Stormy times ahead for British Business

The first Budget in fourteen years to be delivered by a Labour Government had long been hovering over British business like a dark cloud, since its announcement at the end of July. And whilst I was, perhaps naïvely, hopeful for a silver lining (isn’t every cloud supposed to have one?), or, failing that, nothing worse than a passing shower, the forecast now seems much bleaker than I anticipated… I now appreciate how Michael Fish must have felt in 1987!

Whilst a number of the measures announced yesterday by Rachel Reeves had already found their way into the public domain in advance of her speech, something for which the Chancellor and her Party were publicly chastised by the Deputy Speaker of the House, the Budget (and its fine print) still managed to deliver a number of unwelcome surprises.

Prospering family businesses, built-up through generations by hard work and determination, and which form the backbone of the UK economy and the foundation of local communities, were attacked from all angles by changes to Employers’ NICs, Inheritance Tax and the reclassification of certain vehicles for tax purposes. The effect of these new measures will be widespread indeed, with the impact likely to be felt most acutely by the agricultural sector.

Employers’ NICs

An increase in the rate at which employers pay NICs on the earnings of their staff, from the current rate of 13.8% up to 15% from April 2025, came as no real surprise and would, in all likelihood, if announced in isolation, have been reluctantly accepted by business owners as a necessary measure towards plugging the much talked-about economic ‘black hole’. However, when coupled with the unexpected slashing of the annual earnings threshold at which employers’ NIC becomes payable, from £9,100 down to £5,000, these reforms mark a significant increase in the cost of employment for business.

Consider a small company with ten employees, each of whom are paid an annual salary of £20k – even after taking into account the newly announced increase to the employment allowance and factoring in the effect of Corporation Tax relief, these measures will cost the employer an additional £147 per employee per year. Scale this up to a company employing 100 members of staff, at the same salary level, and the additional burden on the employer soars to £481 per employee per year.

For businesses operating in sectors such as hospitality, cleaning, and the care sector, which typically employ large numbers of lower-paid staff, the impact of these measures will be exacerbated further by significant increases to the National Living and National Minimum Wages.

Inheritance Tax

Whilst there were no changes to the headline rates of IHT announced in yesterday’s Budget, the Chancellor informed us of significant amendments coming to the operation of both Business Property and Agricultural Property Reliefs from April 2026.

100% BPR and APR will, from that date, be restricted to the first £1m of assets, with assets valued above that amount then only attracting relief at 50%, effectively resulting in liability to IHT at 20% on qualifying business and agricultural assets that previously would have escaped charge altogether.

These liabilities could be eyewatering for family companies that have not extracted their profits over the years in order to facilitate investment and growth of the business, not to mention farming businesses with significant value tied up in land. The question remains as to how these liabilities can possibly be funded without the need to either extract significant funds (incurring a further charge to Income Tax on the shareholders and curtailing investment in the business), or to sell all, or a substantial part, of the business.

Double-cab Pick-ups

Those of us able to cast their minds back to the halcyon days of February this year, may recall a brief flurry of what passes as excitement in the tax-world, when HMRC updated their guidance on the tax treatment of double-cab pick-ups, stating that  from 1 July 2024, DCPUs with a payload of one tonne or more would be treated as cars, rather than goods vehicles, for both capital allowances and benefit-in-kind purposes. Less than a week later, following outcry from farmers and the motoring industry, the guidance was withdrawn pending government consultation.

Now, fast-forward to 30 October and the publication of the detail behind Reeves’s Budget… whilst no mention of DCPUs was, to my recollection, made in the speech itself, contained in the ‘Overview of tax legislation and rates’, published on HMRC’s website immediately following the Chancellor’s commendation of her Statement to the House, was confirmation that HMRC is now updating guidance to ‘clarify the position’ in respect DCPUs, such that, from April 2025, they will definitively be treated as cars, which will see a significant reduction in the capital allowances that businesses are able to claim on their purchase and a considerable hike in the employment taxes suffered by employees to whom they are provided.

It’s all really rather depressing, and I haven’t even mentioned Capital Gains Tax!