Breaking down the Budget

Twice a year comes that crucial moment in the British calendar – the budget. After the ‘main’ budget at the start of the tax year in the Spring, we also get the Autumn Budget in November, announcing key economic updates for the country.

Chancellor Jeremy Hunt named a number of changes, many of which will impact small businesses and the self-employed. We’re here to help you make sense of the financial updates, as well as look ahead to what the long-term effects could be, for better or worse.

Small businesses’ rates

Business rates are a tax paid to the local council by those occupying non-domestic and business properties. Essentially, they’re the equivalent of council tax, like you pay on a home. Your business rates are calculated on ‘rateable value’ of your business property and a multiplier (either standard or small depending on whether your rateable value is above or below £51,000), minus any business rate relief you’re entitled to.

Until the budget announcement, business rates had been due to rise with inflation in spring. However, the new announcement means that the small business multiplier rate has been frozen for another year, which is good news for traders! It will remain at 51.2p for the standard multiplier and 49.9p for the small business multiplier for 2023/24.

National Insurance Contributions and self-employed taxation

As an employer in the UK, you are required to make National Insurance contributions for all employees aged over 21 that earn more than £175 a week. These have been cut by 2p, from 12% to 10% as of 6 January 2024.

There’s also a positive update if you’re self-employed. Class 2 National Insurance has been abolished, saving the average self-employed person £192 a year. Your access to entitlements such as state pension and credits will be maintained in full.

What’s more, Class 4 National Insurance has been cut to from 9% to 8% for the self-employed earning profits between £12,570 and £50,270. It’s 2% on profits for anything over this. The Chancellor estimated the cut will save the average self-employed person £350 a year.

National Living Wage

Increases to minimum wage, officially called the National Living Wage, were also announced. They are also followed, based on workers’ age:

21+ rate: now £11.44, up by £1.02 (9.8%)

18–20-year-old rate: now £8.60, up by £1.11 (14.8%)

16–17-year-old rate: now £6.40, up by £1.12 (21.2%) 

Apprentice rate: now £6.40, up by £1.12 (21.2%) 

Accommodation offset: now £9.99, up by £0.89 (9.8%)

These above-inflation wage hikes will affect 2.7 million low-paid workers. That has the potential to be a huge benefit for these workers, who are undoubtedly feeling the cost-of-living crisis intensely.

But it could also be a strain for small businesses, with no guarantee that businesses can afford the new National Living Wage, on the back of a very challenging economic period.

Read more of our analysis on the National Living Wage here.

Apprenticeships and veterans

Apprenticeships can be a real asset to businesses. Apprentices are able to work while studying to gain skills and knowledge in a specific job, through a mix of on-the-job training and classroom-based instruction. They are an opportunity for people to gain necessary practical skills under the guidance of experienced mentors, while earning a living wage.

Now, the Government announced that it would spend £50 million on a two-year apprenticeships pilot in England, focused on how to address barriers to entry in high-value apprenticeships. Additionally, the Employers National Insurance holiday for small employers who take on veterans will be extended for a year.

The skill shortage is one of the biggest issues affecting industries such as construction. However, it’s currently unclear which sectors specifically that this funding will be directed into.

Business tax changes

Full capital expensing has been made permanent, which reduces the corporation tax liabilities for businesses investing in the UK. So, for every £1 that your business invests in IT, machinery and equipment, you can claim back 25p in corporation tax. Then, in practice, you can deduct the cost of these items from their profits, to reduce the amount of corporation tax you need to pay.

This tax break, which has been in place since April 2023, was due to end in 2026. However, it’s now been made permanent.

Another positive step is that HMRC is set to rewrite the guidance around the training costs and tax deductions for sole traders and the self-employed. This will provide more clarity about what costs are deductible, so that sole traders and self-employed workers can be confident about developing their skills and keeping up with technological advances.

What’s the verdict?

Overall, these measures have been largely welcomed by trade and business advocates, for promoting growth. Some have even gone so far as to call them ‘game-changing. It definitely was a much more optimistic budget compared to the last. With certain positive economic signs, like inflation falling faster than predicted, the government felt it could offer tax cuts, which will be a relief for many businesses.

But it’s important to remember that, with a General Election sometime next year, everything could change once again. We’re certainly not out of the woods yet, with pre-pandemic living standards not expected to return until 2027-28. But for now, it’s encouraging to have a budget that we can be optimistic about.

Remember, our commercial insurance experts at Howden are here to help and support you with your business needs. We can help find you specialist cover, perfectly tailored to your unique commercial circumstances.

Simply find your local business branch, and give our team a ring or visit in person.

Sources: FSB, Simply Business, BBC News, CIOB