2023/24 Year End Tax Review

By Alex Harper,

Tax uncertainty in an election year

2023 has been a lot more stable, politically and economically, than 2022. Rather than the multiple fiscal events of the latter, there has been a single Budget plus an Autumn Statement. However, with a pre-election Budget due on 6th March, we wait to see whether there will be major changes announced for 2024/25, particularly tax cuts. Any such changes may affect end of year planning for 2023/24. For example, it may turn out to be advantageous to delay receiving income such as bonuses or dividends until next tax year,

if they would be taxed at lower rates (perhaps because the government decides to unfreeze thresholds).

In this newsletter we set out what you need to know about the tax landscape (as currently known) over the next 12 months, but please check with us before finalising any big financial decisions, just in case the tax treatment has changed after publication.

Almost all the thresholds for both National Insurance Contributions (NICs) and income tax have been frozen until April 2028. With inflation still well above the 2% target, this freeze will pull a lot of earners into the higher tax bands as their salaries or business profits rise; this also has a knock-on effect on the amount of personal savings allowance (PSA) available to set against income such as interest, where rates have of course risen significantly in the last year or so. Income within the PSA is taxed at a nil rate.

Once into the 40% band, the PSA is cut from £1,000 to £500 per year; it disappears completely for anyone who pays income tax at 45%, which applies when income exceeds £125,140.

Individuals who are resident in Scotland pay income tax on earnings and profits at different rates.

The dividend allowance will be cut to £500 from 6 April 2024, having been £1,000 for 2023/24. This means more dividend income will be taxable each year, although the tax rates applicable to dividends are not changing in 2024/25.

The personal allowance has been frozen at £12,570 until April 2028; that allowance is tapered away by £1 for every £2 of income over £100,000 per year.

The annual exempt amount for capital gains tax will be halved from

£6,000 to £3,000 in 2024/25.

The combination of the allowance cuts and threshold freezes will affect the tax and NICs payable by directors and shareholders of family companies.

All employers need to budget for increases in the rates of National Living Wage and National Minimum Wage from 1 April 2024.

We recommend you undertake an annual review of your financial affairs, in order to check that you are not paying more tax than you need to and to see whether any structures you set up in the past are still appropriate. Between now and the end of the tax year (5 April 2024) is a good time to assess whether you have claimed all the relevant allowances and are as well defended against high tax charges as you can be.

Of course, the personal circumstances of each individual must be taken into account in deciding whether any particular plan is suitable or advantageous, but these suggestions may give you some ideas. We are happy to discuss them with you in more detail.

Self-assessment key dates

Failure to notify chargeability to tax, to file your self-assessment tax return or pay any tax due on time may result in penalties. Key dates to be aware of over the next year are outlined below. Note how penalties increase with the lateness of the return.

31 January 2024

Paper returns for 2022/23 not filed by this date will be three months late and may attract a daily penalty of £10 a day for up to 90 days thereafter.

The balance of your 2022/23 tax liability, together with the first payment on account for 2023/24, is due.

2 March 2024

The first automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.

5 April 2024

The four-year time limit for certain claims and elections in respect of the 2019/20 tax year expires.

30 April 2024

31 July 2024

1 August 2024

The second automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.

5 October 2024

Deadline to notify HM Revenue & Customs (HMRC) of your chargeability to tax if you have not been issued with a return (or a notice to file a return) and you have income or capital gains to report for 2023/24.

31 October 2024

Deadline for submitting 2023/24 paper returns.

For paper returns filed by this date, HMRC should be able to:

If your paper return is submitted after this date, you will be charged an automatic £100 penalty.

Paper returns for 2022/23 not submitted by this date will now be 12 months late and subject to a further penalty of 5% of the tax due, or £300 if greater.

30 December 2024

Deadline for online filing for 2023/24 if you want HMRC to collect tax through your tax code (where you owe less than £3,000).

31 January 2025

Filing deadline for 2023/24 online returns. Payment date for balancing tax payment in respect of 2023/24 and first payment on account for 2024/25.

1 February 2025

The third automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.

Time-To-Pay arrangement (TTP)

If you are struggling to pay your tax on time, you should be able to set up a TTP before the tax falls due. This will allow you to pay the tax by instalments and avoid penalties.

Please contact us if you need to set up a TTP – we can help!

Income tax

Tax thresholds

Currently, income tax rates and thresholds (except in Scotland) are set to remain unchanged for 2024/25. The Personal Allowance (PA), below which income is not taxed, is £12,570. The higher rate threshold at which 40%

tax kicks in is £50,270 and top rate tax (45%) begins when income exceeds

£125,140.

Scotland has different tax rates and bands for non-savings, non- dividend income (e.g. employment income, business profits, rental income and pension income). In the recent Scottish Budget, the following were announced for 2024/25:

Many Scottish taxpayers will now pay a significantly higher amount of tax than those elsewhere in the UK (although some lower earners pay slightly less than in the rest of the UK).

