Spring Budget 2024: What the announcements mean for your business

The government has proclaimed 2024 “the year of the SME”.

And while its Spring Budget brings some welcome help to small and medium-sized enterprises (SME), it also brings changes that need a swift response.

In this article, we talk about the measures announced by the Chancellor and what they’ll mean for employers and your employees, as well as impacts for those who are self-employed or are limited company owners.

Here’s what we cover:

• National Insurance cuts for workers and self-employed
• High-Income Child Benefit Charge threshold change
• VAT registration threshold increase
• Extension of full expensing to leased assets
• Higher Capital Gains Tax rate cut
• Recovery Loan Scheme extended and renamed
• Furnished holiday lettings regime removed
• Growth Zone gets green light
• Additional announcements
• Views on the Spring Budget
• Final thoughts on Spring Budget 2024

National Insurance cuts for workers and self-employed

The Chancellor believes levying two charges – income tax and National Insurance – on workers is unfair and he committed to eventually abolishing the latter.

As a step towards this, from 6 April 2024, National Insurance will be cut:

• Class 1: From 10% to 8% for employees
• Class 4: From 8% to 6% for self-employed people.

These reductions add to the NIC cuts announced in the 2023 Autumn Statement. Combined, they reduce the National Insurance burden by a third and will save the average worker (earning £35,400) £900 a year and the average self-employed person (on £28,000) £650 a year. However, a self-employed person earning above the higher threshold of £50,270 will save the maximum of £1,310.40 a year.

However, critics highlight analysis showing the government will raise £40bn from freezing personal tax thresholds for a four-year period as announced in the Spring Budget in 2021, and will only give away around £10bn through the latest NIC cuts. Adrian Young, a tax partner at accounting and business advisory firm Hurst, says: “The NI reductions enable the Chancellor to point to eye-catching tax cuts while increasing the actual take for the Treasury.”

As the changes to employee NICs take effect from 6 April 2024, employers have little time to get ready. You’ll need to start working immediately with your payroll and ERP software providers to prepare for the change and talk to your accountant or payroll provider to understand the impact of the changes. Adapting to the NIC cuts could involve software updates, staff training, and other administrative changes and costs. It could be challenging for your staff, especially given their recent hard work on introducing the previous employee NIC reductions. These came into effect in January 2024, also after very short notice. However, a good ERP software provider should be well prepared, reducing the burden on your team. Check they’re making all the necessary changes and you have the latest version of their software.

High-Income Child Benefit Charge threshold change

Parents will welcome the Chancellor’s announced change to the High-Income Child Benefit Charge thresholds from 6 April 2024:

• The threshold for incurring the charge will increase from £50,000 to £60,000
• The upper taper range will rise from £60,000 to £80,000.

Nearly half a million families will gain an average of £1,260 in 2024/25 from this change, says the government. It will also consult on basing the charge on household and not individual incomes, from April 2026, so single parents are not disadvantaged. Gemma Gathercole is the strategic engagement lead, England at the Association of Chartered Certified Accountants (ACCA). She says that, for employed and self-employed parents, the increased thresholds will go some way to reducing this charge’s impact.

VAT registration threshold increase

The VAT registration threshold will rise from £85,000 to £90,000 from 1 April 2024. The Chancellor says this should take around 28,000 businesses out of paying VAT. However, it’s a relatively small rise, especially given the threshold has been frozen for seven years. Had it risen with inflation, it would be over £100,000.

The threshold potentially forces thousands of companies to avoid growth so they don’t have to charge VAT on goods and services. Adam Owens, director of tax at accountants and business advisers Xeinadin Group, says the higher threshold will help ease this distortion. However, he says the Chancellor “should have been bolder with the increase”, to help more companies.

Gemma highlights the “huge compliance burden” that comes with VAT registration, which includes:

• Increased record keeping and accounting necessary to charge VAT correctly on relevant goods or services
• Submission of timely and accurate returns
• Paying the VAT collected to HMRC.

“There will also likely be increased accountancy costs if SMEs cannot keep up with the compliance work themselves,” she adds. However, Rob Jones, founder of RJF Accountants, says this change will make no difference for most of his clients. He says: “We always encourage them to register for VAT so they can claim it back on costs as it helps with cash flow in early stages. If the company aspires to grow, it will eventually hit the threshold and charge VAT anyway, so it may as well get used to that from day one.”

