Autumn Budget 2024: Key Financial Challenges for Small Businesses and Farmers

The Autumn Budget 2024, presented by Chancellor Rachel Reeves, brings substantial adjustments to the financial landscape for small businesses and farmers. Central to this budget is a £50 billion tax note aimed at addressing the increasing pressures on public finances. This initiative underscores the government’s intention to raise additional revenue through various means, potentially affecting the overall tax landscape for small businesses and farmers.

In addition to this significant tax note, notable changes include increases in the National Minimum Wage, employer National Insurance contributions, adjustments to capital gains and inheritance taxes, and the removal of certain tax reliefs. The combined impact of these changes could create immediate financial strain, particularly for businesses already operating with tight margins.

Here, we break down the most pivotal budgetary impacts to help you prepare for the year ahead.

Rise in National Minimum Wage (NMW)

One of the biggest shifts in the budget is the increase in NMW, which will rise to £11 per hour from April 2025. For small businesses and farms that rely heavily on minimum-wage workers, this change represents a significant payroll increase. Sectors like agriculture, hospitality, and retail may feel this change most acutely, as the added wage costs could directly impact profitability. Businesses will likely need to reassess staffing plans, consider automation, or adjust pricing strategies to offset this additional burden.

Higher Employer National Insurance Contributions (NICs)

Starting April 2025, employer NICs will rise by 1.2 percentage points, further increasing payroll expenses. Additionally, the NIC threshold for employers will be lowered from £9,100 to £5,000 per year, capturing more wage costs. Labour-intensive industries, particularly in agriculture, may struggle with this increased financial burden. While the Employment Allowance will be increased to £10,500, which may provide some offset, many employers may still find this challenging given rising costs in other areas.

Corporate Tax Rate and Investment Relief Limitations

The corporate tax cap of 25% provides stability, yet investment relief limitations remain a constraint. The Annual Investment Allowance of £1 million and permanent full expensing are retained, but businesses may still find it challenging to fund capital expenditures as other costs rise. For sectors like farming, which require regular investment in machinery and infrastructure, accessing sufficient cash flow for upgrades may be increasingly difficult under the new tax landscape.

Business Rates Relief and Property Costs

Business rates relief will continue with the small business rates multiplier frozen through 2025-26. However, rising operational costs may reduce the effectiveness of this relief, especially as promised rate reductions for retail, hospitality, and leisure properties will only come into effect from 2026-27. For rural businesses, these changes offer some future respite, but immediate cost pressures remain high without additional rate reductions.

Making Tax Digital (MTD) Compliance

Expanding MTD for Income Tax to sole traders and landlords earning over £20,000 by the end of this Parliament adds new compliance costs. Many small businesses and farms may need to invest in digital accounting solutions or external support to manage this transition, further increasing administrative expenses. Preparing early and exploring digital tools will be key for businesses needing to adjust to these requirements smoothly.

Inheritance Tax (IHT) and Business Property Relief Adjustments

With IHT thresholds frozen until 2030 and agricultural and business property reliefs reduced from 100% to 50% on assets over £1 million, succession planning may become more costly for family-owned farms and small businesses. This shift complicates estate planning and could lead to higher tax liabilities, impacting businesses seeking to preserve assets across generations. Re-evaluating estate plans to mitigate these impacts will be essential for those affected by these changes.

Capital Gains Tax (CGT) Increases

Effective 30 October 2024, CGT rates have risen on certain business disposals, increasing exit costs. For those looking to sell or transfer assets, this change means higher tax on proceeds, and phased increases to Business Asset Disposal Relief and Investors’ Relief starting in 2025 will add further complexity. This increase in CGT could particularly affect family businesses and farms aiming to preserve capital for retirement or reinvestment.

VAT Threshold Adjustment

From April 2024, the VAT registration threshold will increase from £85,000 to £90,000, with the deregistration threshold also rising slightly. This adjustment will allow more smaller businesses to operate under the VAT threshold, offering some relief from administrative burdens. However, those with higher turnovers will still need to manage VAT compliance, a continued cost factor for expanding businesses.

Abolition of Furnished Holiday Lettings (FHL) Regime

The FHL regime will be abolished in April 2025, removing certain tax benefits for landlords of short-term holiday rentals. Many rural businesses and farmers have relied on this regime to generate supplementary income through holiday lets. Without deductions for mortgage interest or capital gains relief, these businesses may face increased tax liabilities, potentially impacting profitability and reducing incentives to diversify income.

The Autumn Budget 2024 introduces a range of financial challenges for small businesses and farmers. Increased payroll costs from the NMW hike, rising NICs, and heightened capital gains and inheritance tax obligations present a complex landscape that could strain cash flow and impact expansion plans. Additionally, the removal of reliefs like the FHL regime and the phased CGT changes add further pressures, making efficient tax and financial planning crucial.

For more information on how Buckingham Leasing’s flexible finance options can support your business through these challenging times, please contact us at enquiries@buckinghamleasing.co.uk.