How the budget changes will affect your small business

As the dust settles on the Autumn 2024 budget delivered by the Chancellor of the Exchequer, Rachel Reeves, you may be considering how the changes will affect your start-up business.

The budget emphasised investment in the country’s economic future, highlighting a commitment to growth and promising to protect working people.

In this article we’ll look at the key points from the budget that could have implications for your start-up.

National Insurance, wages, and Employment Allowance

What you need to know

• Employer National Insurance Contributions (NICs) – these will increase from 13.8% to 15% from April 2025
• Employment Allowance – this will increase from £5,000 to £10,500 and the £100,000 threshold has been removed
• National Minimum Wage (NMW) – from April 2025, the NMW for 18-20-year-olds will be £10 per hour, which is an increase of 16.3%
• National Living Wage (NLW) – the NLW will increase to £12.21 per hour for those aged 21 and above from April 2025 (a 6.7% rise).

What does this mean for start-ups and smaller businesses?

The rise in the NLW and the NMW, says the government, reflect a commitment to improving living standards and reducing inequality, which is good news for many employees.

Alongside wage rises, one of the key revenue boosters announced is an increase in employer National Insurance contributions.

This could lower profit margins for employers, including the 1.1 million small businesses that employ under 10 people.

The increase in NIC and wages might mean that smaller businesses that have employees or plan to hire them will need to consider their operational costs and how they will work moving forward.

If you plan to hire employees for your start-up, carefully consider your hiring decisions and balance the costs with the benefits to your business.

Read our first time employers guide to hiring staff.

The increases could lead to pricing pressures for retailers and hospitality businesses in particular.

These businesses will need to pay higher staff costs while keeping their prices competitive for customers.

On the flip side, the Employment Allowance increase can help offset the rise in employer NICs – potentially allowing small businesses to save up to £10,500 on their annual bill.

As the £100,000 threshold has been removed, all eligible employers can benefit.

According to the government, this will allow 865,000 businesses to pay no NICs at all.

Read about employment allowance for start-ups.

Real-world example

A small cafe employing six staff on the National Living Wage would see their annual salary costs increase by 6.7% from April 2025, when the NLW will rise to £12.21 an hour.

Assuming an existing annual salary bill of £115,000 (excluding director salaries and using approximate figures) for those six employees, the cafe would expect to pay an additional £7,705 next year, bringing the total to £122,705.

Current (24/25) employer NICs cost approximately £1,400 per employee, for an annual total of around £8,400.

With the existing Employment Allowance, that is reduced by £5,000, resulting in annual employer NICs of £3,400.

Next year (25/26) employer NICs would cost approximately £2,130 per employee, for an annual total of around £12,780.

The new, higher-level Employment Allowance reduces that by £10,500, resulting in lower annual employer NICs of £2,280.

Taken together, this would mean a total increase of around £9,985 in total salary costs once the increase in NLW and a reduction in overall employer NICs is taken into account.

Support for retail, hospitality and leisure businesses

What you need to know

• the business rates relief scheme – the Government has extended this scheme for retail, hospitality, and leisure properties for 2024/25. Eligible, occupied properties will receive a 40% relief on their business rates. It is capped at £110,000 per business per year
• duty on draught alcoholic drinks – there is a 1.7% cut for pubs and bars.

What does this mean for start-ups and smaller businesses?

Business rates are a form of tax on non-domestic properties.

If you’re in the retail, hospitality, or leisure sectors, the business rates relief scheme could apply to your start-up.

The relief scheme benefits anyone who runs a brick-and-mortar business, including shops, cafes, restaurants, pubs, gyms, and hotels.

This means the British high street will benefit as small businesses are protected from inflation.

The cut in duty on draught alcoholic drinks will also lower pubs’ and bars’ costs and potentially increase profit margins.

The policy is expected to encourage more social drinking in venues, which could boost bar business.

Read about profit margins for small businesses.

Investment and funding

What you need to know

• Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) – the schemes will continue through to at least 2035
• Seed Enterprise Investment Scheme (SEIS) – the scheme has been extended to 2035
• full expensing for capital expenditures – businesses can deduct 100% of the cost of qualifying capital investments from their taxable profits in the same year
• British Business Bank Funding – over £1 billion is allocated across 2024-25 and 2025-26 to enable small businesses to access funding.

What does this mean for start-ups and smaller businesses?

The Seed Enterprise Investment Scheme extension will continue to help early-stage companies by offering potential investors tax relief.

