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Budget Day 2025: What Small Business Owners Need to Know

The Budget 2025 as laid out by Chancellor of the Exchequer Rachel Reeves brings crucial tax updates for small business owners, particularly affecting limited companies with a sole director.

Budget day for small businesses has finally arrived, and it is mostly boring apart from the absolute horror show for limited companies with only one director, and no other staff, on the payroll. 

I’ll get to that shortly.

National Insurance Changes for Employers

Tax and employees and self employed UK national insurance is not rising. Which means most of you can rest easy knowing not much has changed. For limited companies, the increase in employers’ national insurance from 13.8% to 15% impacts profitability. 

Capital Gains Tax Increase

Capital gains tax is increasing from April, with the 10% rate increasing to 18%, and the 20% rate to 24%. The rate for second properties is remaining the same. If you have assets you’ve been pondering over selling. 

The personal allowance will start rising again from 2028, but as that’s still years away it’s little comfort for now, but nice to know it’s coming. 

National Minimum Wage Update 2025

National minimum wage in 2025 is increasing to £12.21 from April 2025.

The big news in the employer allowance update is about employers’ national insurance. It’s increasing from 13.8% to 15%, and it will start being paid on earnings over £5,000 instead of £9,100. They say they are offsetting this by raising the employers allowance from £5,000 to £10,500. Employers allowance essentially knocks off that amount from your employers national insurance bill.

Tax Impact on Sole Directors and Limited Companies

But there is one big old hole of misery in this budget update for sole directors. Read on for Limited Company Tax changes. Payrolls that only have a sole director, and no other staff members, aren’t eligible for the employers allowance so will be hit hard by this tax rise. 

Numbers wise this means sole directors will end up paying an additional £1,000 or so in employers national insurance, which is honestly shit. And I don’t usually swear in client coms, but that is the politest word I have for it. 

I am really peed off that the small businesses are taking the battering again with small business taxes. I honestly do think budget makers forget that solo director businesses exist and do so much for the economy. 

Strategy for Sole Directors to Offset Employer Allowance Changes

What strategies to offset employer allowance changes for sole directors of limited companies do we suggest for the sole director businesses, to lessen the sole director tax impact? My slightly unorthodox suggestion is finding someone to add to your payroll for a very token amount per month, over the earnings threshold so you are then entitled to employer allowance. It will have to be someone that does work for the business and you will have to pay them the money. 

I don’t have the exact numbers yet, and for the people this will affect, I will be in touch once we’ve got all the nitty gritty details and can do some number crunching. But honestly, start thinking about who you work with, or like, that can go on your payroll. 

Anything else exciting that is in the small print of the documents released after the announcement, smarter people than me will dig through and pull out, if any of it is important I shall pass the news on, but it feels unlikely for now. 

At least we’ll get 1p off the pints to soften the blow hey. 

Overall, mostly not doom and gloom, just a real kick in the shins for some directors. But for those of you I shall hatch a plan and report back! 

FAQ

  1. “What are the new national insurance rates for small businesses?”
    1.  For limited companies, the increase in employers’ national insurance from 13.8% to 15% impacts profitability. 
  2. “How does the Budget 2025 affect sole directors?”
    1. Payrolls that only have a sole director, and no other staff members, aren’t eligible for the employers allowance.
    2. Sole directors will end up paying an additional £1,000 or so in employers national insurance
  3. “Can small businesses avoid increased national insurance with the employer allowance?”
    1. Find someone to add to your payroll for a very token amount per month, over the earnings threshold so you are then entitled to employer allowance. 
    2. It will have to be someone that does work for the business and you will have to pay them the money. 

For tailored advice on how Budget 2025 affects your business, contact 2 Sisters Accounting today, or book a 30 min call on this link to find out how we can help your small business grow.

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