The Budget for small businesses
The Budget – as always – has come in for a lot of sniping, but what are the key issues for small businesses?
The first, and most obvious, change is the increase in employers national insurance to 15%. This 1.2% increase will apply from April 2025.
Coupled with this, the secondary threshold has been reduced from £9,100 to £5,000. That means that more employees will fall into the category where the employer has to pay a contribution. However, smaller businesses will benefit from the employment allowance doubling from the current £5,000 to £10,500.
In real terms that means that the cost of employing people goes up – and that’s before any consideration of a salary increase.
With legislation currently in progress to require employers to pay both sick pay and maternity pay from day one of the absence. Expansion in terms of more staff gets more and more expensive.
The only light at the end of the tunnel is that employers NI is deductible from corporation tax, so most businesses won’t actually end up footing the entire bill. However, even the modest overall increase may hit profits.
Corporation Tax is frozen
On a more positive note, Corporation Tax will not increase and the government has undertaken to keep Corporation Tax rates fixed until 2030. This is good news for businesses as Corporation Tax is one of the often targeted tax hikes. To be able to budget with a known rate for the next five years is a real benefit in relation to business planning.
In addition, the annual investment allowance and other capital allowance rules along with the first year allowance on electric vehicles also remains in place until 2030.
The change they cancelled has been revoked!
Are you confused? In March we wrote about the issues of whether a double cab pick up was a car or a van. In other words, for tax purposes, was it considered a commercial or a domestic vehicle? Commercial vehicles benefit from more advantageous benefit in kind rules – and the HMRC proposed to recategorise these vehicles to be taxed as cars. The outcry from a wide range of pickup owners, particularly in the agricultural industry, surprisingly, caused an about-turn and they remained taxed as commercial vehicles.
That’s about to change. As of next April a double cab pick up will be considered a car and taxed accordingly. If you already own one, the current tax rules will apply until you sell it – or 2029 (whichever is earlier). However, lots of people have one – it’s a great family vehicle, plenty of seats and room for bikes and other kit in the back. When it’s time to change vehicles how many people will want to pay a much higher benefit in kind to justify that convenience?
More to the point – who is going to buy the massive flood of second hand vehicles that will flood the market between now and 2029?
What does this Budget mean for small businesses?
For limited companies the freeze on Corporation Tax is good news. It doesn’t mean that they can’t increase the tax on dividends at some point, but overall small companies get a break.
Careful planning will need to go into growth plans to ensure that the profits will cover the cost of expansion, but the NI increase isn’t unexpected.
It may be worth reviewing whether, as a director of a limited company, you take a normal salary or take a low salary and make up the balance in drawing dividends. The benefits of these two options was getting closer, but the 1.2% increase in NI changes this calculation once more. At the end of the day consistency for businesses is important and, overall, the Budget is more positive than negative.
