2024 Budget Announcement

The 2024 Budget announcement is one that business owners have been waiting for with both anticipation and trepidation. For franchisors in particular, the changes are a mixed bag, offering both potential advantages and new challenges that may require some strategic adjustments.

Let’s dive into both sides and explore what this means for franchise businesses.

The Bright Side: Support for Smaller Franchises and Workforce Stability

One of the Budget’s positives for smaller franchises is the increased Employment Allowance, which rises from £5,000 to £10,500. This allowance helps smaller businesses offset some of their National Insurance Contributions (NIC), and for franchises just starting out or operating on thinner margins, this bump can make a meaningful difference. It helps soften the impact of rising labour costs and keeps more cash flow available for other needs, like marketing, training, or reinvestment​.

Additionally, the rise in the National Living Wage to £12.21 an hour could help franchises attract and retain talent in a tough labour market. While it does mean higher payroll costs, it could also reduce staff turnover – a known challenge for franchises in retail and hospitality. Higher wages can mean happier employees who stay longer, which is always a win for owners trying to cut down on recruitment and training expenses.​

Finally, increased HMRC funding for digital compliance may be beneficial in the long run. With the “Making Tax Digital” initiative, franchises that invest in digital accounting and reporting tools might find their processes simplified and less time-consuming. Although it might require initial investments in new systems, the payoff could mean easier, faster tax reporting and fewer headaches come tax season​.

The Hurdles: Rising Employment Costs and Compliance Pressures

However, with positives come some undeniable challenges. Starting in April 2025, employers’ NIC will increase from 13.8% to 15% on earnings over £5,000 (reduced from the previous threshold of £9,100). Combined with the minimum wage increase, these measures will push up the cost of employing staff, which will hit franchises across many industries, especially those that rely on part-time or entry-level employees.

Franchisors may face difficult decisions, like whether to raise prices to cover these costs. However, price hikes are risky, especially in competitive markets where consumers can easily take their business elsewhere. Balancing price adjustments with profit margins will likely become a key consideration, and for some, absorbing these costs without losing customers could prove a challenge.

The Budget’s compliance requirements could also increase the administrative load for franchises. HMRC’s increased budget for compliance and digital transformation means franchises can expect closer oversight and more stringent reporting standards, especially with changes to how tax on digital assets and crypto is handled. While these efforts are aimed at making tax reporting more accurate, the initial switch may require franchises to adapt their payroll and accounting processes​.

Capital Gains Tax (CGT) Increases Impacting Franchise Exits

For those considering selling a franchise or passing it down, the Budget’s capital gains tax (CGT) hikes add another layer of complexity. With CGT rates set to rise to 18% and 24% (depending on income brackets) and additional changes to business asset disposal relief, owners looking to sell might see reduced net proceeds, which could dampen the appeal of selling or restructuring the business in the near term​.

The table below shows a summary of the changes:

Source: TaxAssist Accountants

Adapting to a New Landscape

The 2024 Budget brings both opportunities and challenges to UK franchise businesses. On one hand, increased allowances, higher wages, and digital support could benefit franchises that adapt quickly and strategically. On the other hand, rising NIC, wage costs, and tax compliance burdens could put pressure on profitability. Franchisors may need to get creative – exploring automation, adjusting business models, or finding efficiencies – to thrive in this changing landscape.

Ultimately, whether the Budget’s impact is positive or challenging will depend on each franchise’s ability to adapt, prioritise, and perhaps rethink strategies to stay competitive and financially sound in the coming years.