As expected businesses will bear the brunt of paying for the biggest tax-raising budget in modern times.
Chancellor Rachel Reeves made history today as the first women to deliver a budget while it was also the first Labour Autumn Statement in 14 years.
With a £22bn ‘black hole’ to fill plus key department spending commitments, Labour hit the corporate sector hard with annual tax increases expected to reach £40bn in the next financial year (2024/25) and overall the tax take, as a percentage of GDP, will reach a record-breaking 38% by the end of the parliament (29/30).
A big chunk of that is expected to come from employers’ National Insurance contributions with the Chancellor announcing a 1.2% increase (up to 15%), starting in April while the secondary threshold has been reduced from £9,000 to £5,100. She is hoping the measure will raise £25bn in the next five years.
Ms Reeves talked about “difficult decisions on tax” and added the caveat that the employment allowance, which disproportionately helps smaller companies has been doubled to £10,000 while all businesses will be able to claim the relief. Previously only those with a payroll of £100,000 and less were eligible.
The Chancellor also laid out plans to fixed Corporation Tax at 25% for the duration of the parliament.
Susie Harris-Milnes, tax partner at BHP, was worried that the changes would ultimately discourage business owners from taking risks.
She said: “The Chancellor spoke about protecting working people but appears to not consider business owners and entrepreneurs within this category. The much-trailed announcements of increases to National Insurance contributions and minimum wage will obviously provide an additional ongoing cost for businesses. Importantly though, the smaller end of SMEs will be shielded from this thanks to increases in employment allowances.
“The real challenge however in a Budget so focused on driving investment and economic growth, is where will this investment come from? The lack of any changes to the lifetime allowance for Business Asset Disposal Relief (BADR) as well as increases to both higher and lower Capital Gains Tax rates, when taken alongside NI, minimum wages uplifts and the reduction business property relief/agricultural property relief, could discourage many aspiring entrepreneurs from taking the risk.”
The Chancellor once again outlined the reasoning for the tax increases, stating the last government “hid the reality of their spending plans” and pledged “the only way to drive economic growth is invest, invest, invest.”
Major changes to the minimum wages are set to affect SMEs disproportionately with the headline rate (O-21s) being raised by 6.7% to £12.21 from next April while 18-20-year-olds will receive a 16.3% increase to £10 per hour. The Chancellor also emphasised her long-term desire to create one adult rate and that her policy would have a “transformative impact”.
She also announced a new Business Rates system with two rates and explained their would be a “higher multiplier” for more expensive properties. The relief programme for businesses working in the retail and hospitality sector, currently receiving 75%, would receive a lower discount of 40% from 2026/27 – up to a cap of £110,000 – and a permanent lower rate would be fixed in due course. For pubs and hotels there was also the good news that draught beer duty is being cut by 1.7%.
Regarding Inheritance Tax, business owners currently receive 100% Agricultural Property and Business Property relief but from next year that will only apply to the first £1m with anything above that being liable to a 50% tax.
For energy companies the windfall tax is being increased from 35% to 38% from November 1st onwards and that will be fixed to March 2030.
The Chancellor also went in hard on public schools, meaning they will pay 20% VAT from January 1st while business rate relief will be removed from April onwards.
The controversial non-dom system is also being abolished and from next April 2025 a new residents-based scheme will replace it.
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