The Chancellor’s business tax changes explained

By Nathaniel Dalby on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs

In September, The Chancellor Rachel Reeves told bosses that they could look forward to a stable tax landscape after years of the job being a hot seat, with a host of announcements ready to be delivered as part of the Autumn Budget.

Reeves is the sixth Chancellor in five years, and so small businesses will be hoping that this budget won’t be replaced by another Chancellor in the near future.

The recent months of speculation and leaks related to the budget has meant that there were few real surprises as Reeves made her speech, with tax increases being the expected hot topic. Here are the stand-out points that you’ll need to know as a small business.

National insurance increases

The headline policy here is that employers’ national insurance contributions are set to rise by 1.2 per cent to 15 per cent from April. The level at which employers will begin paying NI for each employee will also be lowered from £9,100 to £5000, raising £25 billion a year. This is over half of the £40 billion proposed tax increase.

This is combined with an increase in the minimum wage to £12.21 and will give many UK employers some difficult questions to answer in 2025. Corporation Tax, however, has been capped at 25 per cent which was one of Labour’s key promises before the election and has been upheld.

It’s not all doom and gloom, however. Reeves also announced an Employment Allowance raise from £5,000 to £10,500, meaning that 865,000 employers won’t pay any National Insurance at all next year.

Director general of The British Chambers of Commerce, Shevaun Haviland, said that this was a mixed bag for businesses overall:

“This is a tough budget for business to swallow but the Chancellor has looked to ease the pain by holding out a promise of better days ahead.

“While some protection for smaller firms is welcome, the increase in employer National Insurance Contributions will place a further cost burden on business.”

Business rates

The business tax road map brings good news and bad news for the RHL (retail, hospitality and leisure) sector. The year 2026/27 will see permanent cuts in tax rates for these industries.

However, the business rate relief for RHL is set to be cut from 2025/26. The current rate is set at 75 per cent but will be replaced in 2026 by a 40 per cent relief on bills, up to a maximum discount of £110,000. The small business tax multiplier will also be frozen from next year.

Alcohol Duty will go up for drinks not on draft in line with the retail price index (RPI). Draft beverages duty will cut. Reeves said it was a ‘Penny off a pint in the pub’.

Simon Green, Head of Business Rates at property consultancy Gerald Eve, said this would make a difficult sector even harder:

“The decision to slash the retail, hospitality and leisure relief scheme from 75 per cent to 40 per cent is absolute madness. It will see rates bills more than double overnight for 250,000 small businesses, leading to business failures and job losses.

 “These sectors continue to suffer from the long-term effects of the Covid lockdowns, a fall in consumer spending and a move away from traditional bricks-and-mortar retail. Many in the sector will quite rightly feel betrayed given Labour’s manifesto promise to ‘level the playing field between the high street and online giants’.

Corporate Tax Roadmap

The government has set out a Corporate Tax Roadmap outlining plans for Corporation Tax over the coming years. The highlights include:

• Capping the headline rate of Corporation Tax at 25 per cent for the duration of parliament, the lowest rate in the G7
• Retaining the small profits rate and marginal relief at current rates and thresholds
• Maintaining our world leading capital allowances system, including permanent full expensing and the £1 million annual investment allowance
• Maintaining the generosity of R&D reliefs
• Working collaboratively with companies on simplification and improving user experience, including HMRC’s path forward on digitisation
• Developing a new process for increasing the tax certainty available in advance for major investments

Jason Piper, head of tax and business law at ACCA, welcomed the Roadmap:

“The announcement of a Corporation Taxes Roadmap is a step in the right direction, with confirmation of stability around many central features.

“Sophisticated investors will always look at more than the headline rate, and simplification and reform of the way taxable profits are calculated would reduce the administrative burden for smaller businesses and increase certainty for larger ones.”

What could this mean for my business?

While the reform on business rates will be welcome to many in the RHL sector, the extra costs due to the cuts in rate relief and increase in employer national insurance mean that businesses in these industries and across the UK business community.

Small businesses have been broadly protected by the Employment Allowance increase, but once your business starts growing, you may begin to feel the pinch.

See also:

Autumn Budget 2024 – key announcements for small businesses – Chancellor Rachel Reeves has unveiled her first Budget. Below, you’ll find the highlights along with some expert commentary as to how these measures will change things for smaller businesses.

Autumn Budget 2024 – what’s in it for small businesses? – Ahead of the Autumn Budget 2024, we take a look at the announcements that Chancellor Rachel Reeves might make that affect small businesses.

The post The Chancellor’s business tax changes explained appeared first on Small Business UK.