Autumn Budget 2024: What Small Business Owners Need to Know and How to Prepare

The Autumn Budget 2024 introduces several changes that will impact small and medium-sized enterprises (SMEs) and individuals alike.

This guide aims to explain the key points of the budget in simple terms, breaking down what each change could mean for you, whether in your personal life or for your business.

We’ll also explore tips for managing increased costs and how to maintain financial stability through these changes.

Overview of Key Changes in the Autumn Budget 2024 (How These Changes Affect Small Business Owners)

Payroll and Staffing Costs

The increase in the National Living Wage (NLW) and Employers’ National Insurance Contributions (NIC) may increase payroll costs for many small businesses. For example:

• NLW Increase: If you employ five full-time workers at the NLW, each employee’s weekly wage goes up from ￡416.80 to ￡488.40, adding ￡71.60 per employee per week. For five employees, that’s an additional ￡358 per week, or around ￡18,600 per year.
• NIC Increase: With NIC rising to 15%, a business with a ￡300,000 wage bill would expect to see an increase of ￡3,600 in NIC payments annually.

These cost increases might make it difficult to hire new staff or offer raises, especially for smaller businesses already working within tight profit margins & varied cashflow issues. Ways to mitigate this would be to reduce staff overtime and hire a mixture of Part time staff instead of full time staff. It would also be expected that many businesses look ?into hiring staff abroad that can manage processes and systems online. Offshoring is becoming more and more common, With Staff readily via online portals in the Philippines, India & Bangladesh many businesses will be exploring this further to avoid increases in National insurances on Wages.

Another concern is that many businesses will pass on these additional staffing costs to the end customer by putting their prices up. So once again at the end of the chain the consumer will suffer with further increases in prices for goods & services.

Reduced Capital Gains Relief

?? For Individuals (non-residential property and carried interest):

• Basic-rate taxpayers: Increased from 10% to 18%
• Higher-rate taxpayers: Increased from 20% to 24%
• Applies to disposals made on or after 30 October 2024.

?? For Trustees and Personal Representatives:

• CGT rate increased from 20% to 24%
• Applies to disposals made on or after 30 October 2024.

?? For Business Asset Disposal Relief and Investors’ Relief:

• CGT rate increases to 14% from 6 April 2025.
• Further increase to 18% from 6 April 2026.

With the CGT rate rising to 24%, owners selling assets, such as property or shares, will pay higher taxes on their gains. If you sell a property for a profit of ￡10,000, the tax will now be ￡2,400 instead of ￡2,000. This may impact business owners looking to sell assets to reinvest in their businesses or fund personal projects.

Introduced Tax on Inherited Pensions

In addition to other changes, the Autumn Budget 2024 introduces a new pension tax liability linked to inheritance tax ??set to take effect from 6 April 2027. Under current UK tax rules, pension funds held within a trust fall outside the estate for inheritance tax (IHT) purposes, allowing these funds to pass tax-free to beneficiaries. This treatment has enabled individuals to use pensions as a tax-efficient way to accumulate and transfer wealth without facing IHT. However, from 2027, any unused pension funds will be included in the deceased’s estate for IHT purposes, and tax will be deducted directly from the pension itself.

For example, if a pension worth ￡500,000 is left to a beneficiary, this amount could now face the standard IHT rate of 40%, resulting in a ￡200,000 tax bill. This means only ￡300,000 would go to the beneficiaries instead of the full amount, significantly reducing the inheritance value.

How can you potentially reduce tax on inherited pensions?

To help mitigate this impact, a useful approach could be to gradually withdraw, and gift portions of the pension fund each year rather than transferring it all at once. By gifting smaller amounts annually, the donor can manage the IHT exposure on their pension while potentially keeping portions within annual tax-free allowances.

It’s crucial to work closely with a IHT & Pension tax advisor to navigate these changes effectively. Proper tax planning is essential to prevent sudden and large tax liabilities on pension assets, ensuring more of your legacy is preserved for beneficiaries.

Personal Impacts of the Autumn Budget 2024

Now, let us see how this autumn budget will affect our personal life:

Higher Education Costs

Families sending children to private schools will now face VAT on fees, adding 20% to the total. For example, if fees are currently ￡15,000 per year, adding VAT will raise them to ￡18,000, increasing annual educational expenses by ￡3,000. This change might push some families to consider public schooling, which could affect educational choices and household budgets. We would expect the private schools to pass on all of the 20% vat increase directly to the parents who are paying for this.

Effects on Savings and Investments

For those investing in property or stocks, the increased CGT means a smaller return on investment. For example:

• Dividends: With dividend allowances now capped at ￡500, investors receiving ￡1,500 in dividends annually at the 8.75% rate will now pay ￡87.50 in tax, whereas previously, a larger portion would have been exempt.
• Savings: Families relying on these gains may need to reconsider investment strategies to minimise tax burdens.

Social and Lifestyle Impacts

Leisure Spending

The budget’s wage increases could be offset by inflation, making it harder to maintain the same lifestyle. A family earning ￡30,000–￡40,000 may find it challenging to keep up with leisure expenses like dining out or vacations as costs rise, potentially further adding to existing cautious spending habits that already exist as a knock on to the cost of living price hikes.

Housing and Property investment

The Immediate increased stamp duty on additional properties could deter property sales and investments. Investors buying a ￡200,000 property will now pay a 5% surcharge, or ￡10,000, in stamp duty. This may reduce the number of rental properties available, driving up rent prices and affecting individuals looking to rent affordable housing. This is also a great worry for those people and investors that are partway through sales as the notice of an increase in this Stamp duty charge is immediate from 31/10/2024. This means that they will have to factor these increases into ongoing purchases. There are tax strategies to mitigate stamp duty land tax on purchases, which you can also plan for if you are a property investor.

