As of February 26, 2025, small businesses in the UK are preparing for several significant financial changes stemming from recent HM Revenue & Customs (HMRC) legislation and government policies. These changes, set to take effect in the upcoming months, will impact taxation, reporting requirements, and available reliefs. Below is a detailed overview to help small business owners navigate the forthcoming adjustments.

1. Increase in Employer National Insurance Contributions (NICs)

Effective from April 2025, employer NICs will rise by 1.2 percentage points, increasing the rate from 13.8% to 15%. Additionally, the salary threshold at which employers begin paying NICs will decrease from £9,100 to £5,000. These changes aim to generate an estimated £25 billion annually by the end of the decade. However, they have raised concerns among businesses about potential impacts on recruitment, pricing, and investment strategies. 

2. Expansion of the Employment Allowance

To mitigate the impact of increased NICs on smaller businesses, the Employment Allowance will rise from £5,000 to £10,500 starting in April 2025. This increase allows eligible employers to reduce their annual NIC liability, with the government indicating that approximately 865,000 employers will not pay any NICs next year, and over 1 million will pay the same or less than previously. 

3. Business Rates Relief for Retail, Hospitality, and Leisure Sectors

The government has extended the Business Rates Relief scheme for eligible occupied retail, hospitality, and leisure properties. For the fiscal year 2025/26, these properties will receive a 40% relief on their business rates bills, up to a cash cap limit of £110,000 per business. This extension aims to provide interim support until the introduction of permanently lower tax rates for these sectors in 2026/27. 

4. Reforms to Business Rates Multipliers

Starting in the 2026/27 fiscal year, the government plans to implement a restructured system of business rates multipliers. The new structure will introduce different multipliers based on property rateable values (RVs) and sectors, including a large multiplier for properties with RVs of £500,000 and above, and specific multipliers for retail, hospitality, and leisure (RHL) properties. The exact rates for these new multipliers will be announced in the Budget 2025, considering the 2026 revaluation and the broader economic context. 

5. Mandatory Digital Tax Reporting

The Making Tax Digital (MTD) initiative, aiming to modernize tax administration, will extend to Income Tax Self-Assessment (ITSA) from April 2026. Businesses and self-employed individuals with annual income exceeding £50,000 will be required to maintain digital records and submit quarterly updates to HMRC. Those with income over £30,000 will need to comply from April 2027. This phased approach provides businesses time to adapt to the new digital requirements. 

6. Changes to Capital Gains Tax (CGT) Rates

Effective immediately from the Autumn Budget 2024, Capital Gains Tax rates have increased. The lower rate has risen from 10% to 18%, and the higher rate from 20% to 24%, aligning them with rates on property sales. This adjustment affects businesses disposing of assets and emphasizes the need for strategic financial planning to manage potential tax liabilities. 

7. Abolition of Non-Domiciled Tax Status

From 2025, the UK government will abolish the non-domiciled (non-dom) tax status, which previously allowed individuals residing in the UK to avoid tax on overseas income. This change aims to increase tax fairness and is expected to impact businesses owned by or engaging with individuals who previously benefited from non-dom status. 

8. Adjustments to Inheritance Tax (IHT) on Pensions

Starting April 2027, pensions will be included as part of the estate for Inheritance Tax purposes. This change means that upon death, remaining pension funds may be subject to IHT, affecting succession planning for business owners who have significant pension assets. 

9. New Public Procurement Rules Favoring Small Businesses

The government has introduced new public procurement rules designed to simplify processes and open up opportunities for small businesses to secure public sector contracts. These changes aim to drive local growth and innovation by making it easier for small enterprises to participate in government procurement, potentially expanding their customer base and revenue streams. 

In light of these impending changes, small business owners in the UK should proactively assess their financial and operational strategies. Engaging with financial advisors, updating accounting practices, and exploring available reliefs and support programs will be crucial steps in navigating the evolving fiscal landscape.

If you would like to discuss some of the changes above and how it will effect your small business, please get in touch here.

 

Source: The Times

Source: The Guardian 

Source: The Guardian