All eyes were on the Spring Statement this week, but more significant for businesses and entrepreneurs are some of the tax rises and cost increases arriving this April – including employers’ National Insurance, capital gains tax (for certain transactions) and the minimum wage increase.
These changes, largely stemming from the 2024 Autumn Budget and other recent policy announcements, will impact payroll, operational costs, and tax obligations.
Chartered Financial Planner Emma Rivers from leading wealth management firm Evelyn Partners, said: ‘It’s a relatively quiet new tax year on the personal taxation front, with few changes to the regime kicking in on 6 April – but for businesses and business owners, and particularly those with high staffing levels, some taxes are set to rise significantly.
‘In combination with the scheduled increases to the minimum wage from 1 April, many entrepreneurs could find their bottom line hit quite heavily. As business owner-managers tend to be heavily invested with their personal wealth, this could be a tough financial year for many who might otherwise have been looking to grow and scale up their operation.
‘The country is obviously facing some serious fiscal challenges, but it’s difficult for entrepreneurs to go on taking risks with their own money or with investors’ money when rising costs are hitting profits and making their own financial well-being precarious. Many smaller businesses are looking to increase prices, decrease headcount or cease expansion, or some combination of all three.
‘We can only hope the fiscal picture improves so that business owners don’t face further tax pressures at future budgets.’
Here Emma runs through the major changes ahead for entrepreneurs.
Employers’ National Insurance Contributions to increase
Emma says: ‘Employers will face increased National Insurance costs from 6 April 2025, with rates rising from 13.8% to 15.0%. The earnings threshold at which employers start paying this tax will drop significantly from £9,100 per year to £5,000, which is something of a double whammy. For example, a business with 10 employees earning £30,000 each annually could see its NIC liability rise by £8,658 per year.
‘The only silver lining is that the Employment Allowance which currently allows businesses with employer NIC bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill, will rise. From 6 April 2025 the Government will increase the Employment Allowance to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NIC bills. But this is still expected to leave about 1.3 million PAYE-registered businesses exposed to the NIC rise.
‘Surveys suggest the NIC move has already put some business owners off from taking on additional staff. A poll by the Federation of Small Businesses at the end of 2024 found that 33 per cent of small employers expect to reduce headcount, up from 17 per cent in the previous quarter as a result of tax changes.
‘However, in this area there is one mitigation strategy that will be open to some employers. An opportunity may arise to offset some of this cost through the use of a salary sacrifice pension scheme, including bonus sacrifice, where that’s not already in place.’
Salary sacrifice (also known as salary exchange) is a formal arrangement between an employer and an employee whereby an employee gives up part of their salary in exchange for non-cash benefits – which can include waiving some bonus entitlement in favour of a pension contribution. The benefits are not subject to income tax or NICs, so their taxable salary is reduced. Pension contributions via salary sacrifice pensions are a tax-efficient way for employees to pay into a pension scheme and also an attractive option for employers to reduce their NI costs.
Emma continues: ‘Salary sacrifice can be a “win-win” option for both employees and employers, helping employees increase their take-home pay and help employers lower their NICs. However, despite the financial benefits to both the employer and employee, many organisations still do not operate a salary sacrifice arrangement. Where it makes sense for them to do so, more employers could look towards salary sacrifice pension schemes to reduce costs given this substantial NIC increase.’
Capital gains tax rates to increase
The main capital gains tax rates were raised with immediate effect at the Budget but changes to Business Asset Disposal Relief (BADR) come in with the new tax year. BADR operates by applying a lower rate of capital gains tax for individuals on the sale of certain business assets.
Emma says: ‘BADR can be a valuable relief for business owners when they come to sell their businesses, which is a life-defining moment that many entrepreneurs build up to with all their energies.
‘For disposals made on or after 6 April 2025, the rate of tax on gains eligible for BADR will increase from 10% to 14% for disposals made on or after 6 April 2025. The rate will increase again to 18% for disposals made on or after 6 April 2026. There has been no change to the £1 million lifetime limit.
‘For a £500,000 gain, for example, the tax bill rises from £50,000 to £70,000 in 2025/26.
‘CGT rates were already increased with immediate effect at the Autumn Budget. Historically, CGT rates have been kept significantly lower than income tax rates in recognition of the fact that investors take risks by deploying capital and can endure uneven and uncertain returns.
‘BADR – which was previously Entrepreneurs’ Relief – gives relief from CGT to those who have built up their own businesses from scratch. Some entrepreneurs who have poured everything into their business are relying on the proceeds of such a sale for their family’s future financial security, often in the absence of any other wealth.’
Minimum wage increases
The National Living Wage will increase by 6.7 per cent from £11.44 to £12.21 per hour for over-21s and from £8.60 to £10 for 18-21 year olds from 1 April.
Emma says: ‘Employers must update payroll systems by 1 April 2025 to remain compliant. In the context of the tax increases afoot for businesses and faltering consumer confidence, the increase to the minimum wage could inhibit growth for some businesses.
‘Particularly those in leisure and hospitality that are staff-heavy and still suffering from other headwinds since the shock of the pandemic. Wage bill increases could discourage some entrepreneurs from further hiring decisions, or indeed to avoid labour-intensive operations altogether.’
Abolition of Furnished Holiday Lettings (FHL) tax regime
Emma says: ‘From 6 April 2025, the FHL tax regime ends, aligning these properties with standard property business rules. Benefits like capital allowances and specific loss reliefs will be lost.
‘Businesses operating short-term rentals (e.g., holiday cottages) will face higher tax liabilities and simpler but less favourable tax treatment, potentially reducing profitability.’
Emma concludes: ‘Entrepreneurs can end up draining their own finances to solve cash-flow issues, and many do not have a substantial cash savings buffer or will have to delay saving into a pension until later, if at all.
‘At Evelyn Partners we find that business owners who come to us have particular needs and concerns that don’t always apply to employed clients.
‘With tailored cash-flow modelling, tax planning and bespoke investment advice, we can help them through difficult periods to make their financial future more secure.’
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