The Most Consequential Budget in Years
The Autumn Budget of 30 October 2024 was significant not just in scale but in composition. Budgets typically contain a mixture of measures that affect different groups; this one was unusual in concentrating its business impact on two specific areas: employment costs (through employer NIC) and capital disposals (through CGT and BADR changes). For founders and finance leaders at growth-stage companies, both areas require immediate action.
This article covers the three measures that matter most for founders: the employer NIC changes taking effect from April 2025, the CGT rate increases that took immediate effect on 30 October 2024, and the BADR changes that phase in from April 2025 onwards. Each section provides the specific rates, worked examples, and a clear action list.
Employer NIC: The April 2025 Changes
The Budget confirmed three changes to employer National Insurance Contributions, all taking effect from 6 April 2025:
- Rate increase: Employer NIC on earnings above the secondary threshold rises from 13.8% to 15.0%.
- Secondary threshold reduction: The secondary threshold — the level of salary above which employer NIC is charged — falls from £9,100 to £5,000 per annum. This means employer NIC is now due on a larger portion of each salary.
- Employment Allowance increase: The Employment Allowance, which offsets the first portion of employer NIC liability for smaller employers, rises from £5,000 to £10,500. This provides partial relief for companies with small payrolls.
The combined effect of the rate increase and the threshold reduction means that the cost of employing each member of staff increases materially for salaries above £5,000 per annum — which is effectively all salaried employees. The Employment Allowance increase partially offsets this for smaller employers, but companies with more than approximately four or five employees will face a net cost increase.
Worked Example: Cost Impact Per Employee
For a company with 30 employees at an average salary of £50,000, the incremental employer NIC cost from April 2025 is approximately £33,000 per annum, after taking account of the Employment Allowance increase. For a company with 100 employees at £50,000 average, the incremental cost is approximately £110,000 per annum. These numbers need to be in the 2025 budget and in the financial model presented to investors.
Capital Gains Tax: Immediate Rate Increases
The CGT changes announced on 30 October 2024 took effect immediately — from the date of the Budget announcement itself. This was unusually swift; most CGT changes are announced with an implementation date that allows taxpayers to arrange their affairs. The immediate implementation reflects HMRC's desire to prevent a rush of disposals at the old rates in the window between announcement and implementation.
The changes to CGT rates on non-residential assets are as follows:
Note that residential property CGT rates were not changed: they remain at 18% (basic rate) and 24% (higher rate), which is now the same as the rate on non-residential assets. The previous disparity between residential and non-residential rates no longer exists.
Carried interest — the profit share received by private equity and fund managers — rises from 28% to 32% from April 2025, with a further change potentially subjecting it to income tax from April 2026 (subject to further consultation). This is a significant change for founders who have received or expect to receive carried interest from VC funds as co-investors or advisers.
BADR: The Phased Rate Increase
Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief, allows qualifying shareholders to pay CGT at a reduced rate on gains from disposing of qualifying business assets. BADR is critically important for founders who have held shares in their own company for at least two years — it is typically the most valuable single tax relief available to them at exit.
The Budget announced a phased increase in the BADR rate:
- Until 5 April 2025: BADR rate remains at 10%.
- From 6 April 2025: BADR rate rises to 14%.
- From 6 April 2026: BADR rate rises to 18% (aligning with the new standard basic rate CGT).
The lifetime limit of £1m in qualifying gains remains unchanged.
The practical implication for founders who are considering an exit, a secondary sale, or an exercise of EMI options with a subsequent disposal is that the timing of the disposal has a direct impact on the tax rate applicable. A founder disposing of shares before 6 April 2025 pays 10% BADR on qualifying gains. A disposal after 6 April 2025 and before 6 April 2026 faces 14%. A disposal after 6 April 2026 faces 18%.
A founder sells qualifying shares with a gain of £800,000.
Disposal before 6 April 2025: BADR at 10% = £80,000 tax. Net proceeds: £720,000.
Disposal between 6 April 2025 and 5 April 2026: BADR at 14% = £112,000 tax. Net proceeds: £688,000.
Disposal after 6 April 2026: BADR at 18% = £144,000 tax. Net proceeds: £656,000.
The difference between disposing before April 2025 and disposing after April 2026 is £64,000 on an £800,000 gain — entirely attributable to timing.
"The BADR rate increase is not a small adjustment. For a founder with a £1m qualifying gain, the difference between disposing before April 2025 and waiting until April 2026 is £80,000 of additional tax. This warrants active planning, not passive observation."
EMI Options: Timing Matters
Enterprise Management Incentive (EMI) options are the primary equity incentive mechanism for growth-stage UK companies. Employees exercising EMI options and subsequently disposing of the resulting shares can benefit from BADR if the qualifying conditions are met (including the two-year holding period measured from the date of grant in some cases).
The BADR rate increase creates an incentive for employees and founders who have outstanding EMI options with a favourable exercise price to consider exercising before April 2025 and, where the two-year holding period is met, disposing of some shares before the same date. This is particularly relevant for companies that have received acquisition approaches or where a secondary market for shares exists.
Finance teams and advisers should review the option register for any outstanding EMI grants where: (1) the exercise price is below current fair market value; (2) the two-year BADR qualifying period has been met; and (3) liquidity exists for a disposal. For each such grant, a personalised tax analysis for the optionholder is appropriate.
Salary vs Dividend Planning
For founder-directors who pay themselves a combination of salary and dividends, the employer NIC increase changes the optimal split. The traditional structure of a low salary (at the NIC secondary threshold) plus dividends from retained profits becomes marginally less attractive as the threshold falls from £9,100 to £5,000, increasing the minimum salary that triggers employer NIC.
Specifically: founder-directors who have been drawing a salary of between £5,000 and £9,100 per annum (below the old secondary threshold) will now have employer NIC to pay on that salary band from April 2025. The annual cost is modest at these salary levels — 15% of (salary minus £5,000) — but the threshold change should prompt a review of the optimal salary level. For most founder-directors, the optimal salary in 2025/26 remains somewhere around the primary threshold (£12,570 in 2024/25) or the personal allowance, with dividends for additional income, but the precise calculation depends on individual circumstances.
This is a personalised tax planning question that requires individual advice from a qualified tax adviser. The role of the CFO in this context is to flag the change, ensure the company's payroll is updated for April 2025, and prompt founders to review their arrangements with their personal tax advisers.
Key Takeaways
- Employer NIC rate rises from 13.8% to 15% and the secondary threshold falls from £9,100 to £5,000 from 6 April 2025. Employment Allowance rises from £5,000 to £10,500.
- At a £50,000 salary, the incremental employer NIC cost per employee is approximately £1,106 per annum. This must be in the 2025 budget and financial model.
- CGT rates on non-residential assets increased immediately from 30 October 2024: basic rate from 10% to 18%; higher rate from 20% to 24%.
- BADR rate remains at 10% until 5 April 2025, rises to 14% from 6 April 2025, and rises to 18% from 6 April 2026. Timing of qualifying disposals has a direct and material impact on tax payable.
- For a founder with a £1m qualifying gain, the difference between disposing before April 2025 and after April 2026 is £80,000 in additional CGT.
- Review the EMI option register for outstanding grants where BADR-qualifying disposals before April 2025 are possible and advantageous.
- Review salary vs dividend structure with a personal tax adviser in the context of the lower employer NIC secondary threshold.