Personal Allowance (PA)

The PA of £12,570 is progressively withdrawn for individuals earning more than £100,000, leading to a marginal rate of 60% on income between £100,000 and £125,140. This rate is different in Scotland and for those who have dividend income within this band.

Personal Allowance Planning points

Gift Aid

This is a valuable relief for gifts to charities: the gift is made out of the donor’s taxed income and the charity benefits by claiming basic rate tax on the value of the gift.

Gift Aid Example

If you are a higher rate taxpayer and you make an £800 donation to a charity, the gross value of the gift to the charity is £1,000, since it can claim back the basic rate tax of £200.

You can claim an additional 20% tax relief on the gross value, reducing the net cost to £600.

In order for a donation to qualify for tax relief, the charity previously had to be located in an EU member state (plus Iceland, Norway and Liechtenstein) and be recognised as a qualifying charity by HMRC. However, as part of the post-Brexit changes to tax legislation in the UK, this is now changing.

The ability to have a non-UK charity qualify has been removed. There is a transitional period though, so that a non-UK charity which had asserted its status before 15 March 2023 will continue to qualify until 1 April 2024 (for company donations) or 5 April 2024 (for individual donations). After that, no relief will be available where donations are made to non-UK charities. This will be the case even if those overseas charities have UK activities.

Note that UK charities that carry out work in other countries continue to qualify for tax reliefs such as Gift Aid.

Gift Aid Planning points

If you are considering a gift to charity, we can make sure that it will meet the qualifying requirements. It will be particularly tax-efficient if the gross donation reduces income that would otherwise be subject to PA abatement or the HICBC.


Will you get a full state pension?

If you are looking forward to retirement, it’s a good idea to check out how much state pension you will get. You can do this by logging on to your personal tax account on gov.uk, which contains lots of useful information about how much tax you owe and about your NICs record, among other things.

To receive the full amount of the state pension, your NICs record needs to contain 35 completed years. You need at least ten complete NICs years to receive any amount of the UK state retirement pension.

Planning points for your state pension

Private pensions

Contributions within the annual allowance (AA) to pension funds attract relief at your marginal rate of tax. The combination of tax relief on contributions, tax-free growth within the fund and the ability to take a tax- free lump sum on retirement makes a pension plan an attractive savings vehicle. Saving for retirement should always be considered as part of the year-end tax planning process.

This is particularly important for those with an annual adjusted income in excess of £260,000, since the AA of £60,000 (pre-6 April 2023: £40,000) is usually tapered by £1 for every £2 of income in excess of £260,000 (pre-6 April 2023: £240,000), reducing to a minimum of £10,000 for those with income over £360,000. These last two figures were respectively £4,000 and £312,000 pre-6 April 2023. No tax relief is available for contributions exceeding the available AA.

The AA can be carried forward for three tax years to the extent it is unused. Any unused AA for the three previous years can be added to your allowance for 2023/24 and will attract full relief, subject to the level of your pensionable income (‘net relevant earnings’).

Private Pension Planning points


Abolition of the pensions Lifetime Allowance (LTA)

The LTA has, in recent years, been frozen at £1,073,100. It puts a cap on the amount of tax-advantaged pension rights that you can build up.

The value of all your pension funds was compared with this limit at certain ‘benefit crystallisation events’, such as when you first draw benefits or reach age 75. An onerous tax charge (the ‘LTA charge’) was incurred on any surplus above the LTA.

£1,073,100) unless the member holds a higher level of protection from when the LTA had previously been cut.

Planning points

Example – Asif

Asif is aged 58. He is employed at a senior level in his company and receives an annual salary of £210,000 (plus bonuses). He has a pension pot worth £990,000 but has no form of LTA protection in place.

In March 2021, he opted out of payments into his company pension scheme, given that he was getting close to exceeding the LTA and was therefore facing an LTA charge.

He plans to retire in early 2024.

Example – Mona

Mona is aged 57 and has a personal pension scheme valued at £1.6m. She planned to retire at the age of 60, due to her pension fund being worth more than the LTA limit.

If there is a change in Government, it is almost certain that the Lifetime Allowance will be reinstated (although not retrospectively). What level it would be set at is currently unknown.

This emphasises the importance, especially for those nearing retirement age, of taking action sooner rather than later.


Property owners

Letting property

Property Letting Planning points

Principal Private Residence (PPR) Relief

PPR Planning points

Furnished Holiday Lettings

A property that qualifies as a Furnished Holiday Letting (FHL) can benefit from various tax reliefs not generally available to property rental businesses.

To qualify as an FHL, the property must be furnished, located in the UK or another EEA country, and let on a commercial basis with a view to realising profits.

It must also satisfy the following tests:

  1. The property must be available for letting to the public (not family or friends) for at least 210 days per tax year.
  2. The property must actually be let to the public for 105 days or more per tax year, excluding periods of continuous occupation by the same person for more than 31 days.
  3. The property must not normally be let for periods of long-term occupation totalling more than 155 days per tax year. A period of long-term occupation is one where the property is let to the same person for more than 31 days.

