Now that the dust has settled on what was widely acknowledged as the most dramatic budget in years, we take a look at the impact one of the headline statements will have on businesses.
Rachel Reeves Autumn Budget was nervously anticipated by a great many people, and while the actual changes were not quite as seismic as predicted, the Chancellor certainly delivered a number of potential body blows to business owners.
The facts are quite simple, but the implications could be far reaching.
In 2025/26 the threshold on employee earnings at which NI applies will drop from £9,100 to £5,000 and the rate of NI will increase from 13.8% to 15%
This means that employers will have to pay an additional £770.00 in National Insurance Contributions for each minimum wage worker, or an extra £900.00 for median wage earners.
Small businesses will however benefit from a doubling of the Employment Allowance to £10,500, a move which offers some protection from the increase in costs.
Larger businesses have no such shield, and in many cases increased costs will inevitably lead to some tough decisions, particularly about workforce size, and of course, the possibility of covering any shortfall with product and service price increases.
Whatever size of business you own or operate, it is vital to be looking at your cash flow and profit projections straight away, there will be short and long term implications to consider, and as always we urge you to ‘know your numbers’.
And it is not just NI that you need to factor in, if for example you have a lot of employees on the National Minimum Wage (NMW), or National Living Wage (NLW), you will have to take into account the increase to £10.00 per hour and £12.21 per hour from April next year.
We need to talk about Salary Sacrifice.
Also referred to as Salary Exchange, this system allows employees to divert part of their pre-tax salary to other benefits, such as pensions.
The benefits to employees include a potential increase in take home pay, and a boost to pension pots, while higher earners could avoid moving into a higher income tax band.
The latest model shows that a business employing 10 people on an average salary of £35,000 will reduce their potential NI increase by around two-thirds.
How we can help
Signpost Financials can prepare Cash Flow forecasts that will keep you in control of your business finances, help you to make decisions about costs and what you need to be charging for your products, or services.
Running a business is rarely easy, even without changes in legislation. Our team can’t cover a shift, stack a shelf, drive a van, or build a wall for you. But what we can do is give you the confidence to make business decisions based on facts, and we are always here to help.
That’s what we do.
A friend of ours recently received a letter from his bank, it concerned changes to his business account tariff, and how, apart from a very slight increase in charges, his monthly fees were ‘likely to be around the same as they are now’.
Fairly standard content you might think, but enclosed in the envelope was a beautifully produced 8 page document, that explained in great detail the mechanics behind the letter, a letter that barely said anything other than not much is changing.
I should point out here that we did ask why our friend was not using online banking, but more of that shortly.
The 8 page, full colour document was printed on lovely shiny paper, it was a thing of beauty, an A4 symphony of jargon, gobbledygook, long words and abbreviations, a masterpiece of form over function.
Now, please do not misconstrue the purpose of this blog, I am not criticising the bank at all, I understand completely the reasons for the document, it really is important stuff and whilst the expression ‘2.75% non-Sterling Transaction Fee’ might not get your pulse racing, there may well be occasions when this little fact is vital to know.
The first reason that I mention this letter, and the booklet that accompanied it, is to say that’s why we are here. We keep an eye on this kind of thing so that you don’t have to, if there is something that you receive through the post, or more likely via email, please just send it to us, and we will explain its importance, or otherwise.
The second, and to my mind, most important point that I would like to make is that this letter is typical of the way that the financial industry works, in fact it sometimes must look like we are communicating in a way that is deliberately designed to confuse ‘outsiders’.
In fairness, that really is not the case, there are certain words, expressions, acronyms, and terms that financial professionals use to remove any element of confusion when we communicate with each other, it is a little bit like our own private language.
But, and it’s a really big but, this is not the way that we should be communicating with our clients.
Here at Signpost Financials we remove the jargon, and take time to answer questions properly, in a clear and unambiguous way. Our reports are laid out in a manner that suits our clients, and they know that if there’s a single word, or expression that they are not comfortable with, we will change it, or explain it.
Finally, I said that I would say a few words about why our friend does not use online banking. It’s because he doesn’t want to, it’s as simple as that, and it is his absolute right to choose the way that he communicates, after all, as granny used to say ‘if we all liked the same things, everyone would be after your grandad’.
