Impact on Businesses

Employers’ National Insurance Contributions (“NIC”)

Employers have been hit with a triple whammy of cost increases in today’s announcements, with an increase in the rate of Employers’ NIC, a reduction in threshold at which Employers’ NIC becomes payable and an increase in the minimum wage payable to employees. These increases in respect of employer costs represent the largest revenue raiser of the Budget.  

Employers’ National Insurance Contributions will increase from 13.8% to 15% from 6th April 2025, alongside the secondary threshold, which dictates when such contributions kick in, reducing from £9,100 to just £5,000 annually. 

The Employers Allowance will increase from £5,000 to £10,500 to soften the blow for small employers and the £100,000 eligibility threshold for the Allowance will be removed.  It is estimated that, as a result of these changes, 865,000 businesses will pay no NICs at all, and more than half of employers with NICs liabilities will not be negatively impacted.

National Living Wage (“NLW”) and National Minimum Wage (“NMW”)

In line with the Low Pay Commission findings, from April 2025 the NLW will increase to £12.21 per hour for all eligible employees and the NMW will increase to £10.00 per hour for 18-20 year olds in an attempt to narrow the gap towards one rate for all adults. The Government is also increasing the NMW for Under 18s and Apprentices to £7.55 per hour.

This increase represents an increase of over £1,400 to the annual earnings of a full-time worker on the NLW and is expected to benefit over 3 million low paid workers across the UK.

It is expected that these combined measures of reform to NIC and NLW/NMW will raise over £26bn a year by 2029/30. However, the question of how many businesses will cope with the increased costs, and the impact that this will have on our wider economy, remains to be seen.

Closing the Tax Gap

The Government have announced a package of measures to close the “tax gap” i.e. the difference between tax collected and the total amount of tax that should, in theory, be collected if individuals and businesses paid all tax due.  These combined measures are expected to raise £6.5 billion in additional tax revenue per year by 2029-30.

As part of this package, the Government is recruiting almost 7,000 additional staff to improve compliance and debt collection; investing in modernising IT and data systems to improve HMRC’s productivity and improve taxpayers’ experience of dealing with the tax system; and legislating to prevent abuse in non-compliant umbrella companies.

To encourage taxpayers to settle their tax debts in a timely manner, the Government will also increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5% from 6 April 2025, substantially increasing the cost to taxpayers of overdue tax bills.

Stamp Duty Land Tax (“SDLT”)

The single rate of SDLT payable by companies and non-natural persons on the purchase of residential dwellings for more than £500,000 has increased from 15% to 17%, effective from 31 October 2024.

The measure will ensure companies and other non-natural persons buying dwellings for more than £500,000 which are not intended to be used for a commercial purpose (e.g. property rental/ property development) pay the highest rate of SDLT.

VAT

The Chancellor confirmed that all education and boarding services provided by a private school or connected person will be subject to VAT at the standard rate of 20%. The pre-payment of fees or boarding services on or after 29 July 2024 that relate to terms starting on or after 1 January 2025 will also be subject to VAT at the standard rate.  

Fuel Duty

The Government have announced that, in light of the cost of living remaining high and the potential fuel price volatility amid global uncertainty, they will freeze fuel duty at current levels for one year.  The 5p cut will be extended for a further 12 months and the planned increase in line with inflation for 2025-26 will be cancelled. However, this represents a limited saving of £59 in 2025-26 for the average car driver.

Corporate Tax Roadmap

Alongside the Budget, and as expected, the Government published a Corporate Tax roadmap setting out its plans in relation to Corporation Tax.  The main headline of the Roadmap is that it promises to deliver predictability, stability and certainty to business after several years of significant change, something that has been called for across the business community.

While the Roadmap itself is limited in detail, the main commitments by the Government include:

• capping the main rate of Corporation Tax at 25% for the duration of Parliament;
• retaining the small profits rate and marginal relief at current rates and thresholds;
• maintaining full expensing and the £1m annual investment allowance while further exploring the suitability of other areas of the capital allowance regime;
• maintaining the rates in both the merged R&D Expenditure Credit scheme and the Enhanced Support for R&D Intensive SMEs while continuing to consider longer term simplifications and incremental improvements to the effectiveness of the reliefs;
• working collaboratively with companies on simplification and improving user experience, including HMRC’s path forward on digitisation; and
• continued consultation on, and monitoring of, international corporate tax issues including transfer pricing and other OECD guidelines.

The Government have dubbed the Roadmap as giving businesses the certainty they need without compromising on competitiveness, maintaining the UK’s position as the most attractive major economy to invest in. 

Of course inward investors will have to weigh up the increased cost of doing business in the UK, through increased NIC and NLW, with the promises on stability for the corporate tax landscape.