This week we saw the delivery of the first Labour budget in 14 years and the first ever to be delivered by a woman. Despite the novelties, the overwhelming message was one of responsibility and stability.
As Labour promises to both fix the foundations of our public spending and invest for economic growth, a series of what they’re calling difficult decisions have been made, including significant changes to taxes levied on businesses.
For the UK startup market in particular, the policies also present unique opportunities.
Read on for our six key takeaways for UK startup founders and how you can start planning for the changes to take effect.
1. Employers’ tax contributions are rising
The employer National Insurance Contributions (NICs) rate will be increased from 13.8% to 15% of pay above the secondary threshold from April 2025.
The secondary threshold – i.e. the earnings level at which employers start paying NICs on behalf of their employees in the UK – is also being reduced from £9,100 per year to £5,000. It will remain at this level until April 2028 and then will be increased in line with inflation.
Business owners should start re-forecasting now, to ensure they are well prepared to manage this increase in line with future hiring plans. It may be worth exploring additional cost saving measures or revisiting your pricing strategy to balance increases elsewhere.
2. National Insurance relief for small businesses is doubling
To help small businesses offset the NIC increases, Employment Allowance has more than doubled as of 30th October 2024. Eligible businesses can now reduce their National Insurance contributions by £10,500, compared to the previous amount of £5,000.
Additionally, the £100,000 eligibility threshold has been removed so all eligible businesses with employer National Insurance to pay can benefit.
Cost savings through Employment Allowance are equivalent to 4 full-time workers on the National Living Wage which presents a unique opportunity for early-stage founders over the next few years.
We also saw focus on improvements in both infrastructure and internet services for regional locations in the UK. This marks a continuation of the governments plan to decentralise economic growth we’ve seen mentioned more and more in recent years, opening new opportunities for would-be founders in more locations across the UK.
Speak with your Accountant regarding your eligibility for Employment Allowance ahead of the NIC rate increases next year to ensure you’re making the most of all the relief available.
3. Investment in innovation and entrepreneurship
Despite several tax changes highlighted here, Corporation Tax (CT) will not increase. The government has pledged to keep the CT rate capped at 25% throughout Labour’s time in parliament. The Small Profits Rate and Marginal Relief will also remain at their current rates and thresholds, with no changes planned.
Additionally, key incentives we see frequently used by our clients like Annual Investment Allowance, R&D Tax Relief, and Patent Box will be maintained as they are, providing businesses with continued support for investment and innovation.
4. Increases to Capital Gains Tax and Business Asset Disposal Relief
While the UK maintains the lowest Capital Gains Tax (CGT) rates of any European G7 member, rates have increased significantly.
As of 30th October 2024 the following rate increases apply:
· Lower rate tax payers: an increase from 10% to 18% on all assets excluding residential property and carried interest.
· Higher rate tax payers: an increase from 20% to 24% on all assets excluding residential property and carried interest.
· The main rate of CGT that applies to trustees and personal representatives increases from 20% to 24%.
CGT on residential property and carried interest remains the same:
· Lower rate tax payers: 18% on residential property
· Higher rate tax payers: 24% on residential property
· Carried interest: 28%
For those claiming Investors’ Relief (IR) or Business Asset Disposal Relief (BADR) the CGT rate under both reliefs will stay at 10% for this tax year. However, this rate will rise to 14% in April 2025 and then to 18% from April 2026.
No CGT is due on the first £1M of qualifying gains.
If you're considering selling your business or assets, reassess the financial implications of the increased CGT rates. It may be worth exploring alternative avenues with your Accountant.
5. Inheritance tax threshold frozen until 2030
The freeze placed on the Inheritance Tax (IHT) threshold at £325,000 until 2028 by the last government has been upheld and extended to April 2030. This means that up to £325,000 of any estate can be inherited tax-free until then.
In addition, starting in April 2026, the first £1M of combined business and agricultural assets will be exempt from IHT. For amounts beyond this, you will need to pay 50% tax on the excess.
This extended freeze offers stability for business owners planning to pass down their businesses or gift shares over the next few years.
6. National Living Wage increased by 6.7%
Starting in April 2025, the National Living Wage (NLW), the minimum hourly rate that employers must legally pay to employees aged 21 and over, will increase by 6.7%, moving from £11.44 to £12.21 per hour.
For younger workers, the National Minimum Wage (NMW) for those aged 18 to 20 will rise significantly by 16%, going from £8.60 to £10 per hour. There is no change for 16–17-year-olds.
The most substantial increase is for apprentices, whose minimum wage will jump by 18%, from £6.40 to £7.55 per hour. Before this increase, apprentice wages were set at £5.28 per hour.
Remember, this is a legal requirement so one of the first things to speak to your Accountant about as you prepare for next year. You’ll need to recalculate your labour costs as well as consider potential ripple effects on wages for employees already above the minimum wage.
How should UK startup founders respond?
Now is the time to reassess your revenue projections and expense estimates considering the new budget measures. It’s important to create multiple scenarios (best-case, worst-case, and most likely) to account for different potential outcomes.
Depending on how these changes affect you, it may be time to consider reviewing your pricing strategy, reducing costs where possible and reviewing your eligibility for additional tax relief.
As ever, the team at Jump Accounting are on hand to ensure you’ve developed a comprehensive strategy that works best for you and your business.
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