‘SME growth has been left standing still again’ by the Chancellor’s first Budget.

This afternoon the Chancellor of the Exchequer, Rachel Reeves, delivered her first Budget since the Labour Government took office in July. It was delivered against a challenging economic backdrop, and followed the Chancellor’s earlier statement this Summer in which she announced a series of controversial measures to address what she said was a £22bn overspend in in-year departmental spending.

Video: Analysis from AAT President Michael Steed MAAT

Comment from AAT CEO Sarah Beale

“For the last 14 years, SME growth has either been standing still or going backwards. Unfortunately, today, it looks like it’s standing still.

“The Chancellor has protected the UK’s smallest businesses from the worst of the tax rises, but we’d like to see more detail on how the Government will deliver on the Chancellor’s promise to ‘expand opportunities’ for the UK’s 5.5m small businesses to grow.

“We are extremely disappointed that the new Government didn’t grasp the nettle it needed to today to press ahead with making professional body membership mandatory for all paid-for tax advisors.

“We simply can’t afford inaction on cleaning up the tax advice market. Labour should reconsider their priorities if they want to bank on future revenue from this source.”

Key announcements

In her speech, the Chancellor said that the Budget was focused on delivering on the Government’s mandate to fix the foundations of the economy and to deliver change; including supporting investment to deliver on the Government’s growth ambitions and to restore economic stability to the UK economy. The measures announced today include £40bn of tax rises which the Chancellor says is essential to deliver stability to the UK economy.

The full Budget documents setting out the new policy measures announced on Wednesday can be found here, and a summary of the main announcements can be found below:

Taxation

• The rate of employer NICs will increase from 13.8% to 15% from 6 April 2025
• The Government will also reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter
• The Employment Allowance will be increased from £5,000 to £10,500, and the Government will remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NICs bills from 6 April 2025

Small Business

• The Government will bring forward a Small Business Strategy Command Paper in 2025. This will set out the Government’s vision for supporting small businesses, from boosting scale-ups to growing the co operative economy, across key policy areas such as creating thriving high streets, making it easier to access finance, opening up overseas and domestic markets, building business capabilities, and providing a strong business environment. The paper will complement the Government’s forthcoming Industrial Strategy and Trade Strategy

Education and Skills

• The Government will invest £6.7bn of capital funding in 2025-26, representing a real terms increase of 19% from 2024-25. Of this, £950 million will be allocated for skills capital. The Budget allocates £300m for further education, designed to enable young people to develop skills they require to enter the workforce
• In addition, £40 million will be invested to reform the apprenticeship levy into the growth and skills levy in order to meet the commitment to kickstart shorter and foundation apprenticeships in key sectors

Professional Standards

• An £36 million will be invested in modernising HMRC’s tax adviser registration services and the Government will mandate registration of tax advisers who interact with HMRC on behalf of clients from April 2026. This will be legislated for this in a future Finance Bill.
• The Government will require tax advisers to provide an Advanced Electronic Signature when making specified income tax repayment claims from 6 April 2025.

HMRC Services and addressing the tax gap

The Government has announced the following investment:

• £1.4 billion over the next five years to recruit an additional 5,000 HMRC compliance staff, raising £2.7 billion per year in additional revenue by 2029-30
• £262 million over the next five years to fund 1,800 HMRC debt management staff, raising £2 billion per year in additional revenue by 2029-30
• £154 million to modernise HMRC’s debt management case system
• £12 million to acquire further credit reference agency data to enable HMRC to better target their debt collection activities
• £52 million to digitalise the inheritance tax service from 2027-28 to provide a modern, easy-to-use system, making returns and paying tax simpler and quicker

Other reactions

Here’s what other accountants made of the budget.

Although accountants see “some positives” in the 2024 Budget, some believe the “ramifications of higher NICs outweigh any positives“.

