What the 2024 Autumn Budget Means for Small Businesses

With time to assess the 2024 Autumn Budget, it’s clear that it brings both advantages and challenges for small businesses across the UK. While the budget contains measures to support the smallest businesses, companies with slightly larger workforce’s may feel a financial squeeze due to changes in National Insurance (NI) contributions and the new wage policies. This article explores how these adjustments will impact different types of small businesses.

Increased Employment Allowance

A standout change in the Autumn Budget is the rise in the employment allowance to £10,500.  This was previously capped for businesses with NI bills exceeding £100,000. This restriction has now been removed, allowing all small businesses to access the increased allowance. This is a welcome change for very small enterprises, providing additional support for payroll costs and easing some of the financial burdens on micro-businesses aiming to retain or add employees.

For businesses with a handful of employees, the increased allowance will make a real difference. This extra NI relief can help improve cash flow and even enable slight wage increase. The change aligns well with the government’s focus on helping micro-businesses thrive and remain resilient in challenging economic times.

National Insurance and Threshold Adjustments

While the raised employment allowance is good news for the smallest firms, the changes to NI thresholds may negatively impact slightly larger small-to-medium enterprises (SMEs). The budget lowers the employer NI contribution threshold from £9,100 to £5,000 per employee. This means employers start paying NI on a larger portion of employee wages. Additionally, the NI rate itself will increase from 13.8% to 15% from April 2025.

For companies with a growing workforce, these adjustments will increase payroll expenses considerably. Businesses with 20 or more employees, especially those with wage bills already impacted by inflation, may need to make difficult decisions to balance these increased costs. In many cases, this could mean reducing hiring plans, limiting wage increases, or finding other areas to cut costs.

These changes will likely slow growth for some SMEs, particularly those on the cusp of scaling up from a small to medium-sized business. The increased cost per employee may make it harder for them to compete with larger businesses in terms of salary offerings and benefits, ultimately affecting their growth potential and hiring capacity.

National Living Wage Increase

In addition to the NI changes, the National Living Wage is set to increase to £12.21 per hour from April 2025. For businesses with hourly workers, this rise represents a significant payroll increase. Thinking of sectors like retail, hospitality, and care, where many employees are on minimum wage. Although this change aims to improve living standards, it also brings financial strain for small businesses already grappling with rising operational costs.

The increase in the living wage is expected to create a ripple effect across pay scales too. Employees higher up the pay band may seek adjustments to maintain wage differentials. For small business owners, this could mean a notable increase in payroll costs across the board, further compounding the effects of the higher NI contributions. In response, many business owners may consider reducing staff hours, freezing hiring, particularly apprentices, or limiting pay rises for other staff to balance budgets.

Capital Gains Tax and Asset Disposal

The Autumn Budget also introduces changes to Capital Gains Tax (CGT) rates, with the lower rate increasing from 10% to 18% and the higher rate from 20% to 24%. These changes could impact SMEs that rely on capital gains as part of their income or reinvestment strategy. Small businesses looking to sell assets or reinvest gains into growth initiatives may find their cash flow constrained by the higher tax rates.

For business owners planning for future growth, this increase in CGT may influence decisions about expansion, particularly in cases where they rely on gains from assets to fund their plans. Business Asset Disposal Relief, however, remains available and capped at £1 million, offering some protection for small business owners looking to sell their business.

 

Business Rates Relief

For small businesses in retail, hospitality, and leisure, the budget includes a new 40% business rates relief capped at £110,000. This starts in the 2025-26 tax year. Additionally, a lower business rates multiplier for these sectors will be implemented from 2026-27. This relief is aimed at supporting high street businesses that have struggled in recent years with rising rent and operational costs.

While the rates relief provides welcome financial assistance, some critics argue that the cap may limit its usefulness for businesses with larger physical footprints. Moreover, with the relief not set to start until 2025-26, the immediate impact will be limited. In short, many small business owners will still feel the financial strain in the meantime.

Adaptation and Strategic Responses for Small Businesses

For many SMEs, adapting to the Autumn Budget’s changes will require thoughtful financial planning and strategic responses. The cumulative effect of increased payroll expenses, a higher National Living Wage, and reduced NI thresholds may force business owners to find new ways to preserve their profitability. Some possible strategies include streamlining operations, reducing non-essential expenses, and adopting automation technologies to offset rising labour costs.

In highly competitive sectors, however, passing these increased costs to customers may not be feasible without risking a loss of business. For those firms, the challenge will be to find efficiencies within their operations to absorb these new costs without reducing their competitive edge. Small businesses may also look to explore new revenue streams or develop targeted marketing strategies to maintain profitability and attract a broader customer base.

Balancing Benefits and Challenges

In summary, the Autumn Budget 2024 provides a mixed outlook for the UK’s small business community. While the increased employment allowance and business rates relief offer welcome support for the smallest firms, the reduction in NI thresholds, rising NI rates, and the hike in the National Living Wage will present significant challenges for those with larger payrolls. Businesses in growth phases will need to reassess their financial plans to navigate these changes effectively.

Ultimately, this budget reinforces the importance of careful financial planning for SMEs. While it supports micro-businesses, it imposes new pressures on growing firms. It will require small business owners to stay adaptable and proactive in meeting these financial challenges.

Featured Image Credit: Sven Lachmann