Another Budget Day has come and gone, and while we were bracing ourselves for some potentially tough news, it hasn’t been quite as dramatic as we feared. Let’s break down the key changes that matter most to business owners and employers.
Changes to Employers National Insurance: The Good, the Bad, and the Silver Lining
This will be one of the biggest changes for small (and large!) employers.
- Rate Increase: Employers’ NI is rising from 13.8% to 15% from April 2025
- Lower Threshold: The starting point for paying employers’ NI is dropping from £9,100 to approximately £5,000 per employee
- Employment Allowance Boost: A welcome increase from £5,000 to £10,500
The rate increase to 15% might not sound too painful at first glance, but there’s more to this story. The real impact for many employers will come from the threshold reduction. If you employ several staff on modest salaries, you’ll definitely notice this change in your payroll costs.
However, here’s the silver lining: the substantial increase in Employment Allowance could be a life-saver for smaller employers. This allowance – effectively a government subsidy on your Employers’ NI bill – is doubling to £10,500. For many of our smaller clients, this could not only cushion the blow but potentially leave them better off overall.
Capital Gains Tax Changes: A Gradual Shift
Some important changes are coming to Capital Gains Tax, particularly around Business Asset Disposal Relief (formerly Entrepreneurs’ Relief):
- Current system: 10% rate on the first £1 million when selling a business
- Future plans: Gradual alignment with the newly announced standard CGT rates
- Timeline: Changes will be phased in over the next two years
While not ideal for entrepreneurs, the gradual implementation means there’s time to plan ahead.
Inheritance Tax: The Small Print
There’s one nasty change that might have slipped under the radar: unspent pension pots will now be subject to inheritance tax. Previously, pension funds sat outside the inheritance tax net, making them an effective way to pass wealth to the next generation. This change could have substantial implications for retirement and estate planning strategies.
Looking Ahead: What Should You Do?
- Review your payroll: We’ll be reaching out to all our clients to provide personalised analysis of how the NI changes will affect their business
- Consider succession planning: If you’re thinking of selling your business in the coming years, the changes to Business Asset Disposal Relief might influence your timing
- Revisit retirement planning: The inheritance tax changes around pensions might require a fresh look at your retirement strategy
Note: The National Minimum Wage is also increasing, as widely reported in the media. Make sure you check your lower paid employees’ salaries before the new tax year.
