Following Labour’s victory in the General Election, Rachel Reeves became the first female Chancellor to deliver a Budget on 30 October 2024. It is the second Budget of 2024 (after Jeremy Hunt’s Budget on 6 March 2024) and was a tax raising Budget. The following is a summary of the main points which affect small businesses (our client base).
Employers National Insurance
The biggest change, and one which will impact many small and medium sized businesses, are to Employers National Insurance (NI).
Firstly, the rate at which Employers NI is charged is going up from 13.8% to 15%.
Secondly, the threshold at which it is charged is dropping from £9,100 to £5,000.
Thirdly, the Employment Allowance (which is a credit to reduce the impact of Employers NI) is increasing from £5,000 to £10,500, which should shelter many smaller employers from the effects of the increase.
All of these changes are effective from 6 April 2025.
Capital Gains Tax
There are currently two sets of Capital Gains Tax (CGT) rates. The CGT rates on residential property are 18% (standard rate taxpayers) and 24% (higher rate taxpayers), whilst the corresponding rates for all other gains are 10% and 20%. These have now been aligned and the new CGT rates for ALL gains are 18% and 24%. This harmonisation is immediately applicable.
In respect of reliefs, the 10% rate for both business asset disposal relief (BADR) and investors’ relief (IR) remains for the rest of this tax year, but will increase to 14% from 6 April 2025 and then to 18% from 6 April 2026.
Stamp Duty Land Tax
There is currently a higher rate of Stamp Duty on the purchase of an additional residential property by an individual of 3%. This will increase from to 5% for transactions with an effective date, usually completion, on or after 31 October 2024. This will also apply to the purchase of a residential property by a company.
Income Tax Thresholds
The current Basic Rate, Higher Rate and Additional rate thresholds for income tax have remained the same since 2021. However, the freeze will be lifted in April 2028 when the thresholds will begin to rise in line with inflation.
Inheritance Tax on Pensions
Personal pension pots are considered outside of the estate for Inheritance Tax (IHT) purposes. This exemption will effectively be abolished with effect from 6 April 2027.
High Income Child Benefit Charge
The thresholds for paying the High Income Child Benefit Charge (HICBC) were increased in the March 2024 Budget; Child Benefit becomes repayable once earnings reach £60,000 and the upper limit will be £80,000. At the time, it was also announced that there would be a radical reform of the mechanism of the HICBC by “moving to a system based on household rather than individual incomes”. However, the Budget confirmed that the Government will not proceed with the reform to base the HICBC on household incomes. Instead, there will be an update to the mechanisms by which the HICBC is collected; employed individuals will be given the opportunity to pay the HICBC through their tax code and the self assessment tax return will be pre-populated with child benefit data.
Double Cab Pickups
The tax treatment of cars and vans differ significantly, for VAT, capital allowances, and benefits-in-kind (BIK) purposes. Following a successful court case for HMRC, the Government announced that it will classify double cab pickups as company cars. This change comes into effect from 1 April 2025 for corporation tax and 6 April 2025 for income tax; existing capital allowances treatment will apply to those who purchase double-cab pickups before April 2025. Also, the transitional BIK arrangements will apply for employers that have purchased, leased or ordered a double-cab pickup before 6 April 2025. In this case, they will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.
NB HMRC tried to make this exact change in February 2024, only for it to be reversed shortly afterwards.
Further information is available here.
N. Goddard
4.11.24
Most people are aware that HMRC will charge you for paying tax late. It’s not always called the same thing – interest, penalty, surcharge – and it’s different depending upon the tax it relates to, but that’s the essence of what happens.
However, if you are a limited company, you can be paid interest by HMRC for paying your corporation tax early.
Corporation tax is usually payable 9 months and 1 day after the year end, so for a 31st December year end, corporation tax is due by 1st October. If you pay it early, then HMRC will pay you interest on your payment between the date you paid and the due date.
HMRC currently pays interest at base rate less 1%. At the time of writing, base rate is 5.25%, so the interest they pay is at 4.25%.