Furnished Holiday Letting Planning points

Capital Gains Tax

The annual exempt amount (AEA) is £6,000 for 2023/24, but is reducing to £3,000 in 2024/25. Gains above this level are taxed as follows:

Assets transferred between married couples or civil partners do not normally give rise to a CGT charge; instead, the recipient takes over the CGT cost of the donor. This means that, when the asset is eventually sold by the recipient, the gain or loss will reflect the combined ownership period.

Gifts to other family members will produce capital gains or losses, using the market value at the time of the gift as deemed proceeds. However, where the asset is a qualifying business asset (e.g. unquoted trading company shares), a joint ‘holdover relief’ election will enable any gain to be deferred.

Non-residents are not generally subject to UK CGT. There is an exception to this rule, however, for disposals of UK immoveable property (i.e. land and buildings) and certain indirect interests in UK immoveable property.

Capital Gains Tax Planning points

Capital Gains Tax Example Scenario – David

David is a basic rate taxpayer (with £7,000 of basic rate band unused) in 2023/24 but expects to be a higher rate taxpayer in 2024/25. His sole disposal in 2023/24 of some non- residential land realises a capital gain of £15,000.

If, instead, the disposal is made in 2024/25:

Inheritance Tax (IHT)

Domicile status is a difficult legal concept and is very important for IHT. Broadly, it means one’s country of ‘natural or permanent home’.

IHT is payable at 40% where a person’s assets on death, together with any gifts made during the seven preceding years, total more than the nil rate band (NRB). The NRB is £325,000 for 2023/24 and is fixed at this level until April 2028.

Unused NRB can be transferred to a spouse or civil partner, so couples can enjoy a combined NRB of up to £650,000 on the second death. The amount transferable is the percentage of the deceased’s unused NRB at the time of their death, as applied to the NRB in force at the date of the second death.

In addition, a ‘residence NRB’ is available in respect of a property that at some point has been the deceased’s main residence and which is passed on death to a direct descendant (or their spouse).

IHT Planning points

Consider gifting assets during your lifetime to minimise the IHT payable on your death.

Most importantly of all, make sure you have an up-to-date will, that is not only efficient from an IHT perspective but also distributes your assets based on your current family circumstances. For example, trusts that were due to be set up in your will while your children were minors may no longer be needed.

Sole traders

Change in basis of assessment

Tax year 2023/24 is the transition year from the ‘current year’ basis of assessment (which charges tax on the 12-month accounting period ending in the tax year) to the ‘tax year’ basis of assessment, which will tax the profits actually arising in the tax year. Only businesses that already have a year- end between 31 March and 5 April will be unaffected by the changes.

Under the transition year rules:

Losses

Planning points

Capital expenditure

Capital allowances can be claimed on expenditure on certain types of assets used in your business. You must be careful to distinguish between

The latter attract much slower tax relief.

The rules on capital allowances can be quite nuanced and there are lots of cases where the taxpayer does not get the tax relief they were expecting, so please check the likely tax treatment with us before undertaking any major expenditure. However, we explain below some of the key points of which you should be aware.

P&M allowances

Structures and buildings

Capital expenditure Planning points

Benefits-in-kind

In some cases, an employee can avoid being taxed on a benefit if they ‘make good’ the value of the benefit by reimbursing their employer. There are strict time limits for doing this.

All reimbursements of taxable non-payrolled benefits for 2023/24 must be made by 6 July 2024, which aligns with the date for submitting the P11D forms.

The dates for making good on payrolled benefits provided in 2023/24 are:

The deadlines for making good do not apply to interest payable on beneficial loans and overdrawn directors’ loan accounts. Where such loans exceed £10,000 at any point in the tax year there is a taxable benefit if insufficient interest is paid. This benefit takes account of the loans outstanding throughout the year, not just the days when the balance was above £10,000.

This taxable benefit can be avoided if interest at least equal to the Official Rate is reimbursed, as long as the borrower is legally obliged to pay interest. The Official Rate for 2023/24 is 2.25% p.a.

Despite this exclusion from the reimbursement deadlines, most people should try to pay any interest due on a loan by the 6 July following the tax year, to avoid any doubt as to whether a benefit arises at the time the P11D form is being prepared.

Don’t miss the deadline for ‘making good’ any benefits you have received, if you want to avoid a tax charge.

 

This newsletter is written for the benefit of our clients. Further advice should be obtained before any action is taken.

  Category: Business News, Hot Topics, Monthly Newsletters, Tax Rates And Allowances
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2023 Autumn News November

By curtis,

Mind your headroom

In the weeks leading up to the Autumn Statement, the press was full of speculation about tax cuts. This was a surprise, just over a year after the tax cuts announced by Kwasi Kwarteng were judged imprudent by the international markets, contributing to a fall in the value of sterling and increases in interest rates. Nevertheless, it seemed that a side effect of inflation was that higher incomes and prices had fed through into higher tax receipts; the Chancellor had more in his coffers – more ‘fiscal headroom’ – than had been predicted in the Spring, and commentators were suggesting what he might do with it.

