Autumn Budget 2024: Key Takeaways for Startups

Key Changes for Entrepreneurs and Businesses

1. Increase in Employer’s National Insurance
   From April 2025, employers will see a 1.2 percentage point increase in their National Insurance (NI) contributions, raising the rate to 15%. This increase may impact hiring and payroll budgets, especially for small to medium-sized businesses. Paired with this is a reduction in the NI threshold for businesses—from £9,100 to £5,000.
2. Employment Allowance Boost
   To help offset some of the financial impact, the government has increased the Employment Allowance from £5,000 to £10,500. This increase aims to offer smaller businesses relief on NI costs, potentially neutralising part of the impact for eligible businesses. Understanding eligibility and utilising this allowance effectively could be essential to business cash flow planning.
3. Capital Gains Tax (CGT) Increases
   The Chancellor has raised CGT rates, with the lower rate climbing from 10% to 18% and the higher rate from 20% to 24%. Entrepreneurs should factor these increases into exit strategies and business asset sales. Additionally, Business Asset Disposal Relief (BADR) will remain at 10% for the time being but will gradually rise to 18% by 2026. This phased approach allows some time for business owners considering asset sales to adjust, but it emphasizes the need for timely tax planning.
4. Business Rates Relief Adjustment
   Business rates for sectors like hospitality and retail will now benefit from a 40% relief rate, frozen at this level until 2026, with a cap of £110,000. While this is a reduction from the current 75% relief, it avoids the previously announced increase. This change offers a moderate reprieve, especially for smaller establishments within these industries. Business owners in retail and hospitality should review their forecasted rates to determine the net impact of this revised relief.
5. No Major Changes to R&D Tax Credits (Yet)
   Although no changes were announced, there could still be updates to the details in the coming years. The Treasury will also consult on expanding the use of “advanced clearances” - opening up the opportunity to create more certainty in the system and potentially reduce clawbacks in the future. More to come on this. Note - there are no changes in corporation tax meaning it will continue to be capped at 25%.

Workers and Personal Tax Changes

1. Personal Tax Threshold Freeze Extended Until 2028
   While there was hope for an uplift, personal tax thresholds remain frozen until 2028, meaning more individuals may gradually move into higher tax brackets as earnings increase. For employees, this could lead to higher effective taxation over time. Businesses with a workforce should consider how these changes might impact net income and cost-of-living considerations for their teams.
2. National Living Wage Increase
   From April 2025, the National Living Wage will rise from £11.44 to £12.21 an hour. Employers should prepare for these additional wage costs, which could impact payroll budgets, especially in sectors reliant on lower-wage employees. For business owners, planning for this increase now will help manage budgeting in the coming financial year.

Other Noteworthy Changes

1. Capital Gains on Carried Interest
   Venture capital and private equity firms will see the CGT on carried interest rise to 32% from April 2025. This change is targeted toward higher earnings in the financial sector and could reduce returns on carried interest, impacting investment dynamics.
2. Inheritance Tax (IHT) Threshold Freeze
   The inheritance tax threshold will remain frozen at £325,000, allowing individuals to inherit up to this amount tax-free. However, there are new tax measures for business and agricultural assets. Beyond £1 million, these assets will now attract an inheritance tax rate of 20%, signalling a shift in estate planning strategies.

Other changes that made the Headlines

1. VAT on Private School Fees: The long-anticipated confirmation that VAT will apply to private school fees has been announced, which could impact affordability and future school enrollment trends.
2. Stamp Duty Land Tax: The surcharge on second homes will increase to 5%, affecting buy-to-let investors and those purchasing additional properties immediately.
3. Energy Profits Levy: Oil and gas companies will face a heightened energy profits levy, increased to 38%, as part of the government’s broader push for economic contribution from high-profit sectors.
4. Alcohol Duty Increase: Starting in February, alcohol duty rates on non-draft products will increase in line with the Retail Price Index (RPI), potentially raising costs for consumers and businesses in the beverage industry.
5. Non-Domicile Tax Changes: The non-domicile status is being removed from the UK tax system effective April 2025, a significant move that will impact individuals previously benefitting from non-domicile tax status.
6. Air Passenger Duty Increase: The rate of air passenger duty will increase by 50%, which could lead to higher travel costs for businesses and individuals.
7. Fuel Duty Freeze: The government will continue to freeze fuel duty at 5p for another year, providing temporary relief amid broader inflationary pressures.
8. HMRC Modernisation: The budget includes further investments aimed at modernising HMRC, with plans to hire more staff. This move signals an increased focus on tax clawback efforts, penalties, and fines, underscoring the importance of thorough tax compliance for all businesses and individuals.

New Investment Plans for Small Businesses & R&D

1. Modern Industrial Strategy and National Wealth Fund
   Shadow Chancellor Rachel Reeves outlined plans for a "Modern Industrial Strategy" aimed at fostering investment in growth areas. Additionally, the government introduced the National Wealth Fund, which will aim to "catalyse" over £70 billion in private investment. This fund is expected to direct significant resources toward developing gigafactories and green technology, aligning with the UK's commitment to cleaner energy and manufacturing solutions.
2. Support for the Aerospace and Automotive Sectors
   The aerospace sector will receive £975 million over five years to fund R&D efforts, while the automotive industry is set to benefit from £2 billion to drive the transition toward greener technology. These investments highlight the government’s focus on transitioning major industries toward sustainability, a move likely to foster innovation and job creation in these sectors.
3. 'Small Business Strategy Command Paper'
   The goverment said it will publish a "Small Business Strategy Command Paper next year, setting out "the government's vision for support for small businesses".
   The government said the strategy will cover areas including "boosting scale-ups, growing the cooperative economy, creating thriving high streets, making it easier to access finance, opening up overseas and domestic markets, building business capabilities, and providing a strong business environment".
4. Small business funding schemes including Start Up Loans
   More than £1bn in 2024-25 and 2025-26 will be provided to the British Business Bank to "enhance access to finance for small businesses", including over £250m each year for Start Up Loans and the Growth Guarantee Scheme.
5. Shared Prosperty Fund & Help to Grow Programme
   The UK Shared Prosperity Fund, the government's community and regeneration fund, will be extended but at a reduced level of £900m for another year. It was due to end in April 2025. The government's Help to Grow: Management course and Growth Hubs in England will continue to be funded in 2025-26.

Planning Ahead

This Autumn Budget introduces changes that will affect businesses both directly and indirectly. Here are some actionable insights for business owners and entrepreneurs:

• Review your Payroll Strategy: The increase in NI rates and the higher National Living Wage require re-evaluation of staffing budgets.
• Capital Gains Planning: With the phased CGT and BADR rate increases, business owners should review any plans to dispose of business assets or shares, particularly if timing flexibility allows for more advantageous rates.
• Employment Allowance Utilisation: For businesses eligible for the Employment Allowance increase, updating claims and understanding how this impacts NI liabilities can bring potential savings.

The economic environment for businesses in the UK remains challenging, but proactive planning in response to the Autumn Budget can help entrepreneurs navigate these changes effectively. For advice tailored to your business’s specific circumstances, reach out to us at Accountancy Cloud, where we specialise in helping businesses optimize finances, plan for tax efficiencies, and stay compliant in a changing landscape.