Budget 2024: Impact on Small Businesses
As the dust settles on the Chancellor’s first budget, small business owners are looking for guidance on how the myriad different measures will combine to affect their own operation below we have set out the real impact on small businesses in the October 2024 Budget.
Vincents Solicitors’ Drew Barrow takes us through the changes.
There’s no doubt Rachel Reeves’ Autumn Statement will have a significant impact on business, so many changes were included as the government seeks to raise billions.
For small businesses, especially in the retail, hospitality and leisure sectors (RHL) sector, there were some positives, a fair few negatives, and some things which may require serious thought.
Business Rates
RHL on the face of it was the big winner on Thursday, with top prize of 40% business rate relief (up to the value of £110,000) until 2026. This is good news for a sector which currently enjoys 75% relief, but which was due to revert to full rates in April 2025.
The extension is welcome but, by reducing the relief by almost half, there is an effective 35% hike in business rate bills coming next spring. That’s better than the 70% cliff edge of course, but it will still hit the pockets of many in the RHL sector.
More notably perhaps was the promise of a full reform of the Business Rates system, with ongoing lower rates for RHL premises, something the sector has long campaigned for.
Penny off a pint
There was also the headline grabbing ‘penny off a pint’ announcement, thanks to the reduction in Draft Duty of 1.75% from February 2025. This aims to helper smaller producers and could be a nice little bonus for any establishment serving a significant number of pints per day… or maybe they’ll choose to pass that saving on to the customer…
NI Contributions
Like other sectors, RHL will face the double whammy hike in Employer National Insurance contributions from next April – the increase from 13.8% to 15% and the lowered threshold from £9,100 to £5000 – meaning for businesses with more than a handful of employees the combined impact will be a real increase of around 2% of their payroll costs.
However, the government is increasing the Employers Allowance from £5000 to £10,500 per employee which effectively removes all NI payments for some smaller businesses with staff on minimum wage, and reduces them for others.
This is good news for the five million small and microbusinesses across the UK who employ four or fewer people which (according to the Office for National Statistics) is the overwhelming majority of the UK’s total 5.6million businesses. So this could be good news for many.
Having said that, as the larger businesses and mega employers will be hit hard, there is likely to be costs going up elsewhere in the supply chain to cover for their increase in employers NI.
Minimum Wage
The sector footing one of the largest bills for the increase in the National Minimum Wage is RHL.
From April the hourly rate for someone over the age of 21 will be £12.21, up 6.7% from £11.44. This is well ahead of the forecast rate of inflation. The move seeks to help the lowest paid in society and, of course, salaries are predominantly spent on goods and services, so the increase is expected to support wider economic growth.
Whilst this is good news for the lowest paid, it does add further pressure to the hospitality sector. Hospitality has already struggled with rising food costs and increased energy bills leading to many cafes and restaurants up and down the country facing closure.
Corporation Tax
This has been capped at 25% for the duration of this parliament, which came as some relief to businesses who were worried this was where the chancellor would direct her increases.
She has also made it clear some of the resulting income to the Treasury will be spent on infrastructure improvements, which have the potential to encourage economic growth and support longer term benefits.
Adding it all up
Business rate relief and alcohol duty reduction versus increased minimum wage and NI contributions. Where does your business stand?
As ever, it will depend on the specifics of your business and the details of each new government policy. If you have a lot of young casual staff and a large city centre premises, you may find the business rate hike, the minimum wage increase and the employers NI contributions cause quite a significant headache.
Conversely, a small operation with a handful of moderately paid employees in a small suburban unit, you may find yourself slightly better off come April.
Understanding your current and future position will be crucial to anyone considering taking on a lease in the next few months. We can help you run the numbers and work out which side of the coin your business falls, and advise one best steps forward in Rachel Reeves new world.
For Clear, Precise Advice in plain english email drewbarrow@vslaw.co.uk for more information