Mr Hunt started his speech by claiming he was bringing forward 110 growth measures to back British business. He did not list them all in the speech, but there is no doubt that the documents released on the internet when he sat down contained a mass of detail – some specific rule changes coming in on particular dates, and some outlines of plans that are being considered for later.

The documents include a table showing the financial effects of the proposals, which highlights what is really significant and what is more marginal. Reductions in National Insurance amount to £9.3 billion in 2023/24 and similar amounts each year after that; changes to tax relief for capital expenditure come to similar amounts in the longer term. On the other hand, HMRC hope to collect £1 billion a year extra from the sinister-sounding ‘investment in debt management capability’.

This document summarises the main tax changes that were announced by Mr Hunt, with an explanation of what they are likely to mean for your business or your family. If you would like to discuss what these measures mean for your individual circumstances, we will be pleased to help.

Significant points

Personal Income Tax

 

Rates and allowances (Table A)

A year ago, Mr Hunt announced that the tax-free personal allowance and the 40% tax rate threshold will be fixed until 5 April 2028, and lowered the threshold for the 45% rate to £125,140 from 6 April 2023. In spite of some press speculation in advance of the Autumn Statement, there was no mention of changes to these figures in the speech or in the supporting documents. Some commentators have suggested that any good news on income tax will be kept for the Spring Budget, to be fresher in the minds of voters as the next General Election approaches. Although last year’s announcement implies certainty for years to come, the Chancellor could just as easily change the numbers within that period.
‘Freezing the thresholds’ avoided the appearance of a direct tax increase, but it is obvious that the effect of pay rises will bring many more people into the higher rate bands, increasing the average rate of tax that they will pay. It will also bring more very low earners into paying tax when their incomes rise above the personal allowance.

Two other thresholds remain fixed, as they have been since they were introduced: the income levels at which the High Income Child Benefit Charge begins to claw back Child Benefit receipts (£50,000 since 2012/13) and at which the tax-free personal allowance is withdrawn (£100,000 since 2010/11). These measures create a higher marginal tax rate in the income bands £50,000 – £60,000 (for those in receipt of Child Benefit) and £100,000 – £125,140 (as the personal allowance is reduced to nil). The effective marginal rate of income tax for someone earning between £100,000 and £125,140 is 60% (as £1 of allowance is lost for every £2 of income). Income above £125,140 is all taxed at 45%.

These rates and thresholds will not automatically apply in Scotland, where tax rates on non-savings, non-dividend income are set by the Scottish Parliament, which will announce its Budget on 19 December. The Welsh Assembly also has the right to set its own tax rates for non-savings, non-dividend income, but has so far kept to the main UK rates. Savings and dividend income are subject to the same rates throughout the UK, regardless of residence.

Dividend income

No changes were announced to the taxation of dividend income. This means that the dividend allowance, below which no tax is paid on dividends, will fall from £1,000 in 2023/24 to £500 in 2024/25. The reduction in this allowance (which was £2,000 for several years up to 2022/23) will require many more people to file self-assessment tax returns to settle what will often be a relatively small tax liability.

Employees

 

Company cars and fuel

Car benefits remain fixed at rates previously announced until the end of 2024/25. The figure used to calculate the benefit of free use of business fuel for private journeys is also fixed at the current figure of £27,800.

The taxable amounts for the availability of a van for more than incidental private use, and for an employee’s private use of fuel in a company van, normally increase in line with inflation. However, the 2023/24 flat rate figures of £3,960 and £757 for these benefits will remain the same for 2024/25.

IR35 – ‘off payroll working’

Since April 2021, for those who operate via a personal service company (or other intermediary), the decision as to the worker’s tax status has in most cases rested with those contracting with the intermediary. An end-client or agency therefore has PAYE risk, in that they may fail to withhold payroll taxes (and pay employer’s NICs) where the person is in fact deemed to be their employee for PAYE purposes. This can make them liable to unpaid tax and penalties, even if the worker’s company has paid tax on that income.

In such cases, the deemed employer’s PAYE liability will be reduced by an amount of income tax or corporation tax that is estimated to have already been paid by, or assessed on, the intermediary in relation to the engagement. The tax treated as already recovered will be the best estimate that can reasonably be made by an officer of HMRC in respect of the income tax or corporation tax already paid or assessed.

These provisions will apply in respect of PAYE assessed from 6 April 2024 on deemed employment payments made on or after 6 April 2017 (i.e. it is backdated to when the off-payrolling rules were first introduced for public sector engagers).

National Living Wage (NLW)

From 1 April 2024, NLW will apply to those aged 21 or over (currently 23), and will rise from £10.42 per hour to £11.44, with comparable increases to the other rates that apply to younger workers and apprentices.

