What does the 2024 UK Spring Budget Mean for Small Businesses
The Chancellor: Jeremy Hunt recently unveiled the 2024 Spring Budget, which sets out the Government’s financial agenda. Dubbed a ‘Budget for Long Term Growth’, focusing on delivering lower taxes, more investment, and better public services. The House of Commons set-piece was dominated by another headline-grabbing 2p cut to employee National Insurance contributions.
The Budget also has significant implications for small businesses, freelancers, and other self-employed workers. We therefore, examine what the 2024 Spring Budget means for you and your business.
National Insurance Cut
Employee National Insurance contributions are being cut by a further two percentage points. That’s on top of the two-percentage point cut announced in last year’s 2023 Autumn Statement. This brings employee National Insurance contributions down to 8%. Employers need to alter payroll processes before this rate cut for employees comes into effect on 6 April.
While the cut to National Insurance contributions has straightforward implications for PAYE employees, it gets a bit more complicated for the self-employed. Currently, self-employed workers earning profits above £12,570 a year pay both Class 2 and Class 4 National Insurance Contributions.
In the 2023 Autumn Statement, the Chancellor announced that Class 2 contributions will be scrapped entirely. Mandatory payments are currently set at £3.45 per week. This change will take effect on 6 April 2024, when we enter the new tax year. From 6 April 2024, Class 4 National Insurance contributions will be cut from 9% to 8% on profits between £12,570 and £50,270. Over £50,270, self-employed workers currently pay National Insurance contributions of 2%.
The 2024 Spring Budget further reduces National Insurance contributions for self-employed workers. From 6 April 2024, self-employed Class 4 National Insurance contributions will be cut to 6% on profits between £12,570 and £50,270.
The Chancellor claims that reduced National Insurance contributions will save the average self-employed worker £650. This is when combined with the cuts previously announced in the 2023 Autumn Statement.
Increased VAT Registration Threshold
To reduce the administrative and financial burden of VAT on small businesses, the government will increase the VAT registration threshold. This is the amount of money businesses can earn before you must register for VAT.
Currently, the VAT registration threshold stands at £85,000. Under new plans announced in the 2024 Spring Budget, the VAT registration threshold will rise to £90,000 from April 2024. It is assumed that this change will take around 28,000 small businesses out of paying VAT altogether.
Full Expensing for Leased Assets
From a business perspective, another important announcement in the 2024 Spring Budget relates to capital allowances.
Capital allowances are a form of tax relief which allow businesses to deduct the value of certain items from their profits. This ultimately results in a lower tax bill. Allowances may be claimed on equipment, machinery, and certain business vehicles.
‘Full expensing’ is a first-year capital allowance which allows companies to deduct 100% of the cost of qualifying investments from taxable profits in the year in which the expenses occurred. There is no definitive list of what qualifies for full expensing. However the government’s examples of investments which may qualify for full expensing include:
- Computers, printers and lathes
- Office equipment
- Vans, lorries and tractors, but not cars
- Construction equipment
- Kitchen and bathroom fittings, and fire alarm systems in non-residential properties
The 2024 Spring Budget has added leased assets to the ‘full expensing’ list. Full expensing currently only applies to assets which are purchased by the qualifying business.
Full expensing amounts to around a £10 billion tax cut every year for businesses investing in the UK.
Fuel Duty Freeze
In 2022, Rishi Sunak introduced a temporary 5p cut in fuel duty, which (having already been extended in 2023) was due to finally expire by March 2024.
However, Hunt announced in the 2024 Spring Budget that fuel duty would remain frozen, and the 5p cut would remain in place until March 2025. The Chancellor claims this measure will save the average car driver £50 over the course of the year.
For sole traders who rely on their car for work, the fuel duty freeze is likely to be a welcome measure. Without Jeremy Hunt’s intervention, the reversal of the 5p cut plus an inflation-linked increase could have seen fuel duty hiked by as much as 13 percentage points.
Recovery Loans
Hunt also announced today that the government will commit £200 million of funding to help small businesses invest and grow. This support is effectively an extension of the government’s post-pandemic Recovery Loan Scheme. To be eligible for a loan, UK businesses must have a turnover of £45 million or less, must be viable and must not be in financial difficulty. You can find out more about the scheme at Gov.uk.
In line with the growth-heavy theme of the Chancellor’s 2024 Spring Budget, this initiative is now being renamed the “Growth Guarantee Fund”.
Furnished Holiday Lettings Regime Abolition
The Chancellor also announced that the Furnished Holiday Lettings tax regime will be abolished. The government says abolishing this tax regime will raise £245 million a year – at the same time as making it easier for people to find homes in their communities.
Currently, under the Furnished Holiday Lettings tax regime, rental income from qualifying properties is subject to special rules and provisions – including Capital Gains Tax reliefs and capital allowances. These allowances will be scrapped from April 2025.
