Budget 2024 and small businesses
The Budget can be a confusing and scary time for small businesses, partnerships and sole traders, with lots of scary figures, increases and terminology being thrown about. We’re going to try and clear up a few things for you and help you to see what some of the changes in this budget mean for your business.
While there are lots of things included in the 2024 Budget, we’ll be focusing on Employer National Insurance, employee wages and business rates as these are the three things that are likely to affect a small business the most.
The first thing we’ll look at is Employer’s National Insurance (NI). This is what employers pay towards an employees National Insurance, and with the Budget it is going to increase from 13.8% to 15%, so this is an increase in cost for employers.
The employers National Insurance threshold is also decreasing from £9,100 to £5,000. This means that previously employers didn’t pay National Insurance on employee’s earnings up to £9,100. This will change and now employers will have to start paying contributions one the employee’s earnings pass £5,000. So again, this is an increase in cost for employers.
The Employment Allowance has increased in this budget from £5,000 to £10,500. Previously, employers could reduce their National Insurance liability by £5,000, assuming they met the eligibility criteria. With the new Budget, all employers can reduce their National Insurance liability by £10,500. This is a saving for employers.
The minimum wage for over 21s is going to rise from £11.44/hr to £12.21/hr and for 18-20 year olds from £8.60 to £10. As well as in increased cost in wages for employers, this will also increase the NI contributions the employer has to make as this is a percentage of the employee’s earnings.
However, it’s not all doom and gloom. Our calculations below show that some businesses will be better off after these changes, but it depends on the number of employees, salaries, and what age they are.
Based on 5 employees on minimum wage
Annual salary increases from £24,000 to £25,400. (We’ve rounded up slightly to make the calculations easier)
Annual NI liability increases from £10,280 to £15,300.
Employment Allowance increased from £5,000 to £10,500.
All together this results in a decrease in Employer’s NI costs of £481. This is offset by salary increase though so in this case the business would be £919 worse off for the year.
Based on 5 employees earning £35,000/year
Annual salary stays the same
Annual NI liability increased from £17,871 to £22,500
Employment Allowance increased from £5,000 to £10,500
In this case it results in a decrease in Employer’s NI costs of £871 and in this case there’s no increase in salary to offset this as the employer was already paying over the minimum wage.
It should be noted that in our calculations as the number of employees/total salary increased over the examples above, the benefit went away and it started to become an additional cost in both cases. The bigger the company, the more it became an increased cost to them.
Unfortunately there’s no sugar coating the cut in Business Rates relief from 75% to 40%. It’s difficult to provide an exact demonstration of this as Business Rates are determined on many factors but it’s likely to be an additional cost of around £2,000/year for many businesses.