Small and medium-sized enterprises (SMEs) form the backbone of the UK economy, contributing to employment and economic growth. But tax changes can have a major impact on their financial health, cashflow and long-term planning – and several changes have been recently enacted. Let’s go over some of them.
National insurance changes
In her Autumn Statement last year, Chancellor Rachel Reeves announced changes to national insurance (NI), a type of tax originally designed to fund socialised healthcare.
First, employer NI contributions will rise from 13.8% to 15% from April 2025, while the point at which businesses pay the tax will decrease from £9,100 to £5,000. This has the dual effect of dragging more businesses into paying employer NI contributions, while increasing the amount of money due.
However, employment allowance – the scheme that allows them to reduce their NI liability – will increase from £5,000 to £10,500, removing some of the sting of the rate rise, especially for small businesses.
Corporation tax
In her Autumn Statement, Reeves pledged stability and “business certainty”, announcing that the main rate and lower rate of corporation tax will remain the same.
However, far less discussed is how corporation tax now impacts associated companies – corporations that are controlled or influenced by another.
Before corporation tax was split into two rates, associated companies faced the same rate, so the rules were simple. Now, however, the two thresholds are divided by the number of associated companies in a group, meaning that some companies may end up paying at the top rate (25%) even when profits are below the threshold (£250,000).
Capital gains tax rise
Capital gains tax (CGT) is the tax paid when you sell, gift or swap an asset that’s increased in value. The main changes to rates of CGT will be for disposal of assets on or after 30 October 2024 from 10% to 18% for lower-rate taxpayers, and 24% and 28% for higher-rate taxpayers. CGT on residential property remains 24% and 28% for lower- and higher-rate taxpayers respectively.
VAT
The VAT threshold increased from £85,000 to £90,000 in April 2024, meaning that fewer businesses are required to register for the tax or deal with complex tax returns.
Alcohol tax
Pubs, restaurants and retailers selling alcoholic drinks need to know about some changes to alcohol duty that will be introduced from February 2025.
First, the duty rate on non-draught alcohol, including wine, spirits and bottled or canned cider and beer, will increase in line with retail price inflation (2.7% as of September 2024).
However, the duty on draught alcoholic drinks will be cut by 1.7%, which Reeves said will see “a penny off a pint in the pub”. So, some good news for pubs.
R&D tax relief
Alongside the other headline changes, SMEs should keep an eye on upcoming reforms to R&D tax relief. Traditionally, the SME scheme offered generous incentives to spur innovation, but adjustments to rates and eligibility criteria from April 2024 may tighten the benefit for some. This could mean smaller tax credits or a more stringent claims process, impacting everything from cashflow planning to the viability of research projects. That said, businesses able to refine their R&D strategy and maintain robust record-keeping can still leverage the relief to substantially reduce their taxable profits. If innovation is at the heart of your growth plan, it’s essential to stay informed about these changes – and to adjust your approach accordingly to ensure you don’t miss out on valuable support.
Wrapping up
Whether you’re planning for higher national insurance bills, reconsidering your corporation structure or navigating capital gains tax, it’s clear that staying on top of these changes will be key to protecting your bottom line. While the latest reforms bring fresh challenges, they also present opportunities for savvy SMEs – particularly around allowances and thresholds. The most important step you can take is to review your tax position sooner rather than later, so you can manage each shift proactively and keep your plans on track.
Thank you for reading our blog post. Get in touch with us for tax advice.