business

Increased Costs Could Pose Challenges For Some Businesses, Warns BDO

Image by Bárbara Cascão from Pixabay

Commenting on today’s Budget, Liam O’Doherty, head of tax at BDO in the North West, commented:

“Today’s Budget announcement was all about ‘short term pain for long term gain’ with one big money raiser and dozens of other smaller but significant changes to tax rates and reliefs.

“The big revenue raiser was the rise in Class1 employer’s national insurance which is set to reach 15% from April 2025.

“This is just below the rate in force after April 2022 when the then Conservative Government increased the main rate to 15.05% due to the introduction of the Health and Social Care Levy – a measure that was subsequently reversed at the mini-Budget of September 2022.

“While this rise was widely trailed pre-Budget – possibly as a means of getting the bad news out early – it will have a significant impact on business as it is designed to bring in more than £122bn over the next 5 years.

“Not only has the rate increased, but larger employers who do not qualify for the Employment Allowance will be disproportionately affected. This is because they will pay the 15% rate on a larger proportion of their employee’s earnings.

“Leaving aside the debate over whether this was a breach of manifesto commitments, employer’s NICs do have the advantage of being very ‘collectable’, with limited opportunities for behaviour change to affect likely receipts.

“Businesses will now have a short window of opportunity to rethink their budgets for the next financial year to take account of this change in employer’s NICs and the 6.7% uplift in the National Minimum Wage.

“Taken together, these increased costs for employers could pose challenges in sectors with high employee numbers and low profit margins – notably businesses in the retail, leisure and hospitality and healthcare sectors.

“For some businesses, these changes may impact hiring decisions, pricing strategies and future investment plans. For others already in financial distress, this change may be the straw that breaks the camel’s back.

“In more positive news for business, the corporate tax roadmap published today does provide some predictability, with confirmation that the headline rate of Corporation Tax will be capped at 25% for the duration of this Parliament. There is also a commitment to maintain full expensing and the £1m annual investment allowance. Businesses should also benefit from infrastructure improvements, planning changes and public service investments.”