Gemma agrees registering can bring advantages, such as being able to reclaim VAT on costs. However, she emphasises that VAT is a complex area and deciding whether to register requires expert assessment that includes looking at how your business operates, the type of clients, which goods or services you offer, and which regions you trade in.

Extension of full expensing to leased assets

The government plans to extend the valuable full expensing relief on qualifying plant and machinery investments to cover leased assets. However, this extension is subject to further legislation, to be drafted shortly, and won’t happen until “fiscal conditions allow”, says the Chancellor.

Full expensing is an attractive scheme but it doesn’t cover cars and items bought for leasing. Many SMEs lease equipment as it can be more beneficial from a cash flow perspective. So they see the omission of leased assets from full expensing as an anomaly and will hope this change comes quickly.

The British Vehicle Rental and Leasing Association (BVRLA) estimates including leased assets would unlock up to £1bn of additional investment in commercial vehicles. Gemma says that, alongside the VAT change, the commitment to include leased assets in full expensing is the most striking Budget announcement for SMEs as it will allow many more to access the relief. It will also enable businesses to boost productivity by leasing the newest, cleanest and most efficient plant and machinery, she says.

Higher Capital Gains Tax rate cut

The Chancellor will cut the higher Capital Gains Tax (CGT) rate on property from 28% to 24%, effective from 6 April 2024. He hopes this will increase revenue from the tax by encouraging more people to sell properties. This measure will be a welcome boost to landlords and other business owners planning to sell properties.

Recovery Loan Scheme extended and renamed

The Chancellor will extend the Recovery Loan Scheme and rename it the Growth Guarantee Scheme, without changing the terms. The scheme provides government-backed lending to UK businesses for investment and growth:

• Up to £2m in Great Britain
• Up to £1m in Northern Ireland.

The scheme was due to end in June 2024, but will now run until March 2026. This should enable an estimated 11,000 SMEs to access to the finance they need.

Douglas Grant, group CEO of financial services firm Manx Financial Group, says the extension brings hope and encouragement to some businesses. He says SMEs should “take this opportunity to re-evaluate and strengthen their current lending positions, especially given how many are grappling with a lack of external financing”.

Furnished holiday lettings regime removed

The preferential Furnished Holiday Lettings (FHL) Tax Regime will be abolished from 6 April 2025. This aims to level the tax playing field between short term and long-term lets so they are treated the same. Those with FHL and non-FHL properties will no longer need to calculate and report income separately. This could also help simplify Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) reporting.

Growth Zone gets green light

To build on the government’s levelling up agenda, the Chancellor announced a “trailblazer” devolution deal with the North East Mayoral Combined Authority, which will provide new funding potentially worth over £100m. This will include a new Growth Zone to support the region’s ambitions.

Additional announcements

The Chancellor also covered the follow announcement during the Spring Budget:

• HMRC Digital Services investment: The government is working to improve and simplify HMRC’s digital services to support MTD for ITSA taxpayers who want to pay tax in instalments. The changes will be implemented from September 2025.
• HMRC debt management capability investment: The government is investing an additional £140m to improve HMRC’s ability to manage tax debts. This move will expand HMRC’s debt management capacity to support both individual and business taxpayers out of debt faster and collect tax that is due.
• Raising standards in the tax advice market consultation: Publication of a consultation into options to strengthen the regulatory framework in the tax advice market, and on requiring tax advisers to register with HMRC if they wish to interact with HMRC on a client’s behalf.
• Government tax announcements: The government will publish a further set of tax administration and maintenance announcements/consultations on 18 April 2024 (known as Tax Administration and Maintenance Day).
• Alcohol duty freeze: The existing Alcohol duty freeze will be extended until February 2025. This was previously due to end in August 2024.
• Fuel duty: The temporary 5p cut to fuel duty has been extended for an additional 12 months. This cut was due to end on 23 March 2024 and will be extended until March 2025.
• Vaping products duty: Subject to consultation, there will be an introduction of duty on vaping products from 1 October 2026.
• Tobacco duty rise: There will be a one-off increase in tobacco duty from 1 October 2026. This is to ensure vaping is still preferential to smoking.
• Abolishment of Multiple Dwellings Relief: A bulk purchase relief in the Stamp Duty Land Tax regime, this will be effective from 1 June 2024.
• Abolishment of the tax rules for non-UK domiciled individuals (non-doms): These will be replaced with a residence based regime. This change has been designed to ensure all UK residents who stay in the UK for more than four years pay the same tax on their foreign income and gains, no matter what their domicile status is.
• New UK ISA: This new category of ISA, for which funds will only be invested in UK based funds, will have a £5,000 allowance. This is in addition to the existing £20,000 that can be subscribed into an ISA. The implementation date is still to be confirmed. The government will consult on the details in due course.

