The headlines this month have been dominated by the historic Labour Autumn Budget, which has significant implications for small businesses across the UK. As Chris Mason describes, this is “a huge, change-making budget” that could reshape the UK’s economic landscape for decades to come. With a £40 billion tax increase, the 2024 announcement marks the largest tax hike since John Major’s government in 1993.
Yet this substantial £40 billion tax rise is only one of many shocks in Chancellor Rachel Reeves’ budget. Alongside new tax policies, Reeves has introduced initiatives targeting economic reform, with a particular focus on the business sector. This is where the majority of tax increases will have a direct impact. Alongside new employment regulations, businesses face a variety of changes in the coming months. In this article, we will provide a detailed guide to help you understand what will – and won’t – impact your business.
Are you a ‘small’ business?
In the UK, a small business is defined as a company that employs fewer than 50 people and has an annual turnover of less than £5 million.
Small businesses are vital to the UK economy, making up over 99% of all businesses. In total, they have over 12 million employees. employing more than 12 million people. That means that any changes impacting small businesses are likely to have larger secondary consequences from many.
What’s in the 2024 UK Budget for Small Businesses?
1. Tax Rises
Labour’s budget introduces a 2% increase on the Corporation Tax Surcharge for companies with profits above £50,000. This raises the top rate to 27% for the largest businesses.
Growing small businesses who go over profits of £50,000 will have larger tax bills under the new measures. This means that although small businesses may not feel a direct impact, growing companies should consider their future tax bills.
2. Changes to Employment Allowance
To support small businesses, the government has doubled the Employment Allowance from £5,000 to £10,500. This increase means eligible businesses will save up to £10,500 each year. The savings made in this will help small businesses to invest in other areas, or ease day-to-day running costs.
Plus, the rule that limited the Employment Allowance to businesses with a National Insurance bill under £100,000 has been removed. This means that all businesses can now benefit from Employment Allowance.
3. Increases in National Insurance
Increases in Employers’ National Insurance Contributions (NICs) is hoped to raise an additional £25 billion by the end of this Parliament. This will impact businesses of all sizes, but could be especially challenging for small businesses, which typically operate with tighter profit margins and are more sensitive to increased operating costs.
These cost pressures could result in a reduction of 50,000 jobs according to experts. For small businesses, this may mean reconsidering recruitment, reducing staff hours, or limiting pay rises.
While the government has implemented support measures like the increased Employment Allowance, the NIC rise remains a significant burden.
4. Adjustments to Capital Gains Tax
The government has announced important changes to Capital Gains Tax (CGT) that will affect many business owners and investors. The lower rate will increase from 10% to 18%, while the higher rate will rise from 20% to 24%. This could lead to higher tax bills for businesses selling assets.
For small business owners, especially those looking to sell or transfer ownership, this rise in CGT could impact their plans. In short, a larger portion of profits will now go to tax.
5. Inheritance Tax Threshold Freeze
The Chancellor has frozen the Inheritance Tax (IHT) thresholds until 2030. The Nil Rate Band will stay at £325,000, and the Residence Nil Rate Band will remain at £175,000. As property values and assets rise due to inflation, more family businesses might end up exceeding these limits.
This means that when owners pass away or hand over the business, their families could face bigger IHT bills. This could create some financial stress for families trying to keep the business going while also handling the tax cost
This means that ownership of the businesses may be transferred earlier than planned to avoid larger tax bills. This could mean transferring shares while still alive, which could mean complicated financial arrangements​ for small, family-run businesses.
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