National Insurance Contributions (NIC)

 

Thresholds and rates (Table C)

The largest tax cut announced in the Autumn Statement, amounting to £8.7 billion in 2023/24, is a cut in the rate of employee NICs on earnings between the lower and upper earnings limits from 12% to 10%. This will take effect on 6 January 2024, and will save up to £754 in a full tax year (for an employee earning £50,270 or above).

Self-employed people have for many years had to pay flat rate Class 2 NICs, which have conferred entitlement to State pension, and profit-related Class 4 NICs. These are both cut with effect from 6 April 2024:

The combined saving is up to a maximum of £556.

Savings and Pensions

 

Pension contributions (Table B)

After the removal of the Lifetime Allowance (LTA) charge on large pension funds in the Spring Budget, there were no further changes to the way in which private and employee pensions will be taxed in the short term. The LTA itself will now be removed from the legislation, but the figure (£1,073,100, or more for those with ‘protection’) will remain relevant for determining how much can be drawn as a tax-free lump sum.

A number of proposals were put forward to reform the structure of pension provision in the UK, including resolving the problem of a person collecting a number of small, separate pension pots from different employments. These do not appear to have an impact on the way pensions are taxed.

State pension

Following some speculation about whether the Conservative manifesto commitment to the ‘triple lock’ on State pension increases was affordable, the State pension will continue to be uprated in line with that commitment. This means that the rate will increase by 8.5% in April 2024 based on the increase in average earnings, rather than the lower figure for price inflation. At the new weekly amount of £221, pensioners will receive nearly £900 a year more than in 2022/23.

Individual Savings Accounts (ISAs)

The annual investment limits for ISAs remain the same for 2024/25. A number of improvements to the administration of ISAs has been announced to make them more flexible and easier to use.

Venture capital schemes

The Enterprise Investment Scheme and Venture Capital Trusts offer a number of tax advantages to investors in qualifying small and start-up businesses. Both sets of rules were due to expire after 5 April 2025, but an extension has been announced to April 2035.

Capital Gains Tax (CGT)

 

Annual exemption

No announcements were made concerning CGT. This means that the annual exempt amount (AEA), which is currently £6,000 for 2023/24, will be reduced as previously announced to £3,000 for 2024/25.

As well as increasing the likelihood of tax to pay, this reduction in the AEA will mean that many more taxpayers will need to file the CGT pages of the self-assessment tax return. These pages need completing unless both:

 

Trusts

As the AEA available to most trusts is half of an individual’s AEA, this will be £1,500 for 2024/25 (£3,000 in 2023/24).

Inheritance Tax (IHT)

 

Thresholds and rates

The IHT nil rate band (NRB) has been frozen at £325,000 since 6 April 2009; the residence NRB has been £175,000 since 6 April 2020. It was announced a year ago that these figures would remain fixed until April 2028, bringing more people within the scope of IHT as assets (particularly houses) rise in value.

There have been no changes to the IHT rates, so the main rate remains 40% for transfers on death in excess of the NRBs. After some press speculation in the week before the Autumn Statement that IHT would be cut, the Chancellor made no mention of the tax at all.

Business Tax

 

Cash basis

For ten years, unincorporated businesses with a turnover of up to £150,000 have been able to use a simpler ‘cash basis’ to calculate their profits for tax purposes. If turnover grew to more than £300,000, the business would have to return to ‘accruals accounting’. The cash basis has a number of restrictive rules, including a maximum deduction of £500 for interest paid.

The Autumn Statement announced that the turnover limits will be removed for 2024/25: unincorporated businesses of any size will use the cash basis as the default method of computing their profits. Interest of any amount will be eligible for deduction, as long as it is wholly and exclusively incurred for the purposes of the business.

It will still be possible for a business to opt to use traditional accruals accounting rather than the cash basis, as is the case at present for rental income.

Capital allowances on plant and machinery

The Spring Budget included the introduction of ‘full expensing’ of capital expenditure by companies on new plant and machinery (P&M) for a three-year period from 1 April 2023 to 31 March 2026. The Chancellor has now made this ‘permanent’, which makes little difference to government revenue in the short term, but is shown as a £7.5 billion reduction in 2026/27 – nearly as large as the cut in employee NICs.

‘Special rate’ assets, which include integral features in buildings and long life assets, qualify for a 50% first year allowance (FYA). Cars, assets for leasing and second-hand assets are excluded from these FYAs – they only qualify for writing-down allowances.

Where full expensing has been claimed, any subsequent disposal proceeds received for the asset are treated as an immediately taxable ‘balancing charge’. Where 50% FYA has been claimed, 50% of such proceeds are a balancing charge and 50% are deducted from the capital allowance pool. Most smaller businesses would be better off claiming 100% Annual Investment Allowance (AIA) on such expenditure, which does not have these special rules for disposal proceeds. AIA can be claimed on up to £1 million of expenditure on plant a year, is not restricted to companies and is also available on second-hand assets. 99% of businesses spend less than £1 million a year on plant.

