Announced the day before Halloween, the Autumn Budget was expected to spook businesses with the rumours circulating in the weeks before about tax rises and a hike to Employers’ National Insurance.
But was it a Budget full of tricks rather than treats for the Welsh economy?
From discussions with my clients, it is clear that the main concerns of business owners are the changes to the National Insurance system. This, together with the announced minimum wage increases are causing major concern.
The changes to the NI system are summarised as:
- An increase in the employers’ NIC rate from 13.8% to 15%
- A decrease to the threshold at which an employer starts to pay NICs on each employee’s salary (the ‘secondary threshold’) from £9,100 to £5,000.
These changes are undoubtedly a blow to some businesses and, indirectly, to their employees. When combined with the increased National Minimum Wage (NMW) and the potential costs associated with employment law reforms, these measures are likely to stretch employers' wage budgets. Potentially this could lead to a reduction in investments in people, a decision many businesses would normally consider.
There is some relief for the smallest businesses, as the Employment Allowance will increase from £5,000 to £10,500. Notably, the Employment Allowance has only been available to businesses with an employers' Class 1 NICs liability of less than £100,000 in the previous tax year. This restriction is to be lifted for the 2025/26 tax year.
The retail, hospitality and leisure sectors in Wales will be somewhat relieved that the business rates discount has been extended. The Welsh Government will announce their policy on this in the Welsh Budget. Hopefully, this is an indication that this measure will remain in Wales.
The annual investment allowance has been maintained, assisting businesses to plan their capital investment in growth.
A significant change in Business Asset Disposal Relief was anticipated ahead of the Budget. Professional service firms across Wales were reporting a busy period before the Chancellor’s speech. This was mainly due to business disposals being accelerated for fear of what may be announced. Changes were in fact included in the Budget but were not as severe as many anticipated.
The changes announced for this relief was an increase to 14% in April 2025 and to 18% from April 2026.
There were also increases in the capital gains tax rates, increasing to 18% and 24%. Whilst the impact will be felt by those making a gain, as above, this was not as bad as the speculation ahead of the Budget.
The freezing of inheritance thresholds does mean that more people will now get caught up in this tax. This is certainly something that people need to give some careful consideration to. Spending the time to plan and calculate now will ensure wealth is transferred to descendants as efficiently as possible.
At each end of the scale, two groups of people in Wales who received significant news were former coal miners and farmers.
At one end of the scale, former coal miners will be eager to learn how the announcement will affect their pocket as the Government committed to pay money that had been kept from their pension pots since the privatisation of coal in 1994.
On the other end, the reforms to Agricultural Property Relief and Business Property relief will be a worry for farmers. Typically, there could be a high value of capital involved in a farm business, but the actual return on capital and cash generated to fund tax bills is extremely limited. There is a concern about the long-term impact on farming and the potential break up of family businesses passed down through generations. With the importance of this industry in Wales and the UK, I am not surprised that this announcement has not been met with widespread support.
As with all measures the longer-term impact will also be determined by how effective the tax spend is implemented. Further money was allocated to the Welsh Government, and how this is invested will have a great impact on Welsh businesses and the economy. Welsh businesses will be keeping a close eye on the upcoming Welsh Budget to fully evaluate their future prospects and plans.
