New tax year: Key changes and initiatives for 2024/25

As the UK election draws nearer, the Chancellor has introduced a swathe of changes for the new tax year in April 2024. Many of these will impact small business owners and the self-employed, and require you to review your tax affairs quickly.

This article assesses all the changes and initiatives that have come into force, and how to respond to help your business face the new tax year with confidence.

Here’s what we cover:

• National Insurance contribution rate cuts
• Dividend tax allowance cut and review of remuneration plans
• VAT registration threshold rises to £90k
• High-Income Child Benefit Charge threshold rises to £60k
• Minimum wage increases
• New research and development tax reliefs
• Capital Gains Tax changes
• Cash basis change to benefit many self-employed people
• Tax year change needs careful attention
• Additional new tax year measures
• Final thoughts on the new tax year

National Insurance contribution rate cuts

On 6 April 2024, there was a 2p cut in National Insurance contributions (NICs):

• From 10% to 8% for employees
• From 8% to 6% for the self-employed.

These reductions, announced in the 2024 Spring Budget 2024, add to the NIC cuts declared in the Autumn Statement 2023, which took effect in January 2024.

Combined, these cuts reduce National Insurance for employees and the self-employed by a third.

Also, since April 2024, the self-employed aren’t required to pay Class 2 NICs. However, under certain circumstances (where the taxpayer isn’t automatically entitled to contributory state benefits), they can continue to pay class 2 NICs on a voluntary basis in order to keep accruing contributory benefits.

This simplifies NICs for the self-employed.

Dividend tax allowance cut and review of remuneration plans

The tax-free allowance for dividend income dropped from £2,000 to £1,000 from April 2023 and fell again, from £1,000 to £500 on 6 April 2024.

Stephen Relf, technical manager, tax at the Institute of Chartered Accountants in England and Wales (ICAEW) says the NIC rate changes for the self-employed, alongside other changes, will further muddy the waters for those deciding whether to be self-employed or work through a limited company.

Limited company owners have tended to prefer taking a minimal salary plus dividends, which aren’t subject to National Insurance, and are taxed at a lower rate than salary.

However, the NIC reductions, corporation tax rises introduced in 2023, and reduction in dividend allowance have made being self-employed or paying yourself with salary rather than dividends more attractive for some.

It’s also worth pointing out that the admin involved in running a limited company is becoming more time consuming and there will likely be lots of additional requirements to comply with under the upcoming Companies House reforms.

Adam Owens, tax director at accountancy firm Xeinadin, says: “For owner-managed businesses, now may be an opportune time to review their remuneration strategy, and salary-dividend split, with their advisers.

“This will depend on many factors but, given the changes, it may now be more beneficial to take salaried income, particularly for higher earners.”

VAT registration threshold rises to £90k

Since 1 April 2024, the VAT registration threshold rose from £85,000 to £90,000.

The threshold for deregistration also increased from £83,000 to £88,000, so businesses with declining revenue can deregister sooner.

This should take around 28,000 businesses out of paying VAT. That’s a small proportion of the more than five million small businesses in the UK, but the new threshold is welcome for those affected.

Glenn Collins, head of technical and strategic engagement at the Association of Chartered and Certified Accountants (ACCA), says: “This is the first increase to the VAT threshold in seven years. It’s a shot in the arm for many small businesses dealing with increased costs, and removes what can be an artificial barrier to growth.”

Some businesses may deliberately keep sales below the limit to avoid having to charge VAT on goods and services.

A higher threshold should encourage them to grow by, for example, taking on new contracts. It also helps them avoid the administrative and accounting burden involved in registration, which includes:

• Additional record-keeping
• Charging VAT accurately
• Submitting VAT returns
• Paying the VAT on to HMRC.

However, whether to register for VAT is a complex judgement.

It requires expert assessment of factors such as how your business operates; which geographies you trade in; the types of clients you serve; and which goods or services you offer.

if you need support with this, it’s worth speaking to an accountant or tax adviser.

High-Income Child Benefit Charge threshold rises to £60k

On 6 April 2024, the High-Income Child Benefit Charge threshold increased from £50,000 to £60,000, and the upper limit of the tapered range increased from £60,000 to £80,000.

This will be a welcome relief for many employed and self-employed parents; and you should update your staff fully.

Stephen at the ICAEW says: “It is important that everyone is aware of the changes as they affect a large number of people.

“The government estimates 485,000 families will benefit. Of those, 180,000 families have chosen not to claim child benefit to avoid the charge and may need to reconsider.”

Minimum wage increases

On 1 April 2024, the largest ever Minimum Wage and Living Wage increases came into effect. Plus the qualifying age for the National Living Wage fell from 23 to 21.

Here are the rates:

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

Adam at Xeinadin says these changes are straightforward, but businesses should check their payroll providers are ready.

Also, the change will increase costs for many small and medium-sized enterprises (SMEs) during a difficult economic period. You may need to look for savings elsewhere to protect your margins.

