NATIONAL INSURANCE CONTRIBUTIONS CHANGES

 

EMPLOYEES

In addition to income tax, all employees earning more than £12,570 a year pay Class 1 NICs.  From 6 January 2024, the main rate of Class 1 NICs will be cut from 12% to 10%.  Over a full year, the average worker on £35,400 will receive a NIC reduction of over £450.  Workers earning more than £50,270 a year will receive a NIC reduction of £754.  The Class 1 NIC rate will remain at 2% for earnings above £50,270 a year.  Similarly, there are no changes to the rate of employer’s Class 1 NICs, which remains at 13.8%.

 

SELF-EMPLOYED

Self-employed individuals with profits of more than £12,570 a year pay two types of NIC: Class 2 and Class 4.  Class 2 NICs have been at a flat rate sum of £179.40 a year (£3.45 a week) in 2023/24 but no one will be required to pay the charge from 6 April 2024.  The main rate of Class 4 NICs will be cut from 9% to 8% from 6 April 2024. Class 4 NICs will continue to be calculated at 2% on profits over £50,270.

Taken together, these changes will result in an average self-employed person with profits of £28,200 saving £336 in 2024/25.  Class 2 NICs currently provide the self-employed with access to a range of state benefits, including the State Pension. From 6 April 2024, self-employed people with annual profits;

• Above £12,570 – will continue to receive access to the benefits.
• Between £6,725 and £12,570 - will continue to receive access to the benefits, via a National Insurance credit.
• Under £6,725 (or with losses) – will be able to continue to pay Class 2 NICs on a voluntary basis in order to maintain their access to state benefits. Class 2 NICs had been due to increase in 2024/25 but it seems that these will be maintained at the current £3.45 weekly level for those in this bracket.

 

NATIONAL LIVING WAGE (NLW)

The biggest ever increase to the National Living Wage has been announced, with the government fully accepting the recommendations made by the Low Pay Commission. Eligibility is also extended by reducing the age threshold from 23 and over to 21-year-olds. From 1 April 2024 the minimum pay rates will be as follows:

	NLW rate £	Increase £	Increase %
National Living Wage (age 21 and over)	11.44	1.02	9.8
18-20 year old rate	8.60	1.11	14.8
16-17 year old rate	6.40	1.12	21.2
Apprentice rate	6.40	1.12	21.2

 

BUSINESS TAXATION

 

Tax Relief for expenditure on plant and machinery

The Annual Investment Allowance (AIA) is now permanently set at £1million. This means that businesses can claim tax relief at 100% on up to £1million of expenditure on qualifying plant and machinery (e.g. capital equipment).   

 

Making Tax Digital (MTD) for Income Tax

Under MTD for income tax, businesses will keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements will be phased in from April 2026 starting with sole traders and property landlords with gross income over £50,000.  

 

Business rates

A new business rates support package worth £4.3 billion will be made available over the next five years to support small businesses and the high street. For 2024/25, the small business multiplier will continue to be frozen and the 75% Retail, Hospitality and Leisure business rates relief will continue to apply. The standard rate multiplier will be uprated in line with the September 2023 CPI of 6.7%. While this will increase business rates bills for some, large retailers are expected to benefit from hundreds of millions of pounds of tax relief per year as a result of full expensing.

 

SOLE TRADERS & PARTNERSHIPS accounting year-ends

Sole traders and partnerships that prepare annual accounts to a year-end date other than 31 March or 5 April will soon need to either change their accounting year-end or adopt a new process for how the profits or losses arising in their accounts are reported to HMRC. At present, ‘basis period’ rules apply that broadly allow annual accounts that end during a tax year to act as the basis of profits or losses arising in that tax year. 

A new system starts with transitional rules in 2023/24. From 2024/25, actual profits (or losses) arising in a tax year must be reported to HMRC by calculating and combining appropriate proportions of tax-adjusted profits (or losses) for the parts of each accounting period that overlap with a tax year.  Unfortunately, this will make it harder for some self-employed individuals to fulfil their tax compliance obligations and predict their income tax liabilities, but we will be on hand to help you.

 

Using the cash basis to compute business profits

The ‘cash basis’ can be a simplified way of calculating taxable profits for income tax purposes.  It is based on simply declaring income received and expenses paid, without adjustments seen in more sophisticated accounts with traditional ‘accruals based’ principles (e.g. adjustments for stock valuations and amounts owed by customers).  The cash basis is currently an option for sole traders and partnerships if their annual business turnover is £150,000 or less but from 6 April 2024 the cash basis will become the default accounting basis.  The £150,000 turnover limit will also be removed and some of the restrictions within the current regime that limit relief for interest deductions and loss relief will also be removed.   Businesses can ‘opt out’ of cash basis and continue to use the ‘accruals basis’ if they wish. This will be an important choice, particularly in relation to business intelligence and management reporting, so please do talk to us about the options if this affects you.

 

VAT

The VAT registration and deregistration thresholds continue to be frozen at £85,000 and £83,000 respectively, instead of increasing each year in line with inflation.  There have been no change to rates of VAT.

 

INCOME TAX & ALLOWANCES

 

INCOME TAX

The personal allowance and basic rate band threshold remain as follows:

Band	Taxable Income	Tax rate in 2024/25
		Earned income (e.g. wages, business profits and rental profits)	Savings income	Dividend income
Basic rate	£12,570 - £50,270	20%	20%	8.75%
Higher rate	£50,271 - £125,140	40%	40%	33.75%
Additional rate	Over £125,140	45%	45%	39.35%

 

Other allowances

Savings income continues to benefit from a 0% personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Dividend income attracts a 0% dividend allowance of £500 in 2024/25, down from the £1,000 allowance seen in 2023/24.

