2024 Budget Update - 2 Key Tax changes for small business owners

The first budget from a Labour government in 14years was always going to offer up plenty of headlines as it sets the tone or the next 5 years.   Let’s cut through the noise and look at two key Tax announcements impacting small business owners. 

Currently, for 2024-25, employers pay 13.8% on employee’s salaries over and above £9,100. 

From April 2025 the rate will increase to 15% and the threshold at which it kicks in will be lowered to £5,000.  

Additionally, the Employers Allowance (EA), which can be claimed by some small businesses is increasing from £5,000 per year to £10,500.  EA is a credit for qualifying businesses of the first £5,000 of employers’ national insurance contributions so the increase to just over £10k is very welcome.  (if you are a payroll client of ours we automatically claim this allowance on your behalf where clients are eligible, if you are not a client you can read the criteria for eligibility here. )

Considerations – for some small businesses it has been beneficial to provide a director with a small salary of just below the £9,100 threshold.  This level had duel benefit in that it gives the director a qualifying year for state pension without actually incurring any National Insurance contributions as an individual or as an employer. 

With the threshold being reduced to £5k some might assume that their salary should also fall to this level to avoid Employers NI however at £5k you wouldn’t receive full credit for a qualifying year for your state pension.  Your salary needs to a minimum £6,396 (LET*), which will from next April, result in a small amount of employers NI liability unless your company qualifies for the Employers Allowance and has headroom within the allowance to offset the liability on your director salary. 

*(please note the lower earnings threshold is likely to also be increased from April.  Figures used are for explanation purposes only) 

Nearer the time we will publish our usual “optimal director salary” guidance so please be sure to follow our LinkedIn page to stay updated. 

The old Entrepreneurs Relief amazingly remained at £1m lifetime allowance but the tax rate you pay has been increased.

Currently, for 2024-25 if you sell your business and profit of £1m or less (allowance is across your lifetime not each disposal) you pay just 10% capital gains tax.

From April 2025, the tax rate will be 14% and from April 2027 it will increase to 18%. 

Considerations – if you were planning to exit you will need to complete before April to lock in the 10% rate. 

There were obviously other announcements that will impact small business owners such as business rates and minimum wage but to keep this article brief I’ve stuck to two main tax changes impacting small business owners directly.

Some things that thankfully didn’t change were the Corporation Tax rate, Annual Investment Allowance and the treatment of fully electric cars. 

Full 2024 Autumn Budget - Gov.UK link