Adrian Young, a tax partner at independent accounting and business advisory firm HURST, looks ahead to 2025 and what may be in store for business owners.
Now that the implications of Rachel Reeves’ October Budget have started to sink in, regional employers are looking at the economic outlook for 2025, and what this means for them.
As a reminder, there were a number of key tax-raising measures announced a couple of months ago. These included a significant increase in employers’ national insurance contributions, and wide-ranging changes to capital gains and inheritance tax.
It will not come as a surprise to hear that the changes have not been received well among the local business leaders we speak to.
The biggest concern I am hearing relates to the national insurance rate increase for employers.
Businesses have been looking at ways to offset this, but unfortunately none of the solutions is palatable.
For example, some are looking to cut costs, either through reduced employment or by cutting back on discretionary spend. Others are looking to increase prices to customers.
Either way, these are unwelcome developments at a time when household budgets are under strain, and it also brings further pressure to cut back on recruitment.
For employers, it comes with the double whammy of record increases in the national minimum wage announced in the same week as the Budget.
On a standalone basis, a hike in national minimum wage levels is laudable, but employers have to fund this alone, meaning this only adds to the pressure when combined with growing national insurance contributions.
The changes to the inheritance tax rules have been widely and very publicly criticised.
The main cause of worry is from entrepreneurs who have grown their businesses, often over many years, with a view to passing them on to family members through their will.
The changes to the business and agricultural inheritance tax relief rules now mean that, whereas such transfers were previously tax-free, broadly from April 2026 any value over £1m will be subject to a 20 per cent tax rate on death.
This is a significant development, and it relates to both business assets such as shares and to agricultural assets such as farmland and buildings.
Owners have a little time to make plans, but it’s fair to say that these changes came as a major shock to those impacted.
A third area of concern that business owners are talking about is the increase in capital gains tax rates.
Before the October Budget, these rates were as low as 10 per cent for the first £1m of gains on qualifying assets such as shares in trading businesses, with the headline rate being 20 per cent.
The lower rate will now increase to 14 per cent from April 2025, with the higher rate increasing to 24 per cent with effect from the October Budget.
All these tax rises were necessitated by the fact that the incoming Labour government put hard red lines around income tax and VAT, which left them little room for manoeuvre when the £22bn ‘black hole’ was found in the public finances.
This inevitably led to a variety of minor taxes such as inheritance tax and capital gains tax finding themselves in the crosshairs, along with the much bigger tax grab associated with the increase in national insurance.
All that said, the employers I work with are nothing if not tough.
Clearly there are imponderables in the mix, not least the impacts of President Trump’s second rodeo.
So, whereas it is harsh that employers have to bear the brunt of additional spending requirements, the message I’m hearing most is that, despite it all, they are looking forward to 2025 with a degree of confidence in the resilience of the businesses they lead.”
HURST, which has offices in Stockport and Manchester, focuses on advising entrepreneurial owner-managed businesses across all sectors. Clients include Kinaxia Logistics, M&I Materials, Beechfield Brands, Duerr’s, Oliver Valves, Lancashire County Cricket Club, Krones UK, Creamline Dairies, Scapa Group and Hyde Group.