Anticipating Changes for Small Business Owners in Autumn 2024
As champions of small business owners (and as business owners ourselves), we recognise the moral responsibility of paying taxes and contributing to the public finances that support vital services. However, the warning shot about the intensity of the autumn budget 2024 for small business owners (expected to be delivered on Wednesday 30 October 2024) comes at a time when many small businesses are already grappling with the harsh realities of the cost-of-living crisis. The ever-narrowing margin between what consumers and customers are willing to pay and the rising costs of employment, materials, and other operational expenses is pushing many businesses to their limits.
For many businesses, profitability is becoming harder to maintain, and any further tax increases could make it even more challenging to ‘make money’. With the Autumn Budget 2024 fast approaching, here’s what small business owners should watch out for and how to prepare for possible changes.
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Business advisor and tax specialist, Martyn Olver, shares his views:
“From a tax perspective, I was intrigued to read this article that talks about the possibility of charging Capital Gains Tax after death, written by The Telegraph, and shared by Yahoo Finance. It’s an interesting read and a bit surprising, as it could be viewed as a form of double taxation. It talks about the government potentially scrapping reliefs that currently eliminate capital gains tax on death.
Right now, if someone holds onto an asset until they pass away, they don’t pay capital gains tax on it, thanks to something called the “uplift on death” relief. Essentially, no capital gains tax is charged on the asset’s increase in value while they owned it, although inheritance tax could still apply. The person who inherits the asset gets it at the market value at the time of inheritance, so they only pay capital gains tax on any increase in value from that point onwards if they decide to sell it.
This change could also solve the issue of people holding onto assets they don’t really want, just to avoid paying capital gains tax on any gains if they sold them earlier.”
Capital Gains Tax (CGT) increases
Capital Gains Tax is one of the potential targets for reform, with speculation that the government might align CGT rates with income tax. This could mean significantly higher taxes on the sale of business assets, shares, and properties.
Action tip: If you’re considering selling any assets, it may be beneficial to act now before potential rate hikes. Reviewing your investment strategies early will also help you lock in current reliefs before they are curtailed.
Business Asset Disposal Relief (BADR) at risk
Formerly known as Entrepreneurs’ Relief, BADR allows qualifying business owners to pay just 10% CGT on the disposal of their businesses. However, the relief may be reduced or abolished altogether, increasing the tax burden on entrepreneurs exiting business.
Action tip: If selling your business is part of your future plans, consider accelerating the process to benefit from the current 10% rate before changes come into effect.
Consult our experienced business advisers, Martyn and Deborah, to assess your exit strategy.
Inheritance Tax (IHT) adjustments
Although the IHT nil-rate band is frozen until 2028, reforms around business and agricultural property reliefs could be on the table. These reliefs currently allow significant tax savings for business owners passing down assets, but any changes could increase the IHT liability for those looking to hand over their businesses.
Action tip: Review your succession plans and consider gifting assets or restructuring to minimise your future IHT exposure.
Corporation Tax considerations
While Corporation Tax itself is not expected to rise, the government is tightening anti-tax avoidance rules, particularly targeting multinationals. The OECD’s Pillar 2 top-up tax and anti-arbitrage measures may create an indirect impact on the tax environment.
Action tip: Review your corporation tax strategy and ensure your business is compliant with existing regulations, while maximising any available reliefs before they potentially disappear.
Income Tax changes for higher earners
There is significant speculation that the government may look to increase income tax rates for higher earners. Those in the higher and additional rate tax bands are likely to face steeper tax bills, as the government looks to ask more from those ‘with the broadest shoulders’.
Action tip: If you fall into these higher brackets, consider strategies like salary sacrifice and pension contributions to reduce your taxable income and prepare for any upcoming changes.
VAT changes
Labour has confirmed that VAT will apply to private education services from January 2025, ending a long-standing exemption. Other VAT changes, while less certain, could affect specific sectors, but widespread increases in the VAT rate are not expected.
Action tip: If you or your business could be affected by these VAT reforms, review your business and profitability strategies now and adjust to accommodate any changes.
Furnished Holiday Lets (FHL)
The government has announced that the Furnished Holiday Let (FHL) regime will end in April 2025, with anti-forestalling rules already in place from March 2024. This change means holiday lets will no longer benefit from preferential tax treatment, increasing the tax burden on property owners. To find out more, read our blog article 2024 Changes To Tax Rules For Furnished Holiday Lettings.
Action tip: If you own holiday lets, consider restructuring your portfolio to prepare for the end of the FHL regime. This can take time so start planning now to avoid higher taxes in the future.
Dividend tax hikes
Dividends have been an attractive way for business owners to extract profits, but the government may further increase dividend tax rates. This will particularly affect small business owners who rely on dividends for income.
Action tip: Review your dividend strategy and consider alternative ways to extract profits from your business more tax-efficiently, such as increasing your salary or making larger pension contributions.
Pension tax relief reforms
Pension tax relief for higher-rate taxpayers is another area that could see reform. Reducing or capping this relief would lower the tax benefits of saving into pensions for higher earners.
Action tip: Maximise your pension contributions now to take advantage of the current higher-rate relief while it remains in place. This could help you build a more tax-efficient retirement pot.
Preparing for budget day
The potential changes in the Autumn Budget could significantly impact your business. Conducting a thorough review of your financial strategy, succession planning, and tax arrangements is crucial to mitigate the effects of these tax reforms. Take proactive steps now to beat the budget and protect your financial future. Consult with your dedicated Client Manager to ensure you’re fully prepared for whatever changes the Autumn Budget may bring.
A fresh approach to your business strategy
With the likelihood of increased taxes and the impact of the budget yielding tighter margins, now is the perfect time to re-examine your business profitability. Take a closer look at which areas of your business generates the most profit and those that may be draining resources without sufficient return. This is also an opportunity to revisit your business plan and forecasts to ensure your strategy is aligned with current market conditions.
Importantly, remember to treat your profit as a priority, not an afterthought. Strategies like Profit First can help ensure that your business is not just breaking even but generating sustainable profit. By rethinking your financial model and prioritising profitability, you can strengthen your business’ resilience in the face of potentially compromised financial security.
If you would like help preparing for the Autumn Budget 2024 that is expected to be delivered on Wednesday 30 October, just get in touch with our friendly team. We are on hand to support you and help your business succeed.
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Beat the Budget – Preparing Small Business Owners for Autumn 2024
The upcoming Autumn Budget may bring tax increases that could impact small business owners. Anticipated changes include potential hikes in Capital Gains Tax, restrictions on Business Asset Disposal Relief (BADR), adjustments to Inheritance Tax reliefs, and increases in dividend tax. There may also be reforms targeting higher earners through income tax, and the end of preferential Furnished Holiday Let (FHL) tax treatment. Additionally, VAT changes, such as applying VAT to private education, could affect specific industries. Businesses should act now by reviewing asset disposals, succession planning, tax reliefs, and profitability strategies like Profit First to stay financially resilient. It’s critical to treat owner profit as a priority and re-examine business plans in light of potential tax hikes.
Actionable tip: Discuss these concerns with your Client Manager to explore strategies for safeguarding your business ahead of Budget Day.
