How accountants and bookkeepers can embrace the new tax year with confidence

The start of a new tax year presents your practice with an opportunity to set the stage for success.

From embracing automation and optimising workflows to staying abreast of legislation changes, there are a number of ways to position your practice for its most successful year yet.

In this article, we’ll explore key steps and insights to help you lay a solid foundation for the 2024/25 tax year and empower your team to deliver exceptional service and drive growth.

Here’s what we cover:

New legislation changes for the 2024/25 tax year

The Chancellor has introduced a great deal of legislation changes for the 2024/25 tax year, many of which will affect your small business and self-employed clients.

Here’s a summary of the changes you need to be aware of that came into force in April 2024 (you can get a full update in our new tax year article):

National Insurance contributions cut

National Insurance contributions (NICs) have been reduced by two percentage points. The rate changes are:

• For employees: (Class 1) from 10% to 8%
• For self-employed: (Class 4) from 8% to 6%

Class 2 self-employed NICs have been abolished altogether.

This will simplify NICs for self-employed individuals and will cut National Insurance payments for employees and the self-employed by a third overall.

Dividend tax allowance cut

The tax-free allowance for dividend income has been reduced from £1,000 to £500.

The average loss is around £155, with the reduction estimated to affect 4.4 million individuals in 2024/25.

Minimum wage increase

The Minimum Wage and Living Wage (NLW) rates have increased. The qualifying age for the National Living Wage has also fallen from 23 to 21.

The new rates are:

• Apprentices: £6.40
• Under 18: £6.40
• 18 to 20: £8.60
• 21 and over (NLW): £11.44

R&D scheme change

The Research and Development Expenditure Credit (RDEC) and R&D Tax Relief for SME schemes have been merged to simplify the tax relief rules.

The new R&D Credit is equal to 20% of qualifying expenditure.

Cash basis change

Cash basis is now the default method for calculating taxable profits.

It was previously the accrual method, but after the changes came into effect in April 2024, businesses need to opt out to continue using accrual accounting.

Capital gains tax cut

The higher rate of Capital Gains Tax charged on residential property gains has been reduced 28% to 24% for disposals from 6 April 2024 onwards.

Basis period reform

With the basis period reform, all unincorporated entities preparing annual accounts with a period end date different than 31 March or 5 April must now use the tax year basis for the 2024/25 year.

This means an entity’s profit or loss for the tax year must be based on the tax year itself, regardless of its accounting date.

Pensions Lifetime Allowance cut

For all members of registered pensions schemes, the lifetime allowance has been abolished.

This means that individuals can now grow their pension pot as large as they want to without incurring a tax charge.

Refresh your processes for the new tax year

Now is the perfect time for you to review your practice processes and identify ways to make them more efficient, so you can provide more value to your clients.

From re-engaging your clients to highlighting the benefits of digital record-keeping, and upskilling your staff, there is plenty you can do to ensure you set your practice up for success.

Below, we cover these in more detail.

Review, reprice and re-engage your clients

Retaining clients is critical to a successful and stable practice, but you can’t rely on it happening automatically.

You need to establish a strategy.

It’s important to reconnect with your existing clients at the start of the new tax year for several reasons:

• Understanding your clients’ goals for the upcoming year will help you align your services with their needs. You may also be able to upsell your offerings
• You can discuss scope and pricing changes
• You can advise them on how to deal with relevant legislation changes
• Acquiring new clients is expensive. A new client can cost you five times more than retaining an existing client.

When setting new prices, applying a fixed percentage increase across the board may be the fastest approach. But without first reviewing the profitability of your clients, you won’t know if it’s effective.

It’s worth taking the time to review your client fees and then organise your client list into three categories:

• Profitable clients
• Breakeven clients
• Clients who are losing you money.

This way you can take an individual approach for each group.

It can be difficult to have a pricing conversation with an unprofitable client as their fees may need to be raised significantly, but the fact is even if you lose these clients, you will still be better off.

When you can centre the conversation around the value your practice can provide to the client, most clients will be happy to pay more for that value.

If you do receive pushback on your price increases, lay out some different options for your client, such as:

• Keeping your current price and reducing the scope of work
• Reimagining the scope of work and updating the pricing to reflect that.

Showcase the benefits of digital record-keeping to clients

Moving your clients to digital record-keeping is beneficial all-round.

It will save both your practice and your clients time and free you up to provide more value added services.

By kicking off these discussions at the start of the tax year, you have time to train up your clients and iron out any issues without the stress of approaching tax deadlines.

Here are a few points you can raise with your clients:

• They will be able to streamline their bookkeeping processes, automate repetitive tasks, and access information quickly, allowing them to focus more on core business activities.
• Digital systems can improve accuracy and ensure compliance with tax regulations, using automated calculations and built-in validation checks.
• Digital record-keeping provides clients with real-time insights into their financial performance and means they can make informed decisions promptly. Cloud-based platforms also enable seamless sharing of documents and collaboration in real time, regardless of location (which is particularly useful for remote workers).
• Digital record-keeping systems can scale with clients’ businesses as they grow. Digital solutions offer the flexibility to meet changing needs whether clients are expanding operations, adding new locations, or increasing transaction volumes.

As an example, clients who work under the Construction Industry Scheme (CIS) often overpay tax and wait to receive an income tax refund once their return has been processed.

There’s a big incentive for these clients to move to digital bookkeeping where they can capture income and expenses simply, file their Self Assessment tax return early, and ultimately get their refunds faster.

Automate processes to make your practice more efficient

Automating processes allows you to take your attention off tedious manual tasks and free up valuable time for more strategic activities.

Accounting software can remove the need for data entry by integrating with bank feeds, invoices, and expense receipts. This means transactions can be automatically imported, categorised, and reconciled with minimal intervention.

For example, AutoEntry by Sage is an AI powered tool that captures data from photos of receipts and invoices and automatically uploads it into Sage Accounting.

By automating tasks early in the tax year you can take advantage of efficient workflows and streamline operations from the outset.

To assess what areas your practice could automate, work out where your team is spending the most time:

• If you have to manually copy over figures from client’s ledgers to tax preparation software, you could implement integrated accounting and tax software that talk to each other.
• If you are wading through shoeboxes of receipts, you could implement expense management tools to track expenses and allow clients to snap photos of their receipts and upload them instantly.
• If tracking billable time is proving time-consuming, you can bring in invoicing software that tracks your time and helps you create and send client invoices efficiently.

Upskill and support your practice team

The new tax year is an ideal time to reassess your team’s development needs and take the time to upskill while everyone has a lighter workload.

Investing in ongoing development not only helps to grow your practice and your team’s skill sets, but means you can operate more efficiently too.

In addition to offering access to external courses like workshops and conferences, don’t forget that it can be just as useful to facilitate cross-training opportunities within the practice team.

Development covers a broad area, but it can be easy for accountants to only focus on developing core technical knowledge.

And while this is important for daily work, there are also more general skills that help accountants serve their clients better, including soft skills, cloud accounting, time management and customer service.

Final thoughts on preparing for the 2024/25 tax year

To continue growing your practice, you need to approach each new tax year as an opportunity to learn and adapt.

It’s the perfect time to reflect on your processes, reconnect with your clients and consider new ways of working that will invigorate your team.

Reaching out to clients at this time allows you to reaffirm your commitment to providing exceptional service, address any concerns or changes in circumstances, and align strategies for the year ahead.