What the Autumn Budget means for UK businesses

The new Chancellor, Rachael Reeves, revealed the contents of her red box for the first time at the House of Commons today. In the run up to the 2024 Autumn Budget, she was faced with the conundrum of investing in Britain’s future whilst trying to plug the so-called “£22bn black hole” in public finances.

Reeves’s first budget was mainly focused on “fixing the foundations” with a £40bn increase to taxes, funded by a series of changes to capital gains and inheritance tax, pensions and national insurance contributions. The tax increases should come as no great surprise, because every election since 1992 has been followed by tax rises, apart from 2017.

So, what new measures were announced in the Budget and what could it mean for businesses?

National insurance (NI) contributions

The major impact for businesses is the change to employers’ national insurance contributions. The amount employers pay in national insurance is going up by 1.2 percentage points, and the money will, in part, be used to help inject £10bn into cutting NHS waiting lists as the Chancellor encourages businesses to “play their part”.

The increase, alongside a cut to the earnings thresholds at which employers start to pay national insurance contributions was reduced to £5,000, is expected to raise £25bn. However, to support small businesses, Reeves said the government is increasing the Employment Allowance from £5,000 to £10,500.

Previously, businesses paid a rate of 13.8% on employees' earnings above a threshold of £9,100 a year. Employers also paid Class 1A and 1B National Insurance contributions on expenses and benefits they give to their employees, also at a rate of 13.8%.

Minimum pay rises

From April 2025 the National Living Wage will increase by 6.7% to £12.21 per hour, and the National Minimum Wage for 18–20-year-olds will increase by 16.3% to £10.00 per hour.

It’s a double blow for businesses with the increases to employers’ national insurance contributions as well. It’s a headache that many business owners could have done without, especially at a time where lots of smaller businesses are struggling with increased costs from rising inflation and higher wage demands.

Businesses will have the option to stomach the increased costs or look at alternatives ways to pass on the burden by limiting pay rises for employees or putting off hiring new staff. This could ultimately end up impacting the ‘working people’. Something the new Labour government said they’d avoid in their election manifesto.

Capital gains tax (CGT)

The Chancellor announced that rate of capital gains tax for assets, like shares, is going to rise to 18% for the lower rate and 24% for the higher rate, up from 10% and 20% respectively. The rate of CGT for second properties remains unchanged at 18% and 24%.

Additionally, the rate of Business Asset Disposal Relief (BADR), and Investors’ Relief (IR) will increase gradually to 14% from 6 April 2025, and will match the main lower rate of 18% from 6 April 2026. This will be seen as a blow to entrepreneurs, who often sacrifice their earnings knowing they will have a reduced tax rate when it comes to selling their businesses.

CGT receipts surged ahead of the Budget as many investors and business owners looked to offload assets in anticipation for potential tax hikes. They were right to do so, as the changes announced today come into effect immediately, which could mean people hold onto their assets for longer as a result.

Looking longer term, higher rates for capital gains tax has the potential to discourage people from investing in the UK market. This could reduce overall CGT receipts in future years and impact other tax revenues, such as stamp duty. In a similar vein, it could discourage entrepreneurs from starting small and medium sized businesses which are often the driving force behind economic growth in the UK.

Tax free allowances for capital gains have slowly diminished in recent years, from £12,300 in 2022/23 tax year to just £3,000 for the current tax year. It highlights the importance of using tax wrappers like ISAs and pensions, which shields your investments from tax on both capital gains and income.

Stocks & Shares ISAsSelf-Invested Personal Pensions

Higher taxes for private equity firms

Carried interest – the share of profits paid to private equity managers – is currently levied in the UK at the 28% rate of capital gains tax.

From April 2025 onwards, capital gains tax on carried interest will rise to 32%. Reeves also announced further changes to the rules on carried interest will be implemented from 2026.

The change to the tax treatment of private equity will reduce the capital available in the UK and the number of businesses operating here as they seek more favourable treatment overseas.

Business and agricultural property relief

The government will reform agricultural property relief and business property relief from April 2026. In addition to existing nil-rate bands and exemptions, the100% rate of relief will continue for the first £1 million of combined agricultural and business assets to help protect family farms and businesses and will be 50% thereafter.

The government will also reduce the rate of business property relief to 50% for shares designated as “not listed” on the markets of a recognised stock exchange, such as Alternative Investment Market (AIM).

Many investors were concerned that business property relief would be scrapped entirely, so the news comes as a welcome surprise. The small-cap market was buoyant after the announcement, with the FTSE AIM market rising by 4.31% at the time of writing.

Previously, AIM investors could hold qualifying investments for two years and they would fall out of their estate entirely for inheritance tax (IHT) purposes. As this valuable tax break is going to be capped at 50%, investors may now reconsider their options when it comes to investing in this high-risk area of the market.

Business rates relief continues

Business rates relief for retail and hospitality businesses continues, but at a reduced rate of 40% - up to a maximum discount of £110K.

Business rates relief was introduced for the hospitality industry such as restaurants, bars and cafes in response to the Covid-19 pandemic, but was set to run out in April 2025. Currently, eligible businesses can get 75% off their rates bills up to a maximum of £110,000 a year.

The bottom line

Tax changes are part and parcel of owning your own business. It’s not the first, or the last time, tax rules will change. But we understand these types of changes can be worrying times for business owners, especially after a challenging couple of years. The key is not to panic and to plan ahead.

Charles Stanley has 200 years' experience, building financial security for families of businesses with a wide range of financial planning and investment management services.

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