Hold onto your teacups, folks—this year’s budget has landed, and it’s packed with historic firsts, fiscal twists, and a few surprises for good measure. After 14 years of Conservative budgets, we’re back in Labour territory with a budget crafted by the UK’s very first female Chancellor. Think of it as Britain’s biggest financial shake-up, a little like swapping out a soggy old biscuit for a fresh one.
But what does all this mean for you? Well, whether you’re a business owner calculating your new NIC bill or just hoping for a boost to your take-home pay, we’re here to break it down. Get ready for a clear, jargon-free look at what’s new and how it’s about to change your cash flow. Shall we?
Cost of Living and Wages: Support Amid Rising Costs
With everyday expenses on the rise, the government is rolling out some welcome boosts:
National Living Wage Increase:
The National Living Wage has risen by 6.7% to £12.21 per hour. That’s an extra lift for full-time workers, translating to about £1,000 more annually.
Young Workers Benefit Too: If you’re between 18-20, your hourly wage bumps up to £10. This 16.3% increase aims to offer younger workers a fairer wage to keep up with living costs.
Example: Sarah, a 19-year-old retail worker, works 30 hours per week. She will now make £10 per hour instead of £8.60, putting an extra £2184 into pre-tax salary each year—a meaningful help for covering rent, groceries, or saving for the future. She will be paying £606 in income tax per year at the increased wage rate, in contrast to the £169.20 per year she was paying before BUT she still comes out better off by £1576 per year or £131.33 per month.
Carers Allowance Gets a Boost:
The earnings limit for Carers Allowance has been increased, allowing carers to work up to 16 hours on the National Living Wage and still qualify for support. With this change, carers can now earn over £10,000 annually without risking their allowance.
Example: Mark, who cares for his mother while working part-time, can now take on a few extra hours at work each week. This flexibility means he won’t have to worry about losing his allowance, making a big difference to his family’s monthly income.
Universal Credit Deductions Capped:
Lower Deduction Caps: The cap on debt repayments from Universal Credit will drop from 25% to 15%, allowing households to retain more each month. This move aims to alleviate financial strain, especially for low-income families.
Household Support Fund:
An additional £1 billion has been added to the Household Support Fund to help with essential expenses like energy bills, food, and housing. This will be a lifeline for many households facing financial hardship.
Fiscal Policy and Public Finance: Transparency and Responsibility
To address public trust in government finances, the budget includes several changes focused on accountability and stability:
Improved Fiscal Transparency:
The government is committing to full transparency, adopting all recommendations from the Office for Budget Responsibility (OBR). A new detailed “line-by-line” breakdown of public spending has been introduced, ensuring better public awareness of where funds go and preventing future gaps.
Employer National Insurance Contributions (NIC)
Increased NIC Rates: From April 2025, the rate of Employers National Insurance contributions will rise by 1.2% to 15%, creating additional revenue for public services. However, this means higher payroll costs, which will particularly impact small businesses and single company directors. However, the Employment allowance increase will significantly help small business employers who have a team, as the aid is being increased from £5000 per year to £10,500 per year. This means that an employer could in theory hire 4 full time workers without paying any employer's national insurance contributions.
Lowered NIC Threshold: The eligibility threshold for NIC is reducing from £9,100 to £5,000 annually, meaning companies will start paying NIC sooner on each employee's earnings.
Impact on Single Company Directors:
No Employment Allowance: Single company directors, who are not eligible for Employment Allowance, will feel this change acutely. For instance, a director currently drawing a monthly salary of £1,047.50 pays £39.95 per month in Employers NIC (at the current 13.8% rate and £9,100 threshold).
New Monthly Cost: With the new threshold and rate, this monthly NIC contribution will jump to just over £94—an additional £54 per month, or £648 over the year.
Cashflow Impact: For many small businesses, this added cost is significant, creating a real dent in cash flow and adding to operational expenses at a time when cost management is crucial.
Capital Gains Tax Revisions:
The lower and higher Capital Gains Tax (CGT) rates have been increased from 10% and 20% to 18% and 24%, respectively. However, business asset disposal relief is retained, allowing qualifying entrepreneurs to benefit from reduced rates on sales of business assets up to £1 million.
Example: Alex sells his business after a successful five-year run. Under the relief, he only pays 10% on gains up to £1 million. This policy supports small and medium-sized businesses, encouraging entrepreneurs to reinvest in the economy.
Goodbye to Non-Domiciled Tax Status:
Non-dom status has been replaced with a residence-based scheme, requiring long-term UK residents to pay UK taxes on their global income. The OBR estimates this change could raise £12.7 billion over five years, giving public finances a significant boost.
(The non-domiciled, or "non-dom," status is a special tax arrangement in the UK. It allows individuals who live in the UK but consider their permanent home ("domicile") to be in another country to avoid paying UK tax on foreign income, as long as they don’t bring it into the UK. For example, if someone with non-dom status earns money from overseas investments or businesses, they won’t pay UK tax on that income unless they transfer it to a UK bank or use it in the UK.
Essentially, the non-dom status has let wealthy individuals reduce their UK tax bills by keeping certain income and assets abroad. This arrangement is now being replaced with a residence-based tax scheme, meaning long-term UK residents will pay UK tax on their global income, bringing more of these earnings into the UK tax system.)
Inheritance Tax Adjustments:
The inheritance tax threshold freeze will extend to 2030. Additionally, inherited pensions will now be subject to inheritance tax from April 2027. Agricultural and business assets will continue to receive some relief, protecting small family farms and businesses from undue strain.
Example: A family inheriting a £500,000 estate that includes agricultural assets will still benefit from a 50% tax relief on assets over £1 million, ensuring family farms can stay operational without hefty tax penalties.
The final word...
Whilst not even the half of it, these updates will be the most impactful.
In the midst of this, the overarching message is one of responsibility and stability. The government is calling for greater transparency and contributions to fund public services sustainably while trying to alleviate cost-of-living pressures.
That being said, there is added responsibility on the wealthy and employers to shoulder the clawing back of £40 billion. Whether fair or not, this budget will cause massive shake-ups across board. The question is, are you ready for it?
I'll be back early next week to help you understand how you can prepare for the changes NOW and be so ready for it!
Feeling unsure about how these changes impact you or your business? We’re here to help you break down what’s new and make the most of any opportunities. Let's be proactive in responding to these changes. Book your Complete Clarity Session now to get ahead of the 2025 curve.
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