New zero-emission cars qualify for a 100% FYA under a separate rule until  31 March 2025.

Construction Industry Scheme (CIS)

The CIS requires many businesses carrying out construction work to deduct tax (at either 20% or 30%) before paying subcontractors unless the supplier has gross payment status (GPS), which HMRC will grant to subcontractors who show a good record of tax compliance.

From 6 April 2024, VAT obligations are added to the statutory compliance test for being granted (and for keeping) GPS.

The measure also extends one of the grounds for immediate cancellation of GPS. HMRC is able to withdraw GPS if they have reasonable grounds to suspect that the GPS holder has fraudulently provided an incorrect return or incorrect information in relation to a list of taxes which will be extended to include VAT, Corporation Tax Self-Assessment (CTSA), Income Tax Self-Assessment (ITSA) and PAYE.

Other reforms, also to come in from 6 April 2024, are:

Corporation Tax (CT)

 

Rates

No changes were announced to CT rates, which remain 19% for companies with profits up to £50,000 and 25% for companies with profits over £250,000. Between £50,000 and £250,000 there is a tapering calculation that produces an effective marginal rate of 26.5% on profits within that band. The limits are divided between the number of associated companies (companies under the common control of one or more persons, including both individuals and companies).

Research and development (R&D)

Currently, there are two different regimes to encourage research and development (R&D) expenditure in the UK:

The government has confirmed its intention to merge the two schemes for accounting periods beginning on or after 1 April 2024. It was previously announced that the changes would apply for expenditure incurred from 1 April 2024; the revised implementation date will avoid the issue of having to make claims under two different regimes for expenditure in the same accounting period.

The rate of credit under the merged scheme will be the current RDEC rate of 20%. The notional tax rate applied to loss-making companies will be the small profit rate of 19%, rather than the 25% main rate currently used in the RDEC.

Contracted-out R&D

The aim of the R&D reliefs is to increase the overall levels of R&D carried out in the UK economy. The government believes it is important that the company making the decision to carry out the R&D and bearing the risk enjoys the relief. Under the new regime, the decision maker is allowed to claim for contracted-out R&D rather than the subcontractor.

Where a company with a valid R&D project contracts a third party to undertake some of the qualifying work connected with their R&D project, the company may claim the relevant qualifying costs of that contract. The company contracted to do that work will not claim for R&D activities which deliver the outcome for its customer’s project.

Contracted R&D carried out by subcontractors who are working for customers who do not pay UK corporation tax, such as overseas companies, will continue to qualify for relief.

If a company, which is contracted to provide a product or service which is not R&D (such as constructing a building or a software product), undertakes R&D in delivering that product or service, they will be able to claim relief even though they are undertaking R&D on an activity contracted to them.

The exact details of who should claim the relief will depend on the specific contract.

Subsidised expenditure

The above changes mean that rules relating to subsidised expenditure in the existing SME scheme are no longer relevant. For example, if a company receives a grant that covers part of the cost of its R&D, or if the cost of the R&D is otherwise met by another person, then (subject to the contracting-out rules above) this will not reduce the amount of support available under the merged scheme.

Additional tax relief for R&D-intensive SMEs

The ‘SME intensive scheme’, for the most R&D intensive loss-making SMEs, took effect for R&D expenditure from 1 April 2023. Qualifying companies are able to claim a payable credit rate of 14.5% for qualifying R&D expenditure instead of the normal 10% credit rate for losses under the SME scheme.

A company is currently considered ‘R&D intensive’ where its qualifying R&D expenditure is 40% or more of its total expenditure. This threshold will be reduced from 40% to 30%.

Another change is that an intensive SME, which has made a valid claim in the intensive regime in one year, can claim the intensive relief in the following year, even if it would not pass the threshold test in that year.

Audio-visual tax reliefs

As previously announced, the government intends to ‘modernise and simplify’ the audio-visual creative tax reliefs, namely: Film Tax Relief (FTR); High-End TV Tax Relief (HETV); Animation Tax Relief (ATR); Children’s TV Tax Relief (CTR) and Video Games Tax Relief (VGTR).

Under the current schemes, relief is given by way of an additional deduction from profits or surrendering a loss for a tax credit. The FTR, HETV, ATR and CTR are to be replaced by a new Audio-Visual Expenditure Credit (AVEC) regime and the VGTR by a new Video Games Expenditure Credit (VGEC). Both are similar in principle to the RDEC available for R&D expenditure.

Companies claiming for productions under FTR, HETV, CTR and ATR will be able to claim under AVEC in relation to expenditure incurred from 1 January 2024. New productions must be claimed under AVEC from 1 April 2025, and all productions must claim under AVEC from 1 April 2027. FTR, HETV, CTR and ATR will cease on 1 April 2027.

The same transitional dates apply to the transition from VGTR to the VGEC.

The new expenditure credit regimes will be similar to the existing tax reliefs, for example in terms of eligibility and the definitions of qualifying expenditure, but ‘animation’ will be extended to include animated theatrical films as well as TV programmes.

