Kate Palmer, Employment Services Director at Peninsula, says, “Many small business owners are already struggling to keep their heads above water and the additional costs announced in today’s budget, including changes to National Minimum Wage rates, employer NI contributions and tax hikes, will be enough to cripple some, resulting in layoffs and redundancies.

“While the government has, on the surface, kept their election promise ‘not to raise taxes for working people’, they seem to have forgotten that small business owners are among some of the hardest working people out there. Many don’t take a regular wage, working every hour of the day to get and keep their businesses up and running, ensuring employees are paid, etc.

“Rather than being a budget of growth as the Chancellor has promised, for many small businesses this may, sadly, be just the opposite.”

Alan Price, CEO at BrightHR, says: “For small business owners, the fiscal changes announced today present a mixed outlook, providing opportunities for growth and innovation in some industries while jeopardising growth in others.

“With inflation easing and moderate growth reported in August, small businesses have seen new opportunity for optimism in recent months. The pay changes and hikes announced today, however, will hit businesses in the hospitality, retail, and transport and logistics sectors particularly hard, driving up operational costs and squeezing profit margins at a time of fragile post-pandemic recovery.

“Especially now, business owners must find ways to enhance operational efficiency and ensure they have accurate and efficient payroll processes in place to handle significant adjustments to wages, NI contributions, and sick pay, among other pay and tax changes. Many of the clients we have onboarded onto BrightHR Payroll, our enhanced payroll solution, had errors in their payroll processes because they were running payroll in-house and had not updated employee payslips to reflect the latest legislative developments.

“Payroll errors are incredibly easy to make, especially when rates change, leaving businesses at risk of costly penalties and enforcement from HMRC. By using an integrated payroll and HR solution with support from CIPP-qualified professionals, business owners can ensure that when tax hikes come into effect in April next year, they are fully prepared and can avoid additional costs from fragmented and inaccurate payroll processes.”

Comment from Paul Robbins, Associate Director of Tax at Croner-i, on the major tax changes in today’s Budget.

On the 1.2% rise in employer National Insurance Contributions
“To no-one’s surprise National Insurance contributions paid by employers are to increase by 1.2% (thus increasing from 13.8% to 15%) from April 2025. Of more surprise however was the significant decrease in the threshold , from £9,100 to £5,000. It’s not difficult to see why the Government is prepared to take the flak for arguably breaking an election promise. This is a simple change to a single tax (the general view is accidents happen when you tinker with lots of taxes) that can be implemented relatively quickly, and which according to the Chancellor will raise £25bn.

“It is not, however, a business-friendly measure and is likely to impact on salaries and employment. Neither is it helpful for public sector employers in education, local government and the NHS who are already facing significant financial pressures.

“Better news, however, for the employment allowance. This is a measure aimed at boosting recruitment by smaller businesses by reducing their employer’s NIC bill. The allowance is to be doubled, from £5,000 to £10,000, from April 2025.”

Inheritance tax changes on the horizon
“The inheritance tax threshold of £325,000 has been frozen for a further two years, until 2030; in addition, inherited pensions are to be subject to inheritance tax from April 2027 onwards.

“There was no surprise to the announcement regarding Business and Agricultural Property Reliefs, although thankfully the first £1 million total value of assets benefiting from these beliefs will remain tax-free. For assets over £1 million, the rate of relief will be cut from 100% to 50%, meaning that inheritance tax will be levied at an effective rate of 20%.

“Similarly, the rate of relief on AIM-listed shares is to be cut from 100% to 50%, again bringing the effective rate of inheritance tax from 0% to 20%.”

On the increases to Capital Gains Tax
“Capital Gains Tax rates are to rise from 10% to 18% for non-higher rate taxpayers, and from 20% to 24% for others, to match the current rates on residential property (which will be frozen).

“The long-rumoured “axe” has fallen on Business Asset Disposal Relief (or BADR), although its withdrawal will not be complete, at least not yet, and will be phased in over coming years. The £1m BADR lifetime allowance will be maintained, but the reduced rate of tax applying where BADR is available will rise to 14% in 2025-26 and 18% 2026-27.“