 

Tax Efficient Savings

The annual limits for Individual Savings Accounts (ISAs), Child Trust Funds and the Junior ISA remain at £20,000, £9,000 and £9,000 respectively in 2024/25. The lifetime ISA annual subscription limit also remains unchanged at £4,000 (excluding the government top-up bonus).

 

Pension tax relief

Annual allowances determine the maximum amount that an individual can save into their pension pots in a tax year before tax relief starts to be withdrawn by way of pension tax charges.  These allowances will remain fixed in 2024/25 at their 2023/24 rates, being the £60,000 annual allowance applicable in most circumstances and the £10,000 money purchase annual allowance for those who have flexibly accessed their pension pot. The annual allowance is reduced for those with a high income of more than £260,000.

 

CAPITAL GAINS TAX

The capital gains tax annual exemption is set to drop to £3,000 in 2024/25, down from £6,000 in 2023/24. This change will mean that those selling capital assets such as property or shares will pay more tax, where the new lower annual exemption is exceeded. Capital gains tax rates range from 10% to 28% in 2023/24, depending on the tax status of the seller and the type of asset sold.   If you are planning any capital disposals, please contact us to discuss the best strategy for the disposal.

 

INHERITANCE TAX

The inheritance tax nil rate band continues to be frozen at £325,000 until April 2028. The residence nil rate band will also remain at £175,000 and the residence nil rate band taper will continue to start at £2million. Despite prior rumours to the contrary, there has been no change to inheritance tax rates.

 

CORPORATE TAXES

 

CORPORATION TAX Rates

From 1 April 2024, the rate of Corporation Tax will continue to be 25% if a company’s profits exceed £250,000 a year. The small profits rate of 19% will apply where profits are no more than £50,000 a year.  Where a company’s profits fall between £50,000 and £250,000 a year, the profits are taxed at the higher 25% rate, but a ‘marginal relief’ is given to reduce the liability, with the effective rate being closer to 19% the closer profits are to £50,000.

Companies in the same corporate group (or otherwise connected by association) must share the £50,000 and £250,000 thresholds between them, making the 25% rate more likely to apply. A similar rule applies to the £1.5million threshold which, if exceeded, means that companies are required to pay their corporation tax earlier and in instalments.

 

Research & Development (R&D) Reliefs

For company accounting periods commencing on or after 1 April 2024, a new R&D scheme for limited companies will come into effect.  Any company claiming (or considering claiming) R&D reliefs will need enhanced support to both ensure compliance and to adopt the new rules and framework.

 

Creative Industries

Film, TV and video games tax reliefs will be reformed into refundable expenditure credits. In particular, an Audio-Visual Expenditure Credit (AVEC) for film and TV programmes and a Video Games Expenditure Credit (VGEC) for video games. The credits will be available from 1 January 2024.

 

EMPLOYMENT TAXES

 

National Insurance Contributions (NICs)

Employer NIC thresholds are frozen until 5 April 2028 which broadly means that, in 2024/25, employers’ NIC will continue to apply at 13.8% to earnings above £9,100 a year (£175 per week).  For eligible employers, the employment allowance remains at £5,000 per year, reducing their employer’s NIC liability by this sum - remember to opt in on payroll software to ensure that the allowance is received.

 

Company Cars and Other Benefits

Employees are required to pay income tax on certain non-cash benefits, e.g. a company car, which constitutes a taxable ‘benefit in kind’. Employers also pay Class 1A NIC at 13.8% on the value of these benefits.  The set percentages used to calculate company car benefits are fixed until 5 April 2026.  The figures used to calculate benefits-in-kind on employer-provided vans, van and car fuel remain fixed at their 2023/24 levels in 2024/25. These are:

• Van benefit                                £3,960
• Van fuel benefit                        £757         (fuel for private journeys in company vans)
• Car fuel benefit multiplier      £27,800    (fuel for private journeys in company cars)

 

PAYE and Tax Returns

For individuals with income taxed only through PAYE, they currently only need to file a self-assessment tax return if their income exceeds £150,000. From 2024/25 this threshold will be removed altogether, removing up to 338,000 individuals from the self-assessment system.

 

TAX ADMINISTRATION FRAMEWORK

New measures will be introduced to strengthen HMRC’s data gathering powers. From 2025/26:

• Employers will be required to provide data on employee hours paid as part of their PAYE reporting; and
• Shareholders in owner-managed businesses will be required to include on their self-assessment tax return their percentage shareholding and dividend income from their company (separately to any other dividend income they may receive).

These measures will build on previously announced HMRC powers that will enable them to access taxpayer data from online marketplaces (e.g. from airbnb) from 1 January 2024.

 

DIARY OF MAIN TAX EVENTS - December 2023 & January 2024

Date	What’s Due
01/12/23	Corporation tax payment for the year to 28/2/23 (unless quarterly instalments apply)
19/12/23	Employer PAYE & NIC deductions, and CIS return and tax, for the month to 5/12/23 (due 22/12/23 if you pay electronically)
30/12/23	Submission of 2023/24 self-assessment return (if the taxpayer wants HMRC to collect the tax owed through their wages or pension)
01/01/24	Corporation tax payment for the year to 31/3/23 (unless quarterly instalments apply)
19/01/24	Employer PAYE & NIC deductions, and CIS return and tax, for the month to 5/1/24 (due 22/1/24 if you pay electronically)
31/01/24	Submission of 2023/24 self-assessment return

 

As we move into 2024, there are a lot of tax changes already scheduled, plus we can expect more with a Spring Budget and a general election on the horizon. We are here to work alongside you and help you prosper so please do get in touch at any time.

Dawn, James, Claire, Rebecca, Elaine, Penn, Nat, Lucy, Becky, Steph & Janet.