This makes it easier for new businesses to attract and secure the funding they need to develop products or scale up.

The Enterprise Investment Scheme is designed to attract more investors to fund small to medium-sized businesses, and the Venture Capital Trust also offers tax-efficient investment opportunities which are aimed at attracting funding.

Read more about venture capital.

Start-ups investing in assets like machinery or equipment will benefit from the 100% expensing allowance because they can subtract the full cost from their taxable income.

This can improve cash flow by reducing the tax owed, allowing businesses to invest in growth or operations.

The British Business Bank will also continue to support start-ups thanks to its allocation of over £250 million per year for small business loans, such as Start Up Loans.

Support for research and development (R&D) and innovation

What you need to know

• R&D tax relief – there is a focus on maintaining R&D tax reliefs with enhanced administration
• digital adoption support – there is an extension of the SME Digital Adoption Taskforce.

What does this mean for start-ups and smaller businesses?

Alongside funding for the Department for Science, Innovation and Technology to invest in research and development in 2025, new 10-year budgets show a shift towards planning and investment.

The stability in R&D tax relief could be especially useful if you run an innovative start-up as you can continue to benefit from financial incentives.

It also supports and reinforces the UK’s ambition to lead in innovative sectors such as artificial intelligence.

Good news, too, is that the SME Digital Adoption Taskforce will be extended – this initiative is designed to help smaller and medium-sized businesses (SMEs) improve their digital capabilities.

This is vital for staying competitive in a tech-driven market.

The Department for Business and Trade is also set to announce a £4 million pilots package to encourage tech adoption for SMEs.

This funding is for pilot projects that help businesses use digital tech for productivity and efficiency.

Read about R&D grants and tax relief for smaller businesses.

Taxes

What you need to know

• Capital Gains Tax (CGT) has increased – the lower rate has gone from 10% to 18%, while the higher rate has risen from 20% to 24%
• Business Asset Disposal Relief (BADR) – BADR is going to increase to 14% from 6th April 2025 and will align with the main lower rate of 18% from 6 April 2026
• Corporation tax – the main rate is capped at 25%.

What does this mean for start-ups and smaller businesses?

Small businesses may need to be more focused on managing their cash flow to account for potential tax liabilities.

It’s possible that higher Capital Gains Tax could make some investors less inclined to invest in start-ups and small businesses.

This is because they may be less willing to take risks if profits are more heavily taxed.

More start-ups might consider using tax-efficient initiatives, such as the EIS or SEIS, to find investors.

The changes in Business Asset Disposal Relief rates mean that while the relief still offers a reduced rate compared to the new CGT rate, it is increasing.

This could impact your financial planning if you have a start-up that you plan to sell.

If you have a small family business, inheritance tax changes include a threshold freeze (at £325,000 until 2030) and revised reliefs on business assets, which could be considerations when it comes to succession planning.

The capping of the Corporation Tax rate could create a good environment for start-ups to thrive if it encourages investment and growth.

If you feel any tax rises might present challenges for your start-up, consider reviewing your tax planning.

You might think about working with an accountant who can advise you on tax compliance.

Read about the main taxes that apply to small businesses.

Real-world example

If you are a founder looking to sell your business or closing your solvent company with the Members’ Voluntary Liquidation process, you can apply for Business Asset Disposal Relief if you have not surpassed the lifetime limit of £1 million.

BADR effectively allows you to pay tax on the profit you make from the sale of your business at a lower rate than CGT.

In the current financial year, that means you’d pay 10% on this profit.

For example:

• you sell your business (shares) for £500,000, known as capital gains
• you deduct any losses, for example, £50,000
• you reduce the remainder by your tax-free allowance, such as £3,000
• the remaining £447,000 is currently subject to BADR of 10%, meaning you’ll pay £44,700 in tax to HMRC and keep £402,700
• in the new financial year (24/25) you’ll pay 14%, meaning you’ll pay £75,990 in tax and keep £371,010.

Other benefits for smaller businesses from the Autumn budget

• export support – small businesses can access UK Export Finance’s support and the government is looking at new products to help small exporters with insurance and finance
• practical business support – over £200 million is allocated for wider small business support, including funding for Growth Hubs and the Help to Grow management programme
• late payment measures – measures to tackle late payments to small businesses are being reinforced, which means companies bidding for government contracts of over £5 million per year are required to pay suppliers within an average of 45 days.