Stephen at the ICAEW says: “This will be the first year the annual increase in the minimum wage has exceeded £1.

“That’s good for employees but likely to challenge many businesses who may already be struggling.”

New research and development tax reliefs

The system of corporation tax reliefs for research and development (R&D) simplified and changed from April 2024.

R&D Expenditure Credit and R&D Tax Relief for SMEs has merged into one new R&D Credit equal to 20% of qualifying expenditure.

Separate rules continue to apply to R&D-intensive SMEs, but the threshold for additional support for loss-making firms will fall from 40% to 30%. This should make around 5,000 more businesses eligible for this relief.

The rules for contracted-out R&D have also changed.

Adam at Xeinadin says: “Large companies will be the main beneficiaries of the merged scheme but R&D claims are still worthwhile for qualifying SMEs.

“Speak to your advisers to understand how the new rules impact your claims, and the reporting requirements.”

Stephen at the ICAEW says: “R&D tax relief is one of the most challenging areas for SMEs. The rules can be complicated, and these changes come on the back of many others in recent years.

“Applying the correct rules, rates and procedures when claiming will be more important than ever.”

Capital Gains Tax changes

On 6 April 2024, the higher Capital Gains Tax (CGT) rate on residential property fell from 28% to 24%.

Stephen at the ICAEW says: “Landlords will be pleased with this cut. However, the CGT annual exempt amount will reduce to £3,000 for 2024/25.

“It was £6,000 in 2023/24 and £12,300 in 2022/23. So this is a mixed bag for landlords; not all will be better off from the rate cut.”

Cash basis change to benefit many self-employed people

On 6 April 2024, the cash basis became the default for calculating the profits of eligible sole traders and partners with trading income.

You can still use the accruals basis (the previous default) instead, but you must elect to do so.

In addition, the £500 annual cap on interest deductions has been removed, and the restrictions on loss relief applying only to the cash basis have ceased.

The size thresholds for entering and leaving the cash basis have also be taken away, which means you can use it regardless of your turnover.

This makes the cash basis far more accessible and beneficial to many more businesses.

Stephen at the ICAEW explains that the cash basis allows self-employed people and partners to calculate their taxable profits on a “cash in, cash out” basis. This is simpler than the traditional accruals method for many, as it removes the need for year-end adjustments.

Aside from cash flow considerations, factors influencing whether the cash basis is right for you may include:

• The need to prepare Generally Agreed Accounting Principles (GAAP) compliant accounts for other purposes, such as grant or bank loan applications
• The ability to decide when to claim relief for capital expenditure
• The complex adjustments required under the cash basis for private use of capital assets
• The interaction with the future introduction of Making Tax Digital for Income Tax Self Assessment.

Stephen adds: “Previously, the turnover tests, interest deductions cap, and loss relief restrictions were all significant barriers to moving to the cash basis.

“Now these have gone, and the cash basis will be the default, many more businesses will likely use it, and benefit consequently.

“However, the accruals basis remains an option, and businesses must work out which is best for them.”

Tax year change needs careful attention

For unincorporated businesses, the way you allocate trading income to tax years has changed from 2024/25. This is often referred to as Basis Period Reform.

Your taxable profits for this period will be those attributed to 6 April 2024 to 5 April 2025 or 1 April 2024 to 31 March 2025.

Stephen at the ICAEW says 2023/24 was a transitional year in which adjustments may have been required to ensure profits up to 5 April 2024 (or 31 March 2024) are taxed, and overlap relief, if any, is used.

“Any transition profits will be spread evenly over five tax years,” he says.

“Accountants and their clients should review whether to allocate more profit to earlier tax years during the spreading period. For example, you may allocate more to a tax year in which ordinary profits are lower than normal to use more of a lower income tax rate band.”

Additional new tax year measures

Transfer of Assets Abroad (ToAA) provision

The government has made changes to ensure individuals can’t use a company to bypass anti-avoidance legislation, known as Transfer of Assets Abroad (ToAA) provisions.

The changes took effect for income arising abroad from 6 April 2024.

UK Independent Film Tax Credit

A UK Independent Film Tax Credit will be introduced at 53% on qualifying film production expenditure.

Productions can claim, from 1 April 2025, on expenditure incurred from 1 April 2024.

Film studios

Eligible film studios in England will receive a 40% reduction on gross business rates bills until 2034.

The relief will be implemented as soon as possible, and bills will backdate to 1 April 2024.

Empty Property Relief

The Empty Property Relief ‘reset period’ was extended from six to 13 weeks from 1 April 2024 in England.

Final thoughts on the new tax year

With so many incoming changes, it’s likely to be a hectic time for small businesses as you make your tax plans for the upcoming year.

Speaking to your advisers and payroll partners will help you get to grips with all the changes affecting your business, understand the impact and respond as early as possible.

Ultimately, this will help you focus on your business goals in the upcoming tax year with more certainty, knowing your plans are watertight.

Editor’s note: This article was first published in March 2024 and has been updated for relevance.