Given the cost increases from wage hikes, NIC, and taxes, here are some strategies to help your business manage expenses and improve cash flow.

a) Improve Cash Flow and Profit Margins

1. Re-evaluate Pricing: With operational costs rising, consider if a slight price increase is possible without losing customers. Small adjustments of even a few % every three months can help cover higher wages and taxes.
2. Negotiate with Suppliers: If possible, try to negotiate better terms with suppliers, such as discounts on bulk purchases or extended payment terms.
3. Review Expenses: Audit monthly expenses to identify areas where costs can be trimmed. Cancel unused subscriptions or reduce non-essential spending.
4. Reduce Debtors: ?If any customers owe you money ensure you work to get these debts in sooner and if you are offering credit to customers reduce payment days.

b) Boost Efficiency and Reduce Wasted Time

1. Automate Processes: Implementing software to automate accounting, payroll, or inventory management can reduce labour hours and improve productivity.
2. Invest in Employee Training: Skilled employees are often more productive, which can help offset the cost of higher wages. Training in areas like time management or specific software tools can boost efficiency.
3. Hire Abroad Offshoring: Many countries abroad have built a very large industry on providing offshore staff at a fraction of the cost with skills in many areas like accounting, marketing, software development, Administration & more. This would avoid paying increased HMRC Paye & NI taxes.

c) Prepare for Tax and Compliance Changes

1. Plan for Higher Taxes on Gains: If you’re considering selling business assets, be aware of the CGT increase and the deadlines for these next year. Consult a tax advisor to understand how to structure sales most tax-efficiently.
2. Adjust Payroll Systems: Make sure payroll software is updated to account for the new NLW and NIC rates. Accurate calculations can prevent costly errors. Look at spreading the staffing hours amongst a number of part timers can save thousands on National insurances
3. Review your accounts with an Accountant: ?Create budjets and cash flow scenarios over the next few years to modle the effects of these tax changes and see what needs to be carried out to increase income, reduce expenses, and increase profitability to cover the additional costs of HMRC tax increases.

d) Adapt to VAT on Private School Fees

If you’re a business owner with children in private education, consider the added VAT costs. This may mean adjusting your budget or exploring alternatives like public schooling, if suitable.

Financial Tips for Individuals to Manage Rising Living Costs

Budget for Essential and Lifestyle Spending

• Create a Priority Budget: Categorise expenses into essentials (like groceries and utilities) and non-essentials (like dining out). Set limits on non-essential spending to stay within your means. Set a living budget each month and work to stick to it.
• Emergency Fund: With rising costs, maintaining an emergency fund can offer peace of mind. Aim for at least three to six months’ worth of expenses to cover unexpected situations. This can be built up a little at a time.

Maximise Savings and Investments

• Tax-Efficient Investments: With the reduced dividend allowance and higher CGT, consider tax-efficient accounts like ISAs to minimise tax on your savings.
• For High-Net-Worth Individuals: ?If you earn over ￡50,270 consider saving a portion of your income in a private pension fund. This will provide a reduction in income tax & the investment will grow over time. Many Pension funds also top up the investment by 25% as well.
• Diversify Investments: Spreading out investments across property, stocks, and bonds can help manage risks and improve returns over time.

Consider Income Opportunities

If inflation and tax changes impact your disposable income, consider part-time work or freelance opportunities that can offer additional income without long-term commitment.

Practical Example: How Changes Might Affect a Small Café Business in Cardiff

Let’s say you run a small café with five employees and annual sales of ￡150,000. Here’s how the budget changes could impact you and ways to mitigate them.

ü? Increased Wages and NIC: With the NLW increasing to ￡12.21 per hour, you’ll pay each employee about ￡3,700 more annually. For five employees, that’s an additional ￡18,500. Plus, the NIC rate increase to 15% will add a few hundred more to payroll costs.

Solution: Slightly raising menu prices or introducing special offers can help cover these expenses without significantly affecting customer flow. Even Hiring a few part time staff and sharing the hours will considerably reduce the National Insurance charges.

ü? VAT on School Fees (If Applicable): The additional VAT will increase your expenses if you have children in private education.

Solution: Consider reviewing family expenses and reallocating budgets to absorb this increase. Speak to grandparents to see if they wish to invest savings in school fees to cover the shortfall.

ü? Reducing Business Expenses: By automating parts of your operations, such as using point-of-sale systems to track sales and inventory automatically, you can save on labour hours and reduce waste. Software such as Xero linked to the point of sales software like Clover & Izettle manages to considerably save time and costs in streamlining the accounting functions. These can then be managed in-house at a great saving in costs of hiring a bookkeeper.

How We Can Help You Prepare for the Autumn Budget 2024

As accountants, we’re here to support you through these changes. Our services can help you navigate:

• Tax Planning: We’ll help you understand new tax rules, optimize deductions, and plan for future growth.
• Payroll Services: Our payroll management services will handle NIC and wage adjustments, ensuring compliance and accuracy.
• Cash Flow Management: We’ll analyse cash flow, identify cost-saving opportunities, and develop strategies for maintaining stability.

With careful planning and proactive adjustments, you can prepare your business for the financial impacts of the Autumn Budget 2024.

Visit the Totalbooks website to book a 15-minute discovery call to learn more about financial and tax planning.

Conclusion

The Autumn Budget 2024 brings both challenges and opportunities for small business owners. Understanding the impact on your personal finances and business can help you make informed decisions to protect and grow your wealth. By re-evaluating spending, planning for taxes, and adjusting for new payroll costs, you can maintain a resilient business despite rising costs.

If you’d like help with any of these strategies or want more detailed guidance on navigating the budget’s changes, please don’t hesitate to reach out. Together, we’ll build a plan to keep your business strong and ready for the future.