LEGAL VIEW: Springing into action

All eyes will be on Rachel Reeves’ Spring Budget on March 26 with businesses especially interested in any new tax and enforcement policies that may be delivered by the chancellor.

Many are still reeling from her Budget announcement last November of the hike in employer National Insurance (NI) contributions that will kick in at the beginning of April – along with increases in the National Living Wage.

The NI rise is from 13.8 per cent to 15 per cent while there is a significant reduction in the threshold at which businesses start paying on a workers’ earnings – from £9,100 to £5,000.

Meanwhile, the National Living Wage will also increase from £11.44 to £12.21 per hour from April.

The 6.7 per cent rise – which is worth £1,400 a year for an eligible full-time worker – was described by the Labour government as a “significant step” towards delivering its manifesto commitment to make sure “the minimum wage is a genuine living wage”.

The National Minimum Wage for 18 to 20-year-olds will also rise from £8.60 to £10 an hour – the largest increase in the rate on record.

The £1.40 increase will mean full-time younger workers eligible for the rate will see their pay boosted by £2,500.

The minimum hourly wage for an apprentice will also rise, with an 18-year-old in an industry like construction seeing their minimum hourly pay increase by 18 per cent, a hike from £6.40 to £7.55 an hour.

And if all that wasn’t challenging enough, looming in the background is the new Employment Rights Bill (ERB), a landmark piece of legislation that will reshape the way businesses think about workers’ rights in the
UK, setting out a total of 28 individual reforms.

Business owners, particularly smaller ones, have voiced concerns over the double impact of higher wage bills and workers’ rights reforms.

There are fears that some businesses willstruggle to cope.

Mark Hague, partner and head of insolvency at law firm Farleys, says: “It’s no secret that businesses are struggling in the current economic climate and there’s predictions that more insolvencies are on the horizon.

“As always, our advice for businesses who are experiencing financial distress is to seek legal and insolvency advice early so you can discuss
your options and find the best solution before it’s too late.”

Chris Worden, from business rescue experts Director First, says: “Wage increases can squeeze cash flow overnight - especially for small businesses.

"Directors need to plan ahead now, or they risk falling into arrears with staff, HMRC, or suppliers later in the year.

“Cash flow issues can escalate quickly - directors should monitor their finances closely and seek advice at the first sign of trouble.”

The government has declared ERB as “the biggest upgrade to workers’ rights in a generation”.

It says the bill is designed “to make work pay”. It will see a ban on what it describes as “exploitative” zero-hours contracts, end fire and
rehire, and introduce basic employment rights from day one.

The bill will make parental leave, sick pay, and protection from unfair dismissal a day one right for all workers – subject to probationary periods.

It will also make flexible working the default from day one for all workers and update trade union legislation, removing restrictions on trade union activity and simplifying the statutory recognition process.

The ERB is not expected to pass into law until this summer at the earliest and many of the reforms will not take effect until 2026.

However, Victoria Mitchell, partner and head of employment at Farleys, believes the changes are already at the forefront of many business
owner’s minds.

She says: “The government announced plans for a huge overhaul of existing employment laws in its Employment Rights Bill as well as
increases to the National Living Wage rate and employers’ National Insurance contributions.

“Some of these will come into effect as of April, while other changes as part of the bill are still going through Parliament.”

She advised employers to review their staffing structures as well as their employment contracts, policies and procedures “to ensure they are compliant with any changes in the law.”

In her Autumn Budget statement, the chancellor maintained the £1m lifetime limit on capital gains from the sale of all or part of a company
under business asset disposal relief (BADR).

However, BADR will rise from 10 per cent to 14 per cent this April and to 18 per cent from 2026/27.

This could have a significant impact on asset distributions to shareholders and insolvency practitioners are witnessing a ‘rush’ by
shareholders to have their company put through a Members Voluntary Liquidation process before this date.

It is a process that enables shareholders of a solvent company that has ceased to trade to extract the assets and have them distributed to company shareholders.

April will also see the abolition of the Furnished Holiday Lettings (FHL) regime, removing a longstanding tax advantage that treated qualifying holiday lets as trading rather than investment properties.

Holiday let owners will see their properties aligned with standard residential lettings for tax purposes.

Profits will be treated as property income rather than trading income,
restricting loss relief and changing the calculation of capital gains tax.

Those currently claiming capital allowances will need to review their position, though transitional provisions protect existing allowances. The
changes particularly affect owners who planned to claim BADR on an eventual sale, as this 10 per cent rate will no longer be available.

Looking ahead to the Spring Budget, business advisors say company bosses need to be ready to act to mitigate any announcements that
might adversely impact on their operations.

Chris Worden, says: “The Spring Budget often sets the tone for the year ahead, impacting everything from business rates to funding support and cost pressures.

“Directors should pay close attention and be ready to adapt quickly to any policy shifts that bottom line."

Claire Haworth, partner at employment law, HR and health and safety firm AfterAthena, part of Preston-based Napthens Group, looks at the legal repercussions of the Labour government’s Employment Rights Bill, which could become law in the spring of 2025.

She said: "The new Employment Rights Bill (ERB) is a landmark piece of legislation that will reshape the way we and businesses think about workers' rights in the UK, setting out a total of 28 individual reforms.

"This bill promises to be a game-changer, introducing some of the most significant reforms to employment law in a generation. 

"It aims to create a fairer, more supportive environment for employees by banning exploitative zero-hours contracts, ending ‘fire and rehire’ practices, and guaranteeing crucial rights from day one, like paternity leave, parental leave, and protection from unfair dismissal.

 "On top of that, it will introduce the right to bereavement leave from day one – a first in UK employment law. These changes are being framed as a crucial step in supporting a modern economy, boosting pay, and increasing productivity.

 "However, this vision is not without its challenges. While the reforms undoubtedly aim to improve fairness, concerns have been raised, particularly by SMEs and business leaders, about the potential negative impacts on hiring practices, business costs, and recruitment.

"At this stage we are not expecting to see the majority ofthe proposed changes to come into force before 2026.

"However, businesses should ensure that they are tracking the progress of the Bill and, as the detail is confirmed over the coming weeks and months during 2025, employers will need to be aware of the impact of any of the proposed changes, start to review their existing practices, policies and procedures and train managers to ensure they are best placed to manage any of the issues that may potentially arise both proactively and effectively."