Budget reflection through the eyes of business by Denise Walker, Managing Partner - Glenville Walker

This week’s Budget tells us one thing clearly – business owners need to plan for a prolonged period of fiscal drag and mounting cost pressures.  

The headline story isn’t what changed, it’s what didn’t. Employers’ National Insurance stays at the increased rate from last year’s Budget – that 15% rate and £5,000 threshold we’ve been managing since April. But the income tax threshold freeze extending to 2031 means more business owners will be pulled into higher tax bands as their salaries rise, even if they’re just keeping pace with inflation.  

Also, by raising minimum wage (yet again) the government increases its tax and NI contributions from both the employer and the employee whilst portraying itself as ‘working people’ focused.

What matters most for owner-managed businesses is understanding the cumulative effect. Last year’s NI increases are still feeding through to wage costs and we have seen an increased number of insolvencies possibly as a result of this together with a drop in job availability in the general marketplace. Neither of those two things promote growth for obvious reasons.  

This year’s tax threshold freeze means the salary-dividend balance for business owners may come into sharper focus. The new council tax surcharge on high-value properties affects business owners who’ve built wealth through property investment. Also, it will encourage wealthier people who can go offshore, to go offshore.  

The Cash ISA cap dropping to £12,000 per annum from April 2027 (for those under 65 years of age) changes the planning conversation for business owners looking to build personal tax-efficient reserves outside their companies.  

This may course a shift in thinking towards stocks and shares ISAs but, can the current financial climate be considered stable enough for investments of this nature, which are being encouraged by the government, or, could a stock market crash be on the cards?  

Business owners may consider putting more money into their pensions, but the IHT changes made in the last Budget, makes funding pensions at a high level less attractive, if you ultimately wish to leave substantial wealth to your children. Even pension contributions through salary sacrifice have been capped to £2,000.00 per annum.  

Here’s what’s actually helpful: the continued freeze on fuel duty benefits businesses with distribution costs, and the business rates relief for smaller hospitality and retail operations provides genuine breathing room for those sectors.  

The OBR’s downgraded productivity forecasts and higher inflation predictions mean we’re looking at slower growth and continued cost pressures. Business owners can’t control macroeconomic trends, but they can control how they respond.  

Our view is that business owners should start to review their remuneration strategy now that they understand the tax landscape through to 2031. They will be best pleased to look at their investment and saving structures – the ISA changes give them 18 months to adjust. If any business owner is planning an exit or succession, they should factor in that the wider economic picture suggests sustained caution from buyers and investors.  

Generally, there isn’t much in the Budget to help business owners and it seems all of the lob in undertaken by business owners has fallen on deaf ears. The government was elected on the basis of its ‘growth plan’ and there was a lot of talk about growth in the initial phases. Basically, what they have done is stifle growth and are continuing to do so. At the same time, they have increased public spending without any regard to restructuring the massively inefficient mammoth enterprises that waste vast amounts of taxpayer’s money on a daily basis. If those entities were private entities, they would have been restructured a long time ago, but we seem to be ignoring the elephant in the room.  

The Government has always stated that it will look after “working people” but it seems to me that owners of businesses are not classed as working people. It is ridiculous to treat them as other than working people because most smaller businesses were started by one or two individuals who worked very hard to achieve success and in achieving that success, they created jobs for many others.  

The majority of the Country’s businesses are smaller businesses (I think it is about 98%) and these should not be overlooked by the Government as they are the backbone of the UK economy.  

This wasn’t the dramatic Budget some feared, but it seems it’s cemented a reality owner-managed businesses have to accept, higher taxes, frozen thresholds, and slower growth are the environment we’re operating in. Success will come to those who adapt smartly.