Capital gains tax hikes, increases to employer NICs, scrapping nom-dom tax status and a crackdown on umbrella company tax avoidance schemes were among the proposals announced by Chancellor Rachel Reeves on Wednesday.

In her long-anticipated Budget – the first Labour Budget in 14 years and the first by a female chancellor – Ms Reeves reiterated the ‘difficult decisions are needed’ rhetoric which has been the government line for weeks, if not months.

Reeves has repeatedly said she needs to find an extra £22bn to plug the shortfall in public finances created by the previous government. But more recently, talk of the need to create £40bn via tax rises and spending cuts has dominated headlines.

Labour has consistently ruled out raising income tax, VAT and National Insurance (applied only to ‘working people’), meaning that Reeves had to look elsewhere for revenue-raising measures – something she’s claimed she has now done.

During her speech, the Chancellor said the Budget was about “responsible leadership in the national interest“ and added that the only way to drive economic growth was to “invest, invest, invest.“

The basic rate of Capital Gains Tax will increase from 10% to 18% while the higher rate of capital gains tax will increase from 20% to 24%. Meanwhile, employer NICs on salaries above £5,000 will increase from 13.8% to 15%. Employment allowance will increase from £5,000 to £10,500.

Other Budget measures which are likely to impact UK business and the wider economy include:

• National Minimum Wage will rise to £12.21 per hour, with increases to the rates for 18-20-year-olds and apprentices – towards the ultimate aim of a single national rate.
• £1bn Business Asset Disposal Relief to be retained but increasing to 14% from April next year and 18% thereafter.
• Inheritance tax threshold frozen until 2030 and from 2027, inherited pensions to be included in inheritance tax.
• Increase in Air Passenger Duty on private jets.
• Existing 40% business rates for retail, hospitality and leisure will continue until 2025/26, but capped at £110,000 per business.
• VAT on private schools from January 2025 along with removal of business rates relief.
• £70bn investment in National Wealth Fund.
• Creation of Skills England.
• Modernise HMRC with new technology and additional staff.
• The main rate of corporation tax remains at 25% along with publishing a Corporate Tax Roadmap.

So how has the Chancellor’s Budget gone down among accountants and bookkeepers? We asked several across the UK for their views.

Here’s AAT’s take on the Budget, including video commentary from AAT President Michael Steed.

“Ramifications of higher NICs outweigh any positives“

Dominic Bourquin, Partner at Monahans

Chancellor Rachel Reeves has delivered what she described as a plan to “restore economic stability… and deliver change“. That’s all very well when you alter Britain’s entire fiscal framework and raise taxes by £40bn. But surely this should result in higher growth figures than 1.5%? Somehow, she seems quite pleased with this, despite average UK long-term growth numbers being over 2%, so her figures don’t seem to add up.

Of course, Reeves is trying to protect the “working people” – by not increasing National Insurance (NI) contributions, Income Tax or VAT – and avoid a “return to austerity”. But it was only in the last few years that the Tories floated this NI idea, but rejected it because the OBR expected 80% of the cost to be passed to employees via lower wages and consumers via price hikes for goods and services.

There were some positives. Business rates relief for the retail and hospitality sectors – still struggling in the wake of COVID – provide some stability. So does the guarantee that corporation tax rates will stay the same, and annual investment allowance and R&D relief remaining unaffected.

But the ramifications of higher NI contributions will inevitably outweigh these positives. An overhaul of Capital Gains Tax (CGT) also makes it far less appealing to set up and conduct business on British shores and where Business Asset Disposal Relief previously allowed business owners to benefit from a reduced rate of CGT, Reeves’ plan to raise this to 14% in 2025 and then 18% in 2026 will be a blow for those who have worked hard through a turbulent financial market in recent years.

In short, it might just be that the working people on which the economy depends so greatly, are forced to pay the price of these promises.

Verdict: Ramifications of higher NICs outweigh any positives in the Budget.

