The Chancellor has now finished her update on the changes to UK tax rules. As predicted, this is a devastating budget for some small businesses which are caught by the biggest tax rises. We’ve done our best to highlight the key changes here which we believe are likely to have the biggest impact on our clients; if you need further advice on how specifically these changes are likely to affect you then please reach out and have a chat with us.
The key highlights here are minimum wage increases, employer’s NIC rises and large increases to capital gains tax and inheritance tax. The inheritance tax changes in particular may be a very unexpected change for family companies or agricultural land holders. For the first time, businesses are now subject to Inheritance Tax.
As a final point, sometimes the government sneak changes into the budget small print. If we discover anything key we’ll send a follow up email within the next few days.
Minimum Wage and Employer’s National Insurance
With effect from April 2025, the following increases have been made to Minimum wage:
Standard minimum wage increased from £11.44 to £12.21
18-20 Year old minimum wage increased from £8.60 to £10.00
Apprentice minimum wage increased from £6.40 to £7.55
In addition to this, the cost of your employer’s national insurance will increase from 13.8% to 15%.
More substantially than this raise, the point at which businesses become eligible to pay employer’s national insurance for each staff member has been substantially dropped from £9,100 to £5,000
This will be offset for small companies by an increase of employment allowance from £5,000 to £10,500. This allowance offsets the first £10,500 you would otherwise have to pay to HMRC in relation to your employer’s national insurance. However, any business employing more than the equivalent of 4 minimum wage workers will face increase wage costs.
Example of a minimum wage staff member working 40 hours per week – cost to employer
2024/25 Tax Year 2025/26 Tax Year (New Budget)
Gross Income £23,795 £25,396
Employer’s NIC £2,027 £2,814
Total Cost £25,822 £28,210
Per the above example, the increased cost per employee is 9.1%.
However, you will only pay employer’s national insurance if your liability is greater than £10,500 for all employees including directors. This is therefore unlikely to affect you if you employ less than four people.
As a follow on to our last email, the government have opted not to apply national insurance to pension contributions. Good news for those clients using SSIPs, SSASs or planning to reward staff with pension schemes.
Capital Gains Tax & Stamp Duty Increases
Capital Gains tax has not been increased for residential properties, but for all other assets the rate has jumped from 10% to 18% for Basic Rate Taxpayers and from 20 to 24% for people in the Higher Rate Band
Stamp Duty on second homes or properties bought by a company has been increased effective from today from 3% to 5%.
Inheritance Tax Changes
There have been some enormous changes to how Inheritance Tax functions. Due to the changes announced today there will be an enormous increase in the number of people who have to pay Inheritance Tax and a massive restriction in the opportunities to avoid Inheritance Tax. Specifically:
- Pensions are no longer exempt from Inheritance Tax from April 2027.
- Family businesses are no longer exempt from Inheritance Tax when passed to your descendants.
- Agricultural property is no longer exempt from Inheritance Tax when passed to descendants.
- Family businesses and Agricultural property will now be exempt up to £1 million of value and then subject to Inheritance Tax at 20%.
- Alternative Investment Market shares are no longer exempt from Inheritance Tax but will be liable for a lower rate of Inheritance Tax at 20%.
Traditionally, most of our clients have not needed to worry about Inheritance Tax.
Unfortunately this has now changed in a very unexpected way. If you own a business and plan to pass it along to your family you will now need to put serious thought into passing this along to your intended beneficiaries. The substance of these changes are now that it is much, much more difficult to avoid Inheritance Tax as a small business owner.
Other Changes
- Liquid vape products are now subject to tobacco duty at £2.20 per 10ml.
- Non-domiciled status has been abolished but no word so far on what will replace it.
- Personal allowances have been frozen until 2027/28, continuing to drag more low earners into the tax system through fiscal drag.
Summary
No good news to share here other than our expectation that the employment allowance increase will shelter very small employers from the worst impact of the employer’s NIC changes. Far and away the nastiest change here is the government dragging small business owners into the Inheritance Tax system. These assets have historically been exempted from this on the grounds that it would be wrong for Inheritance Tax bills to force family businesses or family farms to be broken up. It’s likely that the long term impact of these changes will lead to the breakup of a lot of family farms and businesses where the owner passes away without proper planning.
Electricity & Gas Bill Saving Opportunities
One final point to raise with our clients. We’ve recently signed up to a partnership with the Radius Energy Group to try and cut electricity bills. Many clients may be unaware of this, but where you pay electricity or gas from a commercial property special rules apply that don’t apply to residential properties.
Unless you have contacted your gas/electricity company and signed a contract, they have the right to add a 40% premium to all of your charges.
Radius are running a service where for no up-front cost they will get your business into contract with an energy provider and monitor this to ensure you remain in contract at the lowest rate possible in exchange for a small % of the savings they get for you.
We’ve run two test cases so far, for our office they were able to reduce our annual bills by £1,600 and for a client who runs a takeaway food business they were able to achieve savings of £6,000 per annum.
Given there’s no cost to you I would strongly recommend any clients paying electricity and gas on commercial premises who are not in contract to take advantage of this service. If you let one of our staff know that you’re interested we will pass your details along to James, our partner at Radius, and ask him to contact you about this.