Insolvency experts are warning that insolvencies will rise over the next 12 months.
In particular, the government’s cost increases to the minimum wage and national insurance contributions will prove tough for retailers and the hospitality sector.
During November 2024 there was an increase of insolvencies by 13% compared to the month before, according to the Office for National Statistics.
R3, the UK’s insolvency and restructuring trade body predicts the December period will either be a “lifeline or the tipping point” for a number of businesses - especially those in the retail and hospitality sectors, who have had a challenging year of continued rising costs coupled with cautious customer spending.
R3 says that the changes to employer National Insurance and National Minimum Wage being introduced in April, the next three months will be critical for firms in these industries and others as they work out how they will manage the impact this additional cost will have on their finances.
The key insolvency-related takeaways from October’s budget were:
Rise in employers’ National Insurance and Minimum Wage
Rachel Reeves announced that the amount businesses will pay on their employees' national insurance contributions will increase from 13.8% to 15% from April 2025.
She also lowered the current £9,100 threshold employers start paying national insurance on employees' earnings to £5,000, in what she called a "difficult choice" to make.
The Chancellor also increased the minimum wage for those aged 21 years and over by 6.7% to £12.21 with effect from April 2025 - with pay for those aged 18 to 20 set to go up by 16.3% to £10 an hour.
Covid corruption commissioner
Rachel Reeves confirmed the appointment of a Covid corruption commissioner to examine Covid-related fraud.
The Chancellor said: “That money belongs in our public services, and tax payers want that money back.”
In December 2024, Tim Hayhoe was appointed as Covid Counter-Fraud Commissioner and will work with HMRC, the Serious Fraud Office and the National Crime Agency to examine an estimated £7.6bn worth of fraud.
Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR) changes when closing a solvent limited company
An increase in CGT means tax liabilities when liquidating a solvent limited company are subject to increase from April 2025, along with the rate of CGT available under BADR.
CGT rates for Members’ Voluntary Liquidations will rise from 10% to 18% (lower rate) and 18% to 24% (higher rate).
BADR rate will increase from 10% to 14% in April 2025, and 18% in April 2026; lifetime cap remains at £1 million.
Business Rates
The Chancellor confirmed that the 75% discount to business rates which is due to expire in April 2025 will be replaced by a discount of 40% - which applies up to a maximum £110,000 per business. This will see business rate bills for companies almost double.