Sara Davies: Run a business? Here’s what you need to do before this month’s Budget

The Budget is just a few weeks away and there is already plenty of speculation about what might – and might not – be announced. All eyes are on Andy Burnham and Chancellor John Healey as they prepare for the biggest fiscal event of the year. The run-up to the Budget can be a nerve-wracking time for households and business owners alike, who may be wondering what’s in store. British people worry about the Budget almost as much as we worry about the weather. But with nothing confirmed, it’s important not to make any knee-jerk decisions. According to research by the wealth manager Rathbones, some 27 per cent of people surveyed who took their pension lump sum ahead of the 2024 Budget, when rumours were circling that the tax-free lump sum could be scrapped, regretted doing so. The same proportion regretted selling investments to get ahead of an expected rise in capital gains tax. Shorts People often assume that anything announced in a Budget comes into effect the following April, but that isn’t always the case. At the October 2024 Budget, for example, the capital gains tax rises took effect immediately, and the rules included anti-forestalling provisions to catch anyone who had tried to move early. Those who panic sold that autumn ended up paying the new rate anyway, having crystallised the gain, paid the tax early and lost all their flexibility for nothing. But there are a few things that you can do to budget-proof your business while we wait – and most of them are just good general practice anyway. If you employ people For employers, changes to national insurance and national living wage are some of the biggest ones to watch out for. The April 2027 wage is likely to be announced around this Budget and that’s a cost you can plan for. The Low Pay Commission estimates it could rise to between £13.02 and £13.34, from its current level of £12.71. Plan for the top of that range. If you’ve budgeted for that and then it comes in lower, then that’s a bonus rather than a surprise you’ve not accounted for. If you’re thinking about selling your business Anyone considering an exit from their company in the next few years should pay attention to capital gains tax (CGT). The relief you get when you sell your own business, known as Business Asset Disposal Relief, has become less generous in recent years. Those selling their business now pay CGT at 18 per cent, up from 14 per cent a year ago and 10 per cent the year before. That rate applies to the first £1 million of qualifying gains across your lifetime. Anything above that is taxed at the standard rates of 18 or 24 per cent, depending on your income. For anyone planning to sell their business, it’s important not to rush into any decisions. Negotiations can go on for months, or even years, so you don’t want to let fears about a potential tax rise influence what you do. In the worst case, the buyer could even use this as a negotiation technique to get a better deal if they sense you’re desperate to sell before a tax change. Stay calm and stick to the long-term plan. If you’re growing your business As your business starts to grow, there’s suddenly more to think about. The VAT threshold means that once your turnover goes above £90,000, you’ll be liable for the extra tax and this can be a disincentive for companies to grow. As I’ve said before, this is one area I’m hoping will change in the Budget and I’d like to see that threshold raised. In the meantime, I’d encourage business owners not to stall their growth because they’re worried about the tax. Nobody is seriously expecting the threshold to come down at this Budget, so this is one you can plan for as your turnover starts to pick up. Dividend tax has become a bigger concern for many business owners. Ten years ago, you could pay yourself £5,000 in dividends each year tax-free, but the allowance is now just £500. Your accountant and tax advisers are your greatest allies here. Anyone who only speaks to them once a year, or sees them as a necessary evil at tax return time, is doing it wrong. By communicating with them regularly and involving them in key decisions, they will spot things you might not have and be able to proactively suggest ways to run your business more tax-efficiently. And for every business owner Ahead of the Budget, the best thing any business owner can do is work out their base numbers in a spreadsheet based on the current rates for everything. That way, the morning after the Budget, you can easily input any changes and see exactly how it affects you within 10 minutes, rather than waiting anxiously for your accountant to return your call while they’re overrun with enquiries from every other client asking the same thing. We can’t know what the government will announce on 28 October, but Budget-proofing your business doesn’t require a crystal ball. It means understanding your business, knowing which parts of that speech to listen out for, and having all your numbers to hand to work out what it really means for you. “Get your books up to date, then wait and see” might not be the most thrilling piece of advice anyone has ever given you, but I’ve watched an awful lot of business owners spend months worrying about things that have either not materialised or turned out not to affect them, and I’ve watched a few make panicked decisions that they couldn’t undo. The businesses that cope best aren’t the ones who guessed right; they’re the ones who knew their numbers well enough to work out what to do by the end of the week.