Increased employer costs in Budget could pose challenges, warns BDO
Increased costs laid out in Wednesday's Budget, notably from the Class 1 employer's national insurance and the uplift in the minimum wage, could pose challenges for some businesses, according to Paul Townson, tax partner at BDO in the Midlands.
The increase in what employers must pay in national insurance is set to reach 15% from April next year - that's just below the rate after April 2022 when the then Conservative government lifted it to 15.05%.
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This revenue raising move is aimed at bringing in more than £122bn over the next five years.
"Not only has the rate increased, but larger employers who do not qualify for the Employment Allowance will be disproportionately affected," said Townson.
"This is because they will pay the 15% rate on a larger proportion of their employee’s earnings.
"Leaving aside the debate over whether this was a breach of manifesto commitments, employer’s NICs do have the advantage of being very ‘collectable’, with limited opportunities for behaviour change to affect likely receipts.
"Businesses will now have a short window of opportunity to rethink their budgets for the next financial year to take account of this change in employer’s NICs and the 6.7% uplift in the National Minimum Wage.
"Taken together, these increased costs for employers could pose challenges in sectors with high employee numbers and low profit margins – notably businesses in the retail, leisure and hospitality and healthcare sectors."
Townson said these changes could impact hiring decisions, pricing strategies, future investment plans, or even be the straw that "breaks the camel's back".
He also highlighted the significant changes to capital taxes, with an immediate rise in the main capital gains tax rate to 24%, with gains on sales qualifying for Business Asset Disposal Relief currently taxed at 10% moving progressively higher in coming years.
"Expected inheritance tax changes also materialised, with qualifying AIM stock from 6 April 2026 qualifying for only 50% IHT Business Relief after two years of ownership and other assets currently qualifying for up to 100% Business or Agricultural relief only attracting 50% relief on a combined value over £1m from the same date," he added.
"There is therefore a short window of opportunity for those looking to protect family trading business assets from IHT whilst providing for their families."
But on the positive side, Townson said news that the headline rate of Corporation Tax will be capped at 25% for the duration of this Parliament did provide some predictability for businesses.
"There is also a commitment to maintain full expensing and the £1m annual investment allowance. Businesses should also benefit from infrastructure improvements, planning changes and public service investments," he added.
