As a simple, standalone example, the cost of employing an individual on £30,000 will increase by around £866 as a result of the additional employer’s national insurance contributions.
To provide some offset to these changes the Employment Allowance is increasing from £5,000 to £10,500. The Government is also removing the ‘qualifying threshold’ which meant that employers with a NIC liability of over £100,000 could not claim the allowance. According to Government figures, these changes mean that 865,000 employers will pay no NICs next year.
Whilst it had been rumoured in advance that Employers NI may also be applied to pension contributions, this was not announced. As such and combined with the increase in Employers National Insurance, pension salary sacrifice arrangements are well worth considering if not already in place, In addition if bonuses are usually paid in April, it may be worth accelerating these to be paid before the increase. Owner managers may also wish the “revisit” the numbers when deciding how and when to take their remuneration.
Wages
The minimum wage for over 21s, known officially as the National Living Wage, will rise by from £11.44 to £12.21 from April 2025. For 18 to 20-year-olds, the minimum wage will rise from £8.60 to £10, also from April 2025.
Corporate Tax Road Map
The information shared in the Budget speech was copied almost exactly from a speech that the Chancellor gave at the UK International Investment Summit two weeks ago. The key messages are:
- Capping the main rate of Corporation Tax at 25% during the period of this parliament and maintaining the small profits and marginal relief. This gives potential scope for a reduction in main rate of Corporation Tax in future years.
- The £1m Annual Investment Allowance and full expensing which give 100% relief for capital expenditure on plant & machinery will be retained.
- Current rates of R&D relief will stay the same.
Business Rates
The government will deliver a change to business rates system through permanently lower business rates multipliers but only for those in the retail, hospitality and leisure sector so by no means a positive for all.
Cheers!?
The Budget gave a commitment that, they say, supports smaller brewers, by cutting alcohol duty on draught products by the equivalent of 1p per pint.
Summary
While these adjustments will undoubtedly have the biggest, negative, effect on employers, they are balanced by allowances that soften the impact for many. It’s wise to discuss these changes with one of the team at BHP to understand the specific implications for your business – although challenging, the situation could certainly have been tougher.
Read more about the Autumn Budget 2024 here