Depending upon the amount of interest, HMRC will either physically repay the interest after the due date, or carry it forward on your account to be deducted from the next year’s corporation tax bill.
More details here.
N. Goddard
7.3.24
On 6th March 2024, the Chancellor delivered his Budget, probably the last one before the anticipated 2024 General Election. The following is a summary of the main points which affect small businesses (our client base). NB some of the details are still being developed or announced, so not all of the information may be available just yet.
As expected, the main rates of NI were cut. With effect from 6.4.24, this will be 8% for employees and 6% for the self employed (sole traders and partnerships). This follows the NI cuts announced in the Autumn Statement.
NB the rate of employers NI stays the same.
Since it was introduced in 2013, Child Benefit has been repayable if a household has one parent earning over £50,000, and it is all repaybale once earnings reach £60,000. For 2024, these limits have been increased. Child Benefit becomes repayable once earnings reach £60,000 and the upper limit will be £80,000.
The FHL rules treat short-term letting businesses in a similar way to trading businesses for the purposes of various tax reliefs, as longs as availability and occupancy conditions being met. The FHL regime will be abolished from April 2025.
The current CGT rates applicable to gains made on disposals of residential property are 18% and 28%. From 6 April 2024, the higher rate will be cut to 24%.
The VAT registration threshold will increase to £90,000 from 1 April 2024. The deregistration threshold will increase to £88,000.
Further information is available here.
N. Goddard
7.3.24
As mentioned in a previous blog, and trailed in the media for the last couple of years, the rate of corporation tax has changed from 1st April 2023.
For the last few years, corporation tax for small companies has been relatively simple, there has been a single rate of corporation tax, which was 19%.
From 1st April 2023, there are effectively three rates of corporation tax:
(*) the tax rate for this band is actually 25%, but is reduced using a marginal relief calculation, which gives the effective tax rate of 26.5%.
This means that if your taxable company profits are less than £50,000, the company should still pay 19% corporation tax.
This has a particular relevance for small owner managed businesses. For the last few years, there has been little difference between income tax paid by individuals (20%) and corporation tax paid by limited companies (19%). The change now creates a clear difference, but the relationship between company and personal tax is contingent upon:
It also may influence company pension payments for the director(s), as tax relief could be higher than normal (25% and/or 26.5%, rather than 19%).
Associated Companies
A further complication arises where two or more companies are owned by the same people. Associated Companies for Corporation Tax rules have been reintroduced, applying from 1st April 2023.
The upper and lower limits for taxable profits (£50,000 & £250,000) are reduced depending on the number of associated companies, the taxable profit limits being divided equally among all the associated companies.
This means that if there are 2 associated companies they will pay 25% on profits of £125,000 and above (being half of the rate of £250,000), and will move out of the 19% rate once the profits reach £25,000 each rather than £50,000.
This highlights the importance of examining the relationship between companies in which you own shares, and the likely profit levels in each.
What is an associated Company?
Broadly a company is associated with another company if at any time within the preceding 12 months:
Please note that dormant companies are exempt from this test.
Meaning of ‘control’
A person is treated as having ‘control’ if they can exercise control over the company. This normally comes with owning more than 50% of the share capital.
In certain circumstances the rights and ownership of other people can be attributed to you and combined with your shareholding. This is most common with spouses or partners but can also include children or siblings.
For example, if you own 35% of the shares in a company and your spouse owns 20% these shareholdings are added together; as you jointly own 55%, you are judged as having control.
In addition, where there is “substantial commercial interdependence” between two companies, we also need to take into account the rights and powers of each shareholder’s “associates” when looking at whether the companies are under common control. Associates for these purposes include relatives (spouses/civil partners, parents, grandparents, children, grandchildren, siblings and so on), partners, and some trustees and settlors.
The rights of an individual’s associates only need to be considered if there is substantial commercial interdependence between the companies. For example, if a husband and wife each have 100% control of their own companies, those companies will not be associated unless there is substantial commercial interdependence between them.
Substantial commercial interdependence
There are three types of commercial interdependence:
Just one of the above is enough for substantial commercial interdependence to exist. For example, if a company lends to another that may be enough to constitute substantial commercial interdependence even if there is no other link between them.
