Rachel Reeves delivered her first budget, since becoming chancellor on 5th July 2024. We have detailed below what changes have been announced and provided a summary of the impacts on business at the end.

Summary

From a small and medium business perspective, there doesn’t look to be many positives. The increase in Employers NI will hit smaller businesses employing over four workers above minimum wage. A higher salary for those workers will rapidly exceed the benefit of the increase to the Employment Allowance.

The Capital Gains rates being tapered, will be a relief to some smaller businesses looking to close, or investors looking to dispose of assets, prior to the tax year end.

The discounted business rates relief of 40%, up to a maximum discount of £110,000 will be beneficial to no business, as it means that many businesses will see their business rates nearly double, rather than quadruple as had previously been planned, had an extension not been provided.

No extension of income tax and NI thresholds beyond the decisions of the previous government means a tax increase in real terms on the amount of money you receive, as costs increase. Increasing the personal tax thresholds in line with inflation for 2028-29 will be a welcome move, though we are still 3 and half years away, just in time for an election campaign!

Some may be satisfied with the Fuel Duty being frozen again, at 52.95p per litre, however this has been frozen or reduced every year since 2011.

The silver lining may be the additional investment in many sectors, which could lead to job growth and opportunities for small businesses and contractors. Yes the budget could be seen as a raid on business, but small businesses were ‘mostly’ protected.  

Concerns have already been raised about the future planning for the level of spending in the budget, compared to the lack of long term recovery against the spending, and will be reviewed and explored over the coming days and weeks.  

Please join the Post Budget Overview and Future Planning Online Seminar from Prospera Wealth Management LLP today 31st October at 6pm, by using the Registration Link here.

National Insurance

• Employers NI will increase by 1.2% to 15% from April 2025.
• Secondary threshold reduced from £9,100 to £5,000.
• Employment allowance will increase from £5,000 to £10,500. Meaning, 865,000 won’t pay any national insurance at all. Effectively employee four staff on minimum wage without having to pay employers NI.

Capital Gains Tax

• Standard rate increases from 10% to 18%, and the higher rate up to 24%.
• BADR to remain at £1,000,000 lifetime allowance.
• BADR to remain at 10% to 5th April 2025 and increased to 14% from 6th April 2025 to 5th April 2026.  Then increased to 18% from 6th April 2026.  
• Increase in Capital Gains Tax rates on carried interest to 32% from April 2025 and, from April 2026, the government will deliver further reforms.

Inheritance Tax

• Extension of the inheritance tax threshold freeze for a further two years to 2030. This means the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants. Therefore, there is a £1m tax free allowance when the estate passed to a surviving spouse or civil partner.
• They will bring inherited pensions into inheritance tax from April 2027, and will reform Agricultural Property Relief and Business Property Relief.
• From April 2026, the first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1m, inheritance tax will apply with 50% relief, at an effective rate of 20%, she says.

Business Rates

• The current 75% discount to business rates which was due to expire in April 2025, will be replaced by a discount of 40%, up to a maximum discount of £110,000.

Income Tax

• No extension of income tax and NI thresholds beyond the decisions of the previous government.
• From 2028-29, personal tax thresholds will be uprated in line with inflation.
• Minimum Wage and Living Wage increased to £12.21 from April 2025.
• The rates for younger workers under 21 where also increased, as the first step towards aligning them with the National Minimum Wage and National Living Wage.
• The government recommitted to delivering Making Tax Digital for Income Tax (MTD IT), which will apply to all self employed individuals and qualifying income above £50,000 from April 2026, above £30,000 from April 2027 and above £20,000 from April 2029 at the latest.

Tobacco Duty

• The government will renew the tobacco duty escalator at RPI +2%
• Increase in duty by 10% on hand-rolled tobacco.
• Introduction of a flat-rate duty on all vaping liquid from 2026
• One off increase in tobacco duty to maintain the incentive for smokers to give up smoking.

Fuel Duty

• Frozen again, at 52.95p per litre.

Alcohol Duty

• Draft Duty charged on drinks poured in a pub, will be cut by 1.7%
• Alcohol duty rates on non-draught products will increase in line with RPI from February next year.

Non-Doms

• The Non-Domiciled (Non-Doms) Tax Regime to be abolished from 5th April 2025

Stamp duty

• The government will increase the stamp duty land surcharge for second-homes by 2% to 5% from tomorrow.

Interest Rates

• From 6th April 2025, the interest payable on late payments, currently 7.5% based on the Bank of England base rate plus 2.5%, will increase to the Bank of England Base rate plus 4%.

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Windfall tax

• The windfall tax on oil and gas profits will increase to 38%, and will now expire in March 2030.
• The government will remove the 29% investment allowance, to ensure, that oil and gas industry can protect jobs and support the UK's energy security.

Private School VAT

• As expected, VAT will be charged on private school fees from January 2025
• The government will soon introduce legislation to remove their business rates relief on private schools, from April 2025.

Education

• Breakfast clubs investment to be tripled.
• £2.3bn funding for more teachers and £300m for further education.
• £1.0bn Investment in special education.
• £2.1bn to improve school maintenance.
• £1.4bn to rebuild 500 schools in “the greatest need”.  

Defence

• Total increase to MOD budget of 2.9bn to exceed commitments to NATO
• £3bn to Ukraine, for ‘as long as it takes’.
• Holocaust education charities to receive additional funding.

Policing

• Scrapping of immunity for low level shoplifting, introduced by the conservatives.
• Additional training for police officers.
• Creation of a specific offence, for attacks on shopworkers.

Devolved Governments

• The government will support public services across the United Kingdom, in Scotland, Wales and Northern Ireland, the Budget provides devolved governments with the largest real-terms funding settlement, since devolution. They will provide £3.4bn for the Scottish government to improve public services in Scotland, £1.7bn to the Welsh government, and £1.5bn to the Northern Ireland executive, in 2025-26.

Local Government

The government will increase funding significantly for local governments next year. Greater Manchester and the West Midlands will be the first mayoral authorities to receive integrated settlements from next year, which will give mayors "meaningful control of the funding for their local areas".

Space

• £1bn investment in infrastructure and building in the Aerospace Sector.

Transport

• £2bn for the automotive sector.
• £500m increase for road maintenance next year to deliver on the commitment to fix an additional one million potholes each year.
• £650m of local transport funding for roads.
• Bus travel capped at £3, increasing from £2.
• Trans-Pennine upgrade to connect York, Leeds, Huddersfield and Manchester, "delivering fully electric local and regional services between Manchester and Stalybridge by the end of this year."
• The government will deliver East-West Rail to drive growth between Oxford, Milton Keynes and Cambridge.
• On HS2, the high speed rail project, they are committing the funding to begin tunnelling work to London Euston.

Government Investment

• Additional £100bn in capital spending including transport projects and GB Energy.
• The OBR has stated they expect this to increase GDP by 1.4% in the long term.
• Life Sciences Innovative manufacturing fund.

Housing

• £5bn investment in house building.
• Increase the supply of local housing.
• supply of affordable housing is set to increase.
• Reduce right to buy discounts.
• Local Authorities, meanwhile, will retain receipts from the sale of any social housing.

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