A financial storm is fast approaching as we enter the new tax year and tax hikes come into play, at the same time the US pulls the lever on import tariffs.
During this period of low domestic growth and slump in consumer spending, businesses must brace themselves for a challenging year, or risk buckling under the weight of soaring labour costs and rising overheads.
We look at what changes are in store for small business owners in the UK as trading conditions grow harsher and the cost of doing business exponentially rises. Chris Lawton, partner at Begbies Traynor Preston, looks at how the playing field is changing for small businesses.
What changes are in store for small businesses this tax year?
The Chancellor of the Exchequer, Rachel Reeves, unveiled sweeping tax rises in the Autumn Budget that directly impact businesses. The tax rises now in play for UK businesses include an increase in Employers’ National Insurance Contributions (NIC), along with changes to the National Living Wage and a reduction in Business Rates Relief.
Employers’ National Insurance Contributions – Employers’ NIC increased from 13.8% to 15%, up by 1.2%. The Secondary Threshold was reduced from £9,100 to £5,000, which increases the burden on employers. To soften the blow and help employers offset the increase, Employment Allowance increased from £5,000 to £10,500.
National Living Wage (NLW) – The NLW increased from £11.44 to £12.21 for adults aged 21 and over. The hourly rate for workers in the 18-20 age bracket increased from £8.60 to £10, and the rates for apprentices increased from £6.40 to £7.55. While this is good news for workers, business owners must factor in the new National Living Wage when revising labour costs for the new tax year.
Business Rates Relief – Business rates relief continues to be available for eligible businesses, albeit reduced from 75% to 40% and capped at £110,000 per business. Business rates are based on a property’s rateable value multiplied by a multiplier value. This multiplier is set to be permanently lowered from the next tax year (2026/27) as part of Labour’s plan to introduce a fairer business rates system.
US Tariffs – The US President, Donald Trump, unleashed import tariffs on businesses to raise revenue through taxes and supercharge the domestic economy in the US in what he dubbed ‘Liberation Day’. This move ignited a global trade war, including retaliatory action from neighbouring countries, such as counter-tariffs. The UK remains poised and hopes to engage in friendly trade negotiations with the US to broker a favourable deal for UK businesses.
Businesses trading in US markets will see operating costs multiply as the 10% tariff on imported foreign goods comes into play (5 April 2025). While the UK is subject to the baseline rate, EU businesses are harder hit as they must pay a 20% tariff on imported goods. Imported vehicles and eventually auto parts are also subject to a 25% tariff, along with aluminium and steel imports.
As small businesses heavily reliant on exporting goods to the US will see costs exponentially rise due to the tariffs, business owners must consider how they will absorb the additional costs and offset the increase.
Responding to changing market conditions and tax rises
Business owners must keep a close watch on company finances to check that they do not become overwhelmed by tax rises. With declining investor appetite and reduced consumer demand, businesses must seek professional insolvency guidance if their business is potentially at risk of insolvency. We look at some of the steps businesses can take to thrive throughout the next tax year and come out ahead of tax rises.
Company restructuring – A licensed insolvency practitioner can help a business shed unnecessary costs by restructuring and streamlining operations. This can help a business operate tax efficiently and save substantial costs in the long run.
Business health check – A health check can forecast whether the business is well-positioned to absorb higher taxes without increasing the risk of insolvency. A health check involves tracking the company balance sheet to check that company assets are in line with or outweigh company liabilities. Company cash flow is also assessed to check that there’s enough cash in the business to meet liabilities when they fall due.
Businesses operating in US markets – Businesses must consider the long-term impact of tariffs on imported foreign goods on their business, and respond by searching for ways to mitigate the rise in costs, such as:
- Streamlining company finances
- Offloading unnecessary financial commitments
- Revising export strategy
- Considering alternative markets
- Increasing investment into the UK domestic market
While the UK hopes to negotiate a deal that’s in the national interest and provides security to UK businesses, business owners must forecast how the tariffs and tax rises will impact their balance sheet over the long term and seek professional insolvency guidance, should they need it, to keep their business on stable ground.
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