Further technical information from HMRC can be found here.
As part of HMRC’s ambition to become a modern, trusted tax authority, it is changing the way penalties are issued for submitting late VAT returns and paying VAT late, which will affect all VAT registered businesses from 1st January 2023. The new penalties replace the default surcharge system and now also apply to clients who submit nil or repayment returns.
The new points-based system for late submissions is designed to be more lenient for the occasional mistake, whilst still penalising those who repeatedly fail to comply.
To avoid penalties, you must:
The way that HMRC calculates interest on late payments and repayments of VAT that they owe the client has changed for vat periods starting on or after 1st January 2023.
Late VAT Returns
For VAT periods starting on or after 1st January 2023, penalties for submitting returns late will work on a points-based system.
For each late return one penalty point will be given, each client will be given a penalty point threshold. If you reach your point threshold you will have to pay a fixed penalty of £200. You will also have to pay another £200 penalty each time you submit a late return whilst you’re at the threshold limit.
Your points threshold will depend on how often you submit your returns, see here for more information on the thresholds.
If you have reached the threshold for late submission penalty points, you will need to take action to remove them to avoid further £200 penalties. If you have not reached the threshold, individual points will expire automatically.
You can check penalty points in your online VAT account and appeal a point or financial penalty.
Late Vat Payments
The changes mean that if you pay VAT-related amounts late, you will be asked to pay late payment interest (2.5%) on the amount outstanding, from the first day your payment is overdue to the day you pay it in full. If your payment is more than 15 days overdue, you will have to pay a first late payment penalty. If your payment is more than 30 days overdue, you will be charged a second late payment penalty.
Basically, the sooner you pay the smaller the penalty will be. These changes aim to simplify and separate penalties and interest. Please click here for more information on penalties for late payments and here for information on interest.
HMRC are issuing support for clients for them to get used to the new penalty system in the first year. They have stated that they will not charge a first late payment penalty on VAT payments due on or before 31st December 2023, if you either:
If your payment is 31 days or more overdue, you will have to pay a first and second late payment penalty.
Repayments due
The repayment supplement has now been discontinued. If you are owed VAT from HMRC and they are late in paying you the repayment, HMRC will pay you repayment interest. This will be calculated at Bank of England base rate less 1% and has a minimum rate of 0.5%. Click here for more information on repayment interest and how it is calculated.
On 23rd September 2022 Kwasi Kwarteng, the new Chancellor, delivered a ‘mini’ Budget with some quite significant changes to the tax system. There have been a lot of changes in respect of tax increases announced by the previous Chancellor (& Prime Minister). The following is a summary of the changes which impact small business.
As was announced the previous day, the 1.25% increase in National Insurance (NI) will be reversed from 6 November 2022. Also, the Health and Social Care Levy was going to be introduced from 6 April 2023, but this will now not happen.
The increase in dividend tax rate followed the increase in NI, but the drop back to previous rates won’t take place until 6 April 2023. Therefore, the dividend tax rate for normal rate taxpayers for 2022/23 will be 8.75% and 33.75% for higher rate taxpayers.
The basic rate of tax is 20% and this was due to drop to 19% from 2024. However, this reduction has been accelerated by a year, and will take place from 6 April 2023.
The drop in the rate of income tax will have a detrimental effect on charities, as donations will attract a lower amount of Gift Aid. In order to support charities, the reduction will be phased in over 4 years.
The additional rate band of income tax, payable on income over £150,000 (at a rate of 45%), will be abolished from 6 April 2023.
From April 2023, the main rate of corporation tax was due to increase to 25%. This has now been scrapped.
Currently, tax relief of 100% under the Annual Investment Allowance is available in respect of the first £1m of capital expenditure, and this level was due to drop to £200k from 1 April 2023. However, the £1m limit has been made permanent.
The changes announced over the last 5 years to IR35 in respect of the public sector (2017) and the private sector (2021) will be repealed from April 2023.
Further details on the Mini Budget can be found here.
GBM Accounts
26.9.22