The animation and children’s TV will qualify for a higher AVEC credit rate of 39%, rather than the 34% available for films, high-end television and under the VGEC.

Value Added Tax

 

Registration threshold

The level at which a business is required to register for VAT (taxable turnover of £85,000 in the last 12 months, or expected in the next 30 days) has been fixed since 1 April 2017, and no change was announced to the present intention to keep it at the same level until 31 March 2026. The effect of inflation will require many businesses that are trading below the threshold to register and account for VAT. The deregistration threshold is also fixed at its current level of £83,000 for the same period.

Energy saving materials

The installation of energy saving materials currently qualifies for zero-rating for VAT. This means that the installer can claim back the VAT on the cost of the goods installed, and charge no VAT to the customer. This relief is to be extended with effect from February 2024 to new technologies such as water-source heat pumps, and also to intallations in buildings used solely for a relevant charitable purpose.

VAT-free shopping

Up to 31 December 2020, it was possible for non-EU visitors to the UK to obtain a refund of VAT paid on goods purchased while here and taken out of the country in their personal baggage. This was abolished as one of the consequences of Brexit. The retail industry has lobbied extensively for the restoration of some version of the scheme; the only response so far is that ‘the government will continue to accept representations and consider this new information carefully, alongside broader data’.

Stamp Duty Land Tax (SDLT)

 

Thresholds

On 23 September 2022, the government increased the nil rate threshold (NRT) for SDLT from £125,000 to £250,000 for all purchasers of residential property and from £300,000 to £425,000 for first-time buyers. The maximum purchase price for which the first-time buyer’s threshold applies was increased from £500,000 to £625,000.

These increases in thresholds were later classified as ‘temporary’ and will remain in place until 31 March 2025 ‘to support the housing market and the hundreds of thousands of jobs and businesses which rely on it.’ If history is a guide, such a pre-announced increase in SDLT may well lead to a boom in house prices just below the thresholds as the date approaches.

SDLT only applies in England and Northern Ireland. Decisions about the devolved taxes in Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax) will be taken by their respective governments.

Annual Tax on Enveloped Dwellings (ATED)

ATED applies to residential property worth above £500,000 that is owned through companies and other corporate structures, unless the situation qualifies for a relief. The rates increase automatically each year with inflation and will rise by 6.7% from 1 April 2024, in line with the September 2023 Consumer Prices Index.

Business Rates

From 1 April 2023, charges for business rates in England were updated to reflect changes in property values since the last revaluation in 2017. A package of targeted support was announced a year ago to help businesses adapt to the new charges. Further measures announced this year are:

Other measures

 

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA)

In December 2022, it was announced that the introduction of MTD ITSA for landlords and the self-employed would be staged. Those with incomes over £50,000 will come in first from April 2026, and those with between £30,000 and £50,000 will come in a year later in April 2027.

Although no mention of MTD ITSA was made in the Chancellor’s speech, a number of points have been confirmed in the accompanying documentation, as follows:

Requirement to file tax returns

At present, taxpayers with incomes over £150,000 are automatically required to file a self-assessment tax return each year. The Autumn Statement included an announcement that those whose tax is all paid under PAYE will be removed from this requirement from 2024/25. However, as mentioned above, increases in interest rates on savings raising interest incomes above the tax-free savings allowance as well as the reductions in the CGT annual exempt amount and the dividend allowance are likely to have the opposite effect – more people will have tax liabilities that have to be reported to HMRC.

Additional Compliance Resource for HMRC

In many fiscal statements, the Chancellor of the day announces an allocation of resources to HMRC to bring in more money. This time, it was an investment of £163 million in HMRC’s debt management capability. This is supposed to allow HMRC to better distinguish between those who can afford to settle their tax debts, but choose not to, and those who are temporarily unable to pay and need support. HMRC will also expand its debt management capacity to support both individual and business taxpayers out of debt faster and collect debts that are due. This ‘investment’ is scheduled to produce additional revenues of £515 million in 2024/25 and over £1 billion in each of the following three years.

Investment Zones and Freeports

Investment Zones and Freeports are areas in which numerous tax incentives are available to generate economic growth. The Chancellor announced an extension of both schemes: Investment Zones will run to the end of 2033/34, and Freeport tax reliefs must be claimed by September 2031. In addition, the Chancellor announced a number of new Investment Zones in Manchester, East and West Midlands, South East Wales and Wrexham and Flintshire.

Universal Credit

Universal Credit will increase in April 2024 by inflation, measured by the annual rise in the Consumer Prices Index, which is 6.7% to September 2023. There had been speculation that the lower figure for inflation in the year to October would be used, but the Chancellor rejected that suggestion.

 

Autumn Statement Tax Tables 2024/25

 

Income Tax Rates and Allowances (Table A)

Main allowances2024/252023/24
Personal Allowance (PA)*†£12,570£12,570
Blind Person’s Allowance3,0702, 870
Rent a room relief §7,5007,500
Trading income §1,0001,000
Property income §1,0001,000

*PA will be withdrawn at £1 for every £2 by which ‘adjusted income’ exceeds £100,000. There will therefore be no allowance given if adjusted income is £125,140 or more.

