Autumn Budget 2024 – What Does It Mean For My Business?

Tax rises were an inevitability in the Autumn Budget of 2024. Now we finally have official information and not just rumours, we can help businesses to plan properly. We can only hope that the new chancellor will stick to her longer-term plans and provide some stability in the tax system, rather than return to the knee jerk policy shifts that have left small businesses (and accountants) with whip lash in the way the previous government did.  

Having ruled out rises in Income Tax, Employees National Insurance, VAT and Corporation Tax, the chancellor has blocked herself from being able to raise large sums via relatively small increases in percentages on the taxes that form the majority of the treasury’s income. This means that generating income from taxes needs to instead involve tinkering at the edges of the tax system, or changing tax reliefs to be less generous. This ultimately means looking at larger increases on slightly more peripheral taxes and putting much of the burden on businesses. 

While many clients were most concerned pre-budget about the expected increase in Capital Gains Tax (CGT) and potential pension changes, the announcements mean that businesses are likely to face the highest costs from the combined increase in Employer’s National Insurance (NI) and another inflation-busting (and possibly inflation-causing) increase in the Minimum Wage. The National Living Wage for those over 21 will rise by 6.7% to £12.21 per hour.  

How does the increase in Employers NI affect businesses?

Most of our clients employ someone. For some it might just be themselves as director, for others they employ a large staff base. For most, there is no escaping the increase in National Insurance. 

Whilst the increase is small on the face of it, being only 1.2%, the impact is massive for both the Treasury and small businesses. Unlike employee NI contributions, there are only two tax bands applicable to Employers NI. In the 2024/25 tax year the first £9,096 of someone’s earnings incurred no Employers NI and earnings above this incurred a 13.8% NI charge. From 6 April 2025 (the 2025/26 tax year) the tax-free band for Employer’s NI has reduced to £5,000 with all earnings above this subject to an increased Employers NI rate of 15%. 

This means: 

• A business employing someone who is paid £35,000 will see an increase of £926 in Employers National Insurance.   

• A business employing a senior manager at £100,000 will see an increase of £1,706 in Employers National Insurance.  

• A business employing someone part time on Minimum Wage earning around £8,500 a year will face an increase of £525 in NI costs, because of the reduction in the NI threshold from £9,100 to £5,000 per year per employee. 

While this means no drastic change is needed for owner manager pay structures where most income is drawn in the form of dividends, it does increase the Employers NI due on a small director’s salary. For some of our clients where there is no scope to claim the Employment Allowance, we have previously recommended a monthly salary of £758, as this is enough to entitle you to a “stamp” for state pension purposes, but low enough that no NI is actually payable. This will now no longer be possible and, whilst we will do some further calculations on this, it is likely that most director salaries would be best paid at £12,570 per year, £1,047.50 per month, with a £1,135.50 NI charge on this. We will however give specific planning to those clients that require it. 

If any planning is undertaken, it should be tailored to the specific staff base of your business.   

Some general thoughts would be:

1). Avoid making too many staff self-employed 

You can be sure that behind this change HMRC will be increasing scrutiny of what is often referred to as “IR35” arrangements, or other methods of changing employees to be self-employed workers. IR35 is an “anti-avoidance” tax rule specifically targeting workers paid and taxed as self-employed, but for all practical intent and purposes they are really an employee.   

There are many pitfalls to changing a staff member to be treated as self-employed when they have previously been a PAYE member of staff. Ultimately if you as the contractor / employer are calling the shots as to if they work, when they work, where they work, “who” does the work (where the contract isn’t for a specific individual but is for a business to supply a qualified person) and how they do it, then it’s a much higher probability that HMRC would deem the worker an employee, with the possibility of a tax hit on them and you as the employer, plus penalties, interest etc. 

Just prior to the budget HMRC also beefed up some legislation surrounding what is now a declarable tax avoidance scheme – utilising an LLP structure in a way which is designed to move staff from PAYE to being self-employed. These were complex arrangements involving making staff redundant, often without the staff member even knowing this has happened, then re-engaging the worker via an LLP (with some additional accounting involved related to loans and balances etc.)  

Why would HMRC toughen this up? Because they are now expecting a wave of employees to be pushed down routes like this so that employers can save on the increased NI. It should be noted that if used in the correct way and not as an avoidance tool, LLPs and other such business structures may still be relevant for your business, provided any changes are made for the right reasons. 

2). Focus on your senior team 

Rather than moving general workers into a tax saving structure, some planning that could benefit the business in general and which legitimately uses an LLP structure includes where you are looking to reward your highest earners and senior managers with more financial involvement in the business.  

