October 2024 Budget and Tax Update
Rachel Reeves gave her first Budget on 30 October 2024 which was a surprisingly "anti small business" budget in our opinion with a number of proposals disproportionally affecting smaller businesses. We have highlighted below some of the more important changes that we believe will affect our typical small business clients with some brief comments as necessary. As previously, we've not providing a full summary of every change as full details are widely available via other media such as news apps, the HMRC website, etc.
Crew Cab PickUps
Following some flip-flopping earlier in the year, it has now been announced that crew cab pickups WILL be taxed as if they were cars and subject to the higher car benefit in kind income tax and NIC and no longer eligible for enhanced capital allowances from 6/4/25. This will result in "crew cabs" being a lot less popular in future as many people only bought them for the beneficial tax treatment.
Employers NIC
Increased from 13.8% to 15% from 6/4/24
Earnings threshold reduced from £9,100 to just £5,000 meaning all employees paid £9,100 or over will cost the employer just over an extra £600 p.a. per employee. It will cost employers more than £600 for each more higher paid employee.
Employment Allowance
Increased from £5,000 to £10,500 from 6/4/24 but not available to personal service company directors who employ no-one else.
It is still possible for small "one man" companies to gain this allowance if they employ someone else at a wage in excess of the NIC threshold, such as a household or family member as long as they actually work in in the business.
Capital Gains Tax Rates
Charged within basic rate band increased from 10% to 18% and charged within higher rate band increased from 20% to 24%. Rates now alligned with residential property rates which increased last year.
These changes took effect immediately after Budget Day on 30 October 2024!
High Income Child Benefit Charge
Is to remain based on the income of the highest earning member of the household.
There had been plans to change it to a fairer and more logical basis of household income which have been scrapped.
National Minimum Wage
From 6/4/25 main rate for those aged 21 and over to be increased from £11.44 to £12.21 per hours
Rate for 18-20 year olds to increased from £8.60 to £10.00 per hour.
Rate for 16-17 year olds to be increased from £6.40 to £7.55 per hour.
Business Asset Disposal Relief
This remains available for the first £1 million of lifetime capital gains on the sale of business asset, but the CGT rate increases from 10% to 14% next year and to 18% the year after on the excess over a million.
No U Turn on Making Tax Digital
Despite strong representations for further delays or scrapping it, HMRC remain committed to introducing Making Tax Digital from April 2026 which will mean sole traders and landlords having to make quarterly returns of business income and expenses to HMRC electronically. The turnover threshold starts at £50,00 but reduces to £30,000 in 2027 and then to just £20,000!
Increased HMRC activity targetting non payers and tax avoidance
Extra funding announced to enable HMRC to increase efforts against tax evasion and non payment of taxes due.
Businesses can expect an increased likelihood of enquiries and investigations into their accounts and returns and a much harsher regime for collecting taxes due from businesses struggling to make ends meet in the current financial climate.
Holiday Lets
No change to previously announced proposed coming into effect 6/4/25 which remove the beneficial tax rules for holiday lettings and applying the same tax rules as for residential lettings from that date.
From that date, holiday lets will no longer attract business asset disposal relief for capital gains tax, nor full relief for loan interest, and will suffer a much reduced capital allowance regime.
Fiscal Drag
As expected, there were no changes to personal allowances nor the basic rate or higher rate tax thresholds, so "fiscal drag" continues to mean more of any pay or income increases is taxable due to inflation not being taken into account.
There is an aspirational aim to increase them in line with inflation in 2028/29.
VAT Thresholds
There were no changes announced to either the VAT registration threshold nor de-registration threshold.
Most businesses will have to register for VAT when their turnover (not profit) for the preceding twelve months period exceeds £90,000. That's "any" 12 month period, not the calendar year nor tax year, so businesses close to the threshold need to check every month and look back 12 months.
Inheritance Tax
Thresholds to remain frozen until 2030.
The rate continues to be 40%.
The individual exemption continues to be £325,000 and the extension for the family continues to be a further £125,000 if passed to child(ren). So total exemption for a married couple with a home being passed to their children totals £1million if the wills are written in the right way!
Limited Company or Sole Trader
The tide has turned and for most small business who have a choice, it is now usually beneficial to trade as a sole trader instead of a limited company due to the recent changes in NIC, income tax and corporation tax.
Whether an existing limited company should convert depends on the costs and hassle of conversion - a decision for the director!
Corporation Tax
No changes to rates, the recent main rate increase to 25% remains in place and the small companies rate continues to be 19% for the first £50,000 of profits.
The effective marginal corporation tax rate on profits over £50,000 but under £250,000 is 26.5%. The CT rate being 19% on the first £50,000 of profits and 26.% on the balance over £50,000.
Optimum Directors Fees for Personal Service Companies
For a personal service company with no other employees beside the sole director, the "optimum" wage for the 25/26 tax year onwards will be £12,570 per year unless the "withdrawals" required by the director are below that amount. Where withdrawals are larger, the first £12,570 should be paid as wages and balance as dividends.