†£1,260 of the PA can be transferred to a spouse or civil partner who is no more than a basic rate taxpayer, where both spouses were born after 5 April 1935.

§ If gross income exceeds this, the limit may be deducted instead of actual expenses.

Rate Bands2024/252023/24
Basic Rate Band (BRB)£37,700£37,700
Higher Rate Band (HRB)37,701-125,14037,701-125,140
Additional rateover 125,140over 125,140
Personal Savings Allowance (PSA)
– Basic rate taxpayer1,0001,000
– Higher rate taxpayer500500
Dividend Allowance (DA)5001,000

BRB and additional rate threshold are increased by personal pension contributions (up to permitted limit) and Gift Aid donations.

Rate Bands2024/252023/24
Rates differ for General, Savings and Dividend income within each band:
GSDGSD
%%%%%%
Basic20208.7520208.75
Higher404033.75404033.75
Additional454539.35454539.35

 

General income (salary, pensions, business profits, rent) usually uses personal allowance, basic rate and higher rate bands before savings income (mainly interest). To the extent that savings income falls in the first £5,000 of the basic rate band, it is taxed at nil rather than 20%.

The PSA taxes interest at nil, where it would otherwise be taxable at 20% or 40%.

Dividends are normally taxed as the ‘top slice’ of income. The DA taxes the first £500 (2023/24 £1,000) of dividend income at nil, rather than the rate that would otherwise apply.

High Income Child Benefit Charge (HICBC)

1% of child benefit for each £100 of adjusted net income between £50,000 and £60,000.

Income Tax – ScotlandRate2023/24
Starter Rate19%£2,162
Basic Rate20%2,163 – 13,118
Intermediate Rate21%13,119 – 31,092
Higher Rate42%31,093 – 125,140
Top Rate47%over 125,140

The Scottish rates and bands do not apply for savings and dividend income, which are taxed at normal UK rates.  The Scottish rates for 2024/25 have not yet been announced.

Remittance basis charge2024/252023/24
For non-UK domiciled individuals who have been UK resident in at least:
7 of the preceding 9 tax years£30,000£30,000
12 of the preceding 14 tax years60,00060,000
15 of the preceding 20 tax yearsDeemed to be UK domiciled for tax purposes

Registered Pensions (Table B)

 2024/252023/24
Annual Allowance (AA)£60,000£60,000

Annual relievable pension inputs are the higher of earnings (capped at AA) or £3,600.

The AA is usually reduced by £1 for every £2 by which relevant income exceeds £260,000, down to a minimum AA of £10,000.

The AA can also be reduced by £10,000, where certain pension drawings have been made.

For 2023/24 and 2024/25, there is no Lifetime Allowance (LTA) charge on high pensions savings.

The maximum tax-free pension lump sum is £268,275 (25% of £1,073,100), unless a higher amount is “protected”.

Car and Fuel Benefits (Table C)

Cars

Taxable benefit: List price multiplied by chargeable percentage.

2024/25 and 2023/24
CO2 emissions
g/km
Electric range
Miles
All cars
%
0N/A2
1-50>1302
1-5070 – 1295
1-5040 – 698
1-5030 – 3912
1-50<3014
51-54N/A15

Then a further 1% for each 5g/km CO2 emissions, up to a maximum of 37%.

Diesel cars that are not RDE2 standard suffer a 4% supplement on the above figures but are still capped at 37%.

Car Fuel

Where employer provides fuel for private motoring in an employer-owned car, CO2-based percentage from above table multiplied by £27,800.

National Insurance Contributions 2024/25 (Table D)

Class 1 (Employees)EmployeeEmployer
Main NIC rate10%13.8%
No NIC on first£242pw£175pw
Main rate charged up to *£967pwno limit
2% rate on earnings above£967pwN/A
Employment allowance per qualifying businessN/A£5,000

*Nil rate of employer NIC on earnings up to £967pw for employees aged under 21, apprentices aged under 25 and ex-armed forces personnel in their first twelve months of civilian employment.

Employer contributions (at 13.8%) are also due on most taxable benefits (Class 1A) and on tax paid on an employee’s behalf under a PAYE settlement agreement (Class 1B).

Class 2 (Self-employed)

From 6 April 2024, self-employed people with profits above £6,725 are no longer required to pay Class 2 NICs, but will continue to receive access to contributory benefits, including the State Pension.

Those with profits under £6,725 can pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension. The amount is £3.45 per week.

Class 3 (Voluntary)

Flat rate per week£17.45

Class 4 (Self-employed)

On profits £12,570 – £50,2708%
On profits over £50,2702%

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Summer Update 2022

By Alex Harper,

Our Summer Update for 2022 can be found here.

  Category: Hot Topics
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