Views on the Spring Budget

The SME sector welcomes Spring Budget measures such as the:

• Increase in the VAT threshold
• Cut to self-employed National Insurance contributions (NICs)
• Extension of the Recovery Loan Scheme (RLS)
• Pledge to extend full expensing to leased assets in the future.

But given the tough environment of low economic growth, rising costs and stubbornly high interest rates, some businesses feel underwhelmed. Gemma Gathercole at ACCA says: “There are positive steps, but confidence among UK smaller business is subdued and they were hoping for more. While we’re pleased to see steps like addressing the VAT threshold, changes are necessary in several other places.”

These include removing threshold freezes on income tax and dividend allowances, which should bring far more people into work, she says. “We are concerned about frozen thresholds, which can be an artificial barrier to growth for smaller firms,” adds Gemma.

In contrast, Adam Owens at Xeinadin Group says the Chancellor’s announcements were surprisingly positive. “The Chancellor went further than he did in his Autumn 2023 Statement in supporting SMEs,” he says. “A further £200m directly targeted to small businesses through the RLS will provide some welcome finance.”

Rob Chedzoy, tax partner at South West-based accountancy firm Milsted Langdon, was downbeat about the impact of the Spring Budget on limited company owners. “Lower NICs are great for individuals, but there was no such relief for hard-pressed employers who continue to be left behind,” he says.

Adam says limited company owners may even want to reconsider their remuneration strategy. Owners have favoured dividends, which aren’t subject to National Insurance, and are taxed at a lower rate than salary, says Adam. However, the NIC reductions and corporation tax hikes introduced in 2023 have altered the balance. “It may now be more efficient to take salaried income, particularly for higher earners,” says Adam. “This will depend on several factors and you should seek professional guidance.”

Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), adds: “It’s difficult to overstate how tough the last few years have been for many directors. “FSB campaigned for a Directors Income Support Scheme that secured cross-party support, but the government at the final stage did not adopt this, putting many livelihoods at risk. Those who work for themselves through a limited company do not benefit from the change to NICs.”

The government must back everyone who works for themselves, including limited company owners, she says. “There are numerous options to help more small business owners, including increasing the small profits rate threshold to effectively lower corporation tax, and cancelling or delaying cuts to the dividend allowance,” adds Tina. "It’s crucial we get further help for this group to turn the economy around.”

Final thoughts on Spring Budget 2024

The Budget’s NIC cuts bring good news for workers and self-employed people. And the extension of the Recovery Loan Scheme will be a lifeline for many of the 11,000 companies it affects. But beyond that, help for the owners of the five million-plus SMEs who drive the British economy seems limited.

The key actions for SMEs now are to:

• Quickly update your processes in preparation for the new NIC and VAT regimes, and any other changes that impact your business.
• Speak to an accountant to assess how these changes will affect your business.
• Check your software provider is ready for any upcoming changes.
• Communicate with your employees about any changes affecting them. In particular, you’ll need to let them about the impact of NIC reductions, and help avoid confusion given the previous changes to contribution rates in January.

The Chancellor has announced many new measures and might cover even more before the forthcoming General Election in the UK. The more preparation you can do now, the smoother the changes for you and your business.

Is your organisation ready for the impact that the spring Budget has made to the world of work? For an in-depth look at the budget and how it will affect your business, join us at Reed, Northampton on 11 April for an insightful seminar event. In collaboration with Hawsons Chartered Accountants and Reed Recruitment, we explore the spring Budget alongside how to enhance business connectivity and security in the modern workplace. Register today!