Labour’s Budget – Immediate Reflections
The pitch was heavily rolled for some pretty dire news for business, so overall it feels like it could have been worse.
- The Employer’s National Insurance (NIC) rise from April 2025 (13.8% to 15%) does not sound too bad, but adjusting the threshold at which the NIC is due (£5,000 per employee down from £9,100) really is a double whammy. Do not be fooled by the increase in the Employment Allowance that most employers get (increasing from £5,000 to £10,500) as it is only the smallest of businesses who will not lose out overall.
- Big losers here are single director payrolls, which will suffer the higher NIC amounts but do not qualify for the Employment Allowance.
- Capital Gains tax is increasing immediately by 8 percentage points (10% to 18% at the lower rate) and by 4 percentage points (20% to 24% at the higher rate). Considering there was talk of equalising the rates with income tax (c. 40%) this certainly is not as bad as feared.
- It is pleasing to see BADR (Entrepreneurs’ Relief) retained at 10% for the rest of 24/25; then being staggered up until it reaches 18% from 2026. This will enable a number of ongoing and pipeline transactions to complete in the next five months that otherwise would have lost out – only fair. The £1m allowance is retained in all years.
- Corporation tax is capped at 25% for the rest of the parliament, as anticipated.
- A range of other measures were announced including freezes to Inheritance Tax bands; continuing favourable treatment to Electric Vehicles; and a review of tax schemes like EOTs previously open to manipulation.
In conclusion, day to day life will mostly be affected by the NIC rise – in companies with more than eight people there will be varying levels of financial pain, which in the current tough trading environment, we expect to see passed on to customers or – just as likely – their staff. We would not have been surprised by an increase in the rate of dividend tax, so that feels like a minor victory for most of our clients.