Employer NICs change is a “tax on jobs“

Stephen Leonard, FCCA ACA MAAT, Partner, J L Winder & Co

In many ways, it was an ‘anti-climax’. There were no major surprises and although the headline figure of £40bn tax rises was used, two-thirds of this was from one measure and the rest spread over the term of parliament.

Employer NICs
The big tax rise is the change to Employer NICs which not only rises from 13.8% but also now starts at a lower level of £5,000. The impact of this change will be disproportionately felt by those sectors that employ many part-time, lower-paid workers, such as hospitality and small retailers. Whilst the increase in Employment Allowance from £5,000 pa to £10,500 partly offsets the increase for many small shops, pubs and clubs, the overall tax burden will increase significantly.

I believe that this is a tax on jobs and will lead to an increase in ‘cash-in-hand’ employment working practices, especially in the hospitality and small retail sector, and will also lead to a reduction in wage rises for many in the coming years.

CGT
The widely anticipated increase in rates arrived but maybe not to the levels that some were predicting. More unexpectedly, the rates for Residential Property were unchanged and all rates are now aligned for non-business asset sales.

Non-Doms
As per its manifesto, Labour has announced the removal of the Non-Dom status from April 2024. This will be replaced by a new ‘residence based regime’ although it’s unclear what that will be; presumably there will be some trade-offs in this to avoid a mass desertion from certain sectors where Non-Doms are prevalent.

Overall this was an expected ‘political’ Budget, with the former government blamed for their handling of the economy over fourteen years.

Whilst I was not enthused by the overall tone and direction of the measures, it wasn’t as draconian in some areas as predicted, However, the major losers will be small business and their employees who will eventually pay the price for the rises in employer NICs.

Verdict: It wasn’t as draconian as feared but I believe employer NICs is a tax on jobs.

“The ‘no tax on working people’ claim is semantics“

Alison Edward, Chief Balancer, Simply Balanced Solutions

The increase in employer NICs wasn’t a surprise, but the drop in the level at which it will be paid was bigger than I expected. This has luckily been offset by the increase in employment allowance which will minimise the impact of the increase for most small businesses.  

It remains to be seen if any of the other rules relating to eligibility for employment allowance will change, which will determine how many businesses will benefit from this increased allowance.

I was surprised that the chancellor didn’t extend the freeze on the personal tax allowance beyond 2028: it’s basically a stealth tax, bringing more people into paying tax or tax at higher rates. We are seeing more of our self-employed clients being brought into paying tax at the higher rate so this will benefit them.

The other welcome surprise was no increase in fuel duty – fuel costs are an increasing burden on my clients that they are having to pass on to their clients.

All in all, it wasn’t as bad as I was fearing for employers, but to say that there is no tax on working people is semantics. The increase in employer NICs will increase prices, as will the rise in the living wage which -whilst welcome – has to be passed on, as profit margins are already being squeezed.

Verdict: The ‘no tax on working people’ claim is semantics: increased employer costs will increase prices, affecting employees and consumers.

“There were a couple of nice surprises“

Ben Rose MAAT, Partner, Martin Seitler & Co

The NI increases are big. They won’t affect the smaller businesses with 1-8 staff, but it will start to affect the ones who have more, or have ambition to grow out of that category.

This will have a massive impact. Their employment costs will increase by £2,000 per year (for a full-time employee on minimum wage) when taking into account the new minimum wage and the changes in employer NICs. If they have four or five staff that’s the best part of £10k.

There were a couple of nice surprises such as the end of the freeze of personal allowance (but we still have to wait two years for that to take effect) and the big increase in employment allowance which mitigates the employer NICs increases.

If I were the business person in charge of the Treasury, rather than raising £40bn in tax increases I would have tried to save £40bn in wasted public spend first. There are many areas of government spending that are simply a drain on society and cutting those out would have made it easier to fill the black hole.

Verdict: Employer NICs will have a big impact, but the Budget did contain some nice surprises, too.