SUMMARY: The Autumn Budget 2024 has represented a pivotal moment for the UK’s 5.5 million small and medium enterprises (SMEs). From tax reforms to wage adjustments, the budget aims to rebuild Britain’s economic stability but introduces challenges for businesses already navigating thin margins.
- The National Insurance Conundrum
The headline reform for SMEs is the rise in employers’ National Insurance Contributions (NICs) from 13.8% to 15% starting April 2025, coupled with a reduction in the threshold for contributions from £9,100 to £5,000. This dual adjustment significantly increases employment costs, especially for labour-intensive sectors like hospitality and retail.
For instance, an SME employing 10 staff at the National Living Wage (£12.21 per hour) would see its annual NIC bill increase by thousands, pressuring already constrained budgets. While the Employment Allowance’s expansion from £5,000 to £10,500 aims to mitigate these costs for smaller employers, it is limited in scope, benefiting only around 865,000 businesses.
Heather Powell of Blick Rothenberg aptly notes that such changes are a “tax on jobs,” potentially forcing SMEs to consider layoffs or freeze hiring. On the flip side, companies that can strategically leverage the Employment Allowance may find some breathing room.
- Wage Growth vs. Financial Strain
Labour’s commitment to raising the National Living Wage from £11.44 to £12.21 per hour represents a 6.7% hike, effective April 2025. For minimum-wage-dependent sectors, this reform is bittersweet. While it aims to boost consumer spending power, it also inflates payroll expenses. SMEs must navigate the challenge of maintaining pay equity across roles, as higher-paid employees may demand corresponding raises.
Businesses like cafes and cleaning services, where wage costs constitute a substantial portion of expenses, may struggle to absorb these hikes without passing on costs to customers—a risky move in a competitive market.
- Permanent Relief on Business Rates
A silver lining for SMEs comes in the form of a permanent 40% discount on business premises and property tax rates for retail, hospitality and leisure sectors, capped at £110,000 per business. This replaces the current 75% temporary relief expiring in 2025 and provides long-term financial predictability.
For example, a local restaurant chain with annual rates of £150,000 could save £60,000 annually under this new scheme.
- Capital Gains Tax Revisions
Capital gains tax reforms include increasing the lower rate from 10% to 18% and the higher rate from 20% to 24% by 2025. While these changes introduce additional costs for asset sales, the preservation of business asset disposal relief (albeit at rising rates) ensures SMEs still benefit from preferential rates.
A founder looking to sell their company for £1 million in 2024 would pay £100,000 under the current 10% rate. However, delaying the sale to 2025 would increase this to £140,000 under the new 14% rate. Strategic planning will be essential for business owners considering exits or asset liquidations.
- Fuel Duty Freeze and R&D Reliefs
Logistics-reliant SMEs receive a reprieve with the continued freeze on fuel duties for another year. This measure supports businesses dependent on transportation, such as delivery services and manufacturers. Additionally, maintaining R&D relief rates provides an incentive for innovation, particularly in tech and green energy sectors.
Startups in renewable energy can leverage R&D incentives to explore clean energy solutions, aligning with Labour’s broader goal of fostering innovation while offsetting tax burdens.
Challenges on the Horizon
The budget has sparked mixed reactions among SME advocates. While the corporate tax cap at 25% and enhanced R&D support maintain the UK’s position as a business-friendly hub, the overall tax burden shift is concerning. Simon Gleeson, Partner at Blick Rothenberg, warns that smaller firms operating on slim margins may struggle to remain competitive.
