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All Change!
By Stacey McVeighty | Thursday, 16th May 2024
This update is all about Change! Not just us specifically but changes to legislation, procedures , allowances etc.
Let’s just jump straight in because it’s quite lengthy.
1.TEAM ADDITIONS
This month Tor (Victoria) has joined the team on a freelance basis. Tor was my trainee 20 years ago, when she first came into accountancy. Since then she has worked in Practice and more recently for Nestle. She has a wealth of experience in budgeting, forecasting and management accounting, so we are delighted that she will be able to offer these skills to our clients. She is also assisting Lauren and Sophie in the VAT and bookkeeping department, so some of you may have already met her.
2.SHOULD YOU RESTART CHILD BENEFIT CLAIMS?
The thresholds for the high-income child benefit charge (HICBC) have increased from 2024/25.
You may have to pay the HICBC if you are considered to have ‘high income’ and child benefit is being paid in relation to a child that lives with you, regardless of whether you are a parent of that child. If you are living with another person in a marriage, civil-partnership or long-term relationship, you will only be liable to HICBC if you are the higher earner of the two of you.
HICBC is intended to claw back child benefit where the higher earner in a relationship has adjusted income in excess of £60,000 (£50,000 up to 2023/24). The claw back rate will then be 1% for every £200 of net income in excess of £60,000 with full recovery of child benefit where net income is £80,000 or more.
From 2024/25, the HICBC will be calculated at 1% of the child benefit received for every £200 of income above the threshold. This is a slower rate of claw back than in 2023/24 and now means that child benefit is only fully clawed back where income exceeds £80,000, rather than £60,000 in 2023/24.
Rather than pay the tax charge, many couples have chosen not to claim child benefit. It is estimated that some 180,000 couples eligible for child benefit will no longer be caught by the HICBC and should restart their claims from 6 April 2024. This can be done by using an online claim form.
The Chancellor also announced plans to administer the HICBC on the basis of total household income, rather than the income of the highest earner in the household, by April 2026.
An individual’s pension contributions and payments to charity under Gift Aid have the effect of reducing net income for the purposes of HICBC. Salary sacrifice arrangements agreed with the employer can also be effective in reducing net income for HICBC purposes.
3. NATIONAL MINIMUM WAGE (NMW)
Employers must pay their employees at least the national living wage (for workers aged over 21) / national minimum wage. The minimum hourly rates change on 1 April each year and depend on the worker’s age and if they are an apprentice.
1 April 2024 – 31 March 2025
Age 21 and over: £11.44
21-22 year old rate: no longer applicable
18-20 year old rate: £8.60
16-17 year old rate: £6.40
Apprentice rate: £6.40
These increases are not insubstantial, and the affordability of the rates will need to be carefully considered by employers when planning their headcount for the year ahead.
There are severe penalties and a “name and shame” policy for businesses who do not comply with the NMW.
4.NATIONAL INSURANCE FOR THE SELF-EMPLOYED
Self-employed individuals with profits of more than £12,570 a year pay two types of NIC: Class 2 and Class 4. Two key changes came into effect from 6 April 2024, as previously announced in Autumn Statement 2023 and further extended in this Budget:
1. The main rate of Class 4 NICs will be cut from 9% to 6% in 2024/25. Class 4 NICs will continue to be calculated at 2% on profits over £50,270.
2. Class 2 NICs will effectively be abolished, saving £179.40 per annum.
Entitlement to state benefits including the state pension
If you are self-employed, your Class 2 NIC payments have ensured you accrue entitlement to a range of state benefits, including the state pension. If your profits exceed £6,725 in 2024/25 you will continue to accrue entitlement to state benefits despite not paying Class 2 NICs. If your profits are less than £6,725, or you make a loss, you may need to pay Class 2 NICs on a voluntary basis to maintain your state benefit entitlement.
5.INCREASES TO COMPANIES HOUSE FEES
With effect from 1st May 2024 there have been changes to Companies House fees. They have published a list of all new fees here. The cost increases affect the likes of company name changes, incorporation and strike off. Whilst these costs might not be relevant to everyone, the filing fee for submission of a confirmation statement is set to increase from £13 to £34 (if submitted digitally). With this cost occurring annually for limited companies, it is something to be aware of for any submissions made on or after 1 May.
6.CHANGES TO FURNISHED HOLIDAY LETTINGS FROM 6 APRIL 2025
As announced in the Spring Budget, the beneficial tax treatment of furnished holiday lettings (FHLs) will be abolished from 6 April 2025, when the business will start being taxed in the same way as other residential property businesses.
Owners of properties that currently qualify as FHL might wish to consider increasing their expenditure on equipment such as furniture and televisions whilst the 100% annual investment allowance (AIA) continues to be available. The current capital gains tax reliefs, particularly business asset disposal relief (BADR) will also cease from 6 April 2025, so owners might consider selling their holiday letting property whilst the 10% CGT rate continues to apply to the disposal.
Note that where several FHL properties are owned they would all need to be disposed of before 6 April 2025 for BADR to apply. BADR would generally not apply where a single asset is disposed of out of a larger business.
7. DIVIDEND ALLOWANCE
As previously advised, the dividend allowance has dropped again from £1,000 to £500 from the 6th April 2025.
8.FURTHER R&D CHANGES
For accounting periods commencing on or after 1 April 2024, companies carrying out qualifying R&D will be entitled to a 20% expenditure credit. The 20% is calculated on the amount of qualifying expenditure. Qualifying expenditure is extended to include subsidised expenditure from 1 April 2024, although R&D carried out overseas will no longer qualify unless the work cannot be undertaken in the UK.
“R&D intensive” companies that make trading losses will continue to be entitled to a tax refund instead of the expenditure credit. The definition of “R&D intensive” is reduced from 40% to 30% from 1 April 2024 which means a company that spends at least 30% of total expenditure on qualifying R&D will now be entitled to the more generous tax refund.
9.CAPITAL GAINS TAX
Annual exemption
The capital gains tax (CGT) annual exemption has dropped to £3,000 in 2024/25, down from £6,000 in 2023/24. This change means that those selling capital assets such as property or shares will pay more tax.
Rates
The main rates of CGT remain at 10% for basic rate taxpayers (or those disposing of a business that qualifies for Business Asset Disposal Relief) and then 20% in most other cases.
However, increased rates apply when the asset being sold is a residential property that is not your private residence. From 6 April 2024, the residential property CGT rate has remained at 18% for basic rate taxpayers but reduced from 28% to 24% for those with residential property gains falling outside of their basic rate band.
This measure is intended to generate more transactions in the property market, benefiting those looking to move home or get on the property ladder.
It is important to remember that for property disposals that give rise to CGT, tax payment and reporting obligations arise just 60 days after your completion date so make sure you contact us in good time. We can also prepare draft CGT computations ahead of a sale if required.
As always, please contact any member of the team if you have questions on the above or any other matter. We are busy preparing tax returns, so if you haven’t already, please make sure you send back your tax checklist as soon as possible.
Please note that this update is for information purposes and should not be taken in isolation as tax advice. Tax rules and legislation change on a frequent basis and can vary depending on circumstances. You should consult one of the team if you need advice.