The NI increase might mean now is a good time to offer such senior managers part ownership of the business. In doing so, moving your highest earners into a structure that doesn’t incur Employers National Insurance could be of significant benefit. 

But the planning has to make commercial sense rather than being a purely tax motivated change. If you operate a limited company, it can be a little harder to bring managers into ownership because of the restrictions put on owners in the form of the company shares. They have to buy the shares, or if you are feeling generous enough to gift an employee shares, they may be taxed and subject to an NI charge on the value.  

Granting shares can be done cost and tax efficiently, however, it requires specific and tailored planning and for this to work the following would need to apply: 

• The employee is expected to be with the business for a long time 
• The employee is “sophisticated” enough to understand the financials of being an owner of the business 
• The employee has managerial input to the business 
• The employee is willing to take on responsibility of ownership and possibly directorship 
• You are happy to be in business with this person 
• You are happy to share capital and revenue distribution with the person 
• This arrangement will be incentivising for them 

There are a range of structures that can be used for the buying of shares. A common one is a route that is “self-funding” using holding companies and dividends to pay for the purchase over a number of years. But as I say, this isn’t for a feint hearted employee. 

Alternatively, a business might lend itself to convert to a partnership, or LLP. The benefit of a partnership is that you can bring in new partners and they can grow the business without being subject to buying shares and with remuneration being dictated by ownership percentages of the shareholding.   

An LLP or Partnership is ultimately an incredibly flexible business model that allows new partners to be included with greater ease. There is a reason why most accountancy firms are LLPs. Not just us. Look at the big four UK accountancy firms – they are all LLPs. A big factor is that the structure lends itself to flexible profit share and capital ownership which a Limited Company just can’t do as easily. 

3). Keep an eye on pricing and inflation

Most businesses are not going to be able to avoid the NI increase. This means two fundamental things: 1, businesses will need to increase prices to cover their increased costs and 2, as a result, inflation will increase. 

Reviewing your pricing between now and 1 April is essential for all small businesses, you also need to factor in that any labour-intensive suppliers will be doing the same.   

The next problem resulting from this is that upward pressure on inflation will cause the Bank of England to be more reluctant to reduce interest rates. While it is very unlikely that rates will return to the crazy lows of the last 10 years, the price of borrowing is still relatively high which is constricting growth. 

4). The best drawing structure for Limited Companies 

After the last few Budgets, we have spent a lot of time working out optimal numbers and considering whether it is better for owner managed limited companies to pay salary only, or a mixture of salary and dividends. While there are some outlying cases where full salary has worked out marginally better, for most businesses a small salary with the bulk of income then paid in the form of dividends has resulted in the lowest overall tax cost compared to the highest possible net income for the owner. 

The increase in National Insurance has skewed this calculation slightly. It has the caused the full salary remuneration option for owners to be less efficient than before, although the math gets ever more complicated.   

At this point it feels like Harry Hill should put the choices into a fight to work out which is best! We have however done some preliminary calculations, and a small salary topped up with dividends does still represent the most efficient payment structure for most company owners. For those with specific net income requirements or more complicated share structures, we recommend that you have full review completed but generally our advice is ‘stay as you are’.  

5). Pension planning 

Many people will breathe a sigh of relief that the rumours of changes to the withdrawal of and contributions to pension funds has not changed. These remain very powerful planning tools and of course an essential part of retirement planning. 

However, with the loss of the benefit of IHT exemption, this does for some change the planning options and advice. As we get more detail about how the change applies, it would signify a good time to review your arrangements. These reviews are often best done with the support of an IFA at the same time, to ensure that holistic planning and broader tax and other issues are considered. 

6). Things to consider with Inheritance Tax Planning 

It seems that tinkering with IHT was one of the main parts of this Budget. While the headline rates and exemptions haven’t changed, subjecting pensions to IHT upon death does mark a big departure in policy. 

Additionally, the changes to Business Property Relief and Agricultural Relief are also significant.  

From April 2025 if ownership of a trading business or agricultural business property is passed on death to someone other than a spouse, then then only the first £1m of these assets will be completely IHT free, with 50% of any excess value in the estate being charged to IHT. 

Although this change is more lenient than had been anticipated, it does mean that IHT costs could increase for many and it is more important than ever for business owners to consider their options, ensuring where necessary that cross option agreements are in place and insurance provisions are reviewed and updated as required. 

The death of a business partner is not only catastrophic on a human level but can also be catastrophic for any ongoing business, the employees and the customers.