At the same time, Reeves announced an increase in the National Living Wage to £12.21 an hour and the intention to align rates so that there is one rate of pay for all adults. The NLW had already been increased in the previous budget and this measure which represents an increase to the NLW of 20% in the past two years will put pressure on businesses already struggling to recruit and retain staff. Some have warned that these two measures will force businesses to mitigate their impact by outsourcing or offshoring services so that they reduce the number of employees employed. No doubt HMRC will be looking closely at any arrangements made to ensure they are genuine and will seek to challenge potential cases of false self-employment. There was some relief for those in the hos - pitality and retail sectors. The 75% business rates relief which was due to expire in March 2025 has been extended through 2026, but has been reduced to 40%, and the small business tax multiplier has been frozen. The commercial rating system is outdated and perhaps a more fundamental change to the system is something which will be looked at after 2026.
In my guest appearance in the Harold Benjamin podcast just after the elections, I discussed how business accepts that tax rises would be necessary, and that they would have to pay more tax. What business owners really want, is a clear roadmap from government as to how they intend to support and tax businesses so that they can plan ahead confidently. Unfortunately, the decision to delay the budget for the better part of four months, and the Prime Minister’s repeated warnings of difficult decisions to be made, allowed rumours to spread, and created a mood of uncertainty and apprehension. In my opinion, the Chancellor’s Statement went some way in reassuring business owners. Although the lead headline by the BBC was that businesses will be paying more than half of the £40bn of the taxes raised, some of the measures introduced were not as harsh as anticipated, and there were still a number of proverbial rabbits which the Chancellor pulled out of her hat.
Impact on Small Business
The big revenue raiser is the increase in employers’ National Insurance Contributions. This is expected to raise £25bn a year and will be achieved by increasing the rate from the current 13.8% to 15% and by lowering the threshold at which it becomes payable to £5,000. For a business which employs 5 work - ers at a wage of £50,000 each this translates into an additional £5,500 of tax per year. Smaller employers will be pleased that the Employment Allowance is to be increased to £10,500. As explained by the Chancellor this means that a small business could employ four members of staff at the National Living Wage without having to pay any employers NI.
Impact on the Property Sector
Landlords always seem to bear the brunt of tax rises, and this budget was no different. The additional rate of Stamp Duty Land Tax payable on second homes has been raised to 5% and this together with increases in Council Tax which can be levied on second homes and the existing restrictions on tax relief available on interest will push many smaller BTL landlords out of the market. Interestingly, for those landlords who are thinking of selling, although rates of Capital Gains Tax were increased, the rates
THE LEGAL CORNER MAGAZINE | ISSUE 009 OCTOBER '24 | HALLOWEEN EDITION HB 18
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