2024/25 allowances and rates
For tax year 2024/25, there will be no changes to the personal allowance (£12,570) or to the income level at which higher-rate income tax kicks in (£50,270). The rates of income tax and capital gains tax (CGT) will remain the same (with the exception of the reduction in the CGT rate for the sale of residential buy-to-lets which is covered below).
Corporation tax will remain at 19% on the first £50,000 of annual profits and then 26.5% on profits over £50,000 up to £250,000. The rate beyond £250,000 of annual profit also remains unchanged at 25%.
Dividends continue to be taxed at 8.75% for basic rate taxpayers and 33.75% for those in the higher rate. But the dividend allowance, which allowed you to pay no tax on the first £1,000 of annual dividends, drops to £500 from 6th April 2024.
The capital gains annual exemption, which dropped from £12,300 to £6,000 last April, drops again to just £3,000 on 6th April 2024, meaning that the first £3,000 of gains you make each tax year will be exempt from CGT.
National insurance contributions
After a reduction from 12% to 10% just two months ago (taking effect from 6th January 2024), employees earning in excess of £12,570 per annum will soon benefit from a further two-point drop in the rate of employee’s national insurance when it falls to 8% on 6th April 2024.
For sole traders, the current 9% class 4 national insurance rate, paid on self-employed profits over £12,570, was due to come down to 8% on 6th April 2024 but will now drop to 6%.
An employee on a salary of £50,000 per annum will pay around £1,500 less in national insurance in tax year 2024/25 than they did in 2023/24. For a sole trader with annual profits of £50,000 the reduction will be around £1,130.
For the poor employers, I’m afraid there is no change to the 13.8% national insurance they have to pay as the penalty for giving someone a job! However, as in 2023/24, the employment allowance of £5,000 (unchanged) means that the first £5,000 of employer’s national insurance each tax year doesn’t have to be paid. That will give many businesses a smaller PAYE/NI bill for the first month or two of the new tax year, and therefore a little respite in terms of the PAYE/NI payments they will need to make in May and possibly beyond.
National minimum wage and living wage increase
The hourly rates of National Minimum Wage and National Living Wage will increase on 1st April 2024. These changes are based on the recommendations of the Low Pay Commission. For the first time, the National Living Wage rate will extend to workers aged 21 and 22.
If you pay any of your employees the National Minimum Wage or Living Wage, you will need to update your 2024/25 payroll to reflect the following new rates, where applicable:
|
New rate |
Increase per hour |
% increase per hour |
|
|
National Living Wage (aged 21 and over) |
£11.44 |
£1.02 |
9.8% |
|
18-20-year olds |
£8.60 |
£1.11 |
14.8% |
|
16-17-year olds |
£6.40 |
£1.12 |
21.2% |
|
Apprentice Rate |
£6.40 |
£1.12 |
21.2% |
The National Living Wage should not be confused with the voluntary real Living wage, which is currently £12 (£13.15 in London) for workers aged 18 and over. Overseen by the Living Wage Foundation, these rates are independently calculated each year based on the cost of living.
British ISA
A new Individual Savings Account (ISA) with a £5,000 allowance will be introduced for savers looking to invest in UK businesses. This £5,000 allowance is in addition to the £20,000 that can be put into ISAs currently available. There is no tax paid on the growth in an ISA.
Changes to the R&D tax relief schemes
From 1st April 2024, the small and medium enterprise (SME) scheme for R&D and the research and development expenditure credit (RDEC) scheme will be merged into one. This will have some impact on the way that companies carrying out R&D activities claim their relief.
Pensions
From 2024/25, the Pensions Lifetime Allowance (LTA) will be abolished; you’ll be able to take as much income as you want from your pension (Although it will still be subject to income tax) and checks will only be made on lump sums taken.
As a result of the abolition of the LTA, two main new allowances are being created:
- An individual ‘lump sum allowance’ set at £268,275 (a quarter of the current £1,073,100 lifetime allowance) – measuring the tax-free cash taken over someone’s lifetime.
- An individual ‘lump sum and death benefit allowance’ set at £1,073,100 – incorporating tax-free lump sums someone takes while alive, plus any serious ill health lump sum and lump sums paid out when they die.
Increase in VAT registration and de-registration thresholds
From 1st April 2024 the annual turnover threshold at which a business needs to register for VAT will rise from £85,000 to £90,000. A business can, of course, register voluntarily at any turnover below this and we generally advise businesses selling to other businesses to do so, in order that they can reclaim VAT themselves. The de-registration threshold climbs from £83,000 to £88,000, so if turnover for the previous twelve months is less than £88,000 then the business will be able to de-register. The government has stated that it does not plan on changing these thresholds again for the foreseeable future.
Recovery loan scheme
The Recovery Loan Scheme, first launched in April 2021 to support businesses recovering from Covid, was due to end in June 2024 but will be extended and renamed as the Growth Guarantee Scheme. The terms of the scheme will remain unchanged; it provides a 70% guarantee to participating lenders on finance of up to £2 million offered to smaller businesses and the scheme is expected to support 11,000 businesses between 1 July 2024 and 31 March 2026. Businesses can use the finance for any legitimate business purpose including managing cashflow, investment and growth.
HMRC debt management
An extra £140m of funding is to be made available to HMRC so that it can improve the way it manages tax debts. HMRC’s capacity to support taxpayers, both individuals and businesses, will be increased and additional third-party debt collection companies will be employed to ensure that taxes are collected in a timely manner.
Capital gains tax down on buy-to-lets
Basic rate taxpayers pay capital gains tax of 18% on the value of a gain that they make when they sell a residential buy-to-let property, with higher rate taxpayers incurring a 28% capital gains tax rate. There’s some good news here, in that the 28% rate will be reduced to 24% from 6th April 2024, so if you’re about to sell a buy-to-let, hold fire for a few weeks and pay the new 24% rate.
High income child benefit charge
Taxpayers often get caught out by this, as if either their income or the income of their partner exceeds £50,000 in a tax year, HMRC claws back child benefit they have had, through the tax system (it’s collected through the self-assessment system). The threshold has remained unchanged since 2013 when the charge was introduced, despite the inflation that has happened since then.
As your (or your partner’s) income rises from £50,000 to £60,000, the child benefit is clawed back. So, by the time income reaches £60,000, all of it is clawed back. At an income of £55,000, half of it would have been clawed back.
From 6th April 2024 the limits will be increased to £60,000 and £80,000 respectively. So, at £60,000 you’ll keep all of the child benefit and at £70,000 you’ll keep half. Only if income reaches £80,000 will it all be clawed back.
Full expensing of leased assets
‘Full expensing’, a term used in tax to mean that tax relief can be claimed on the entire value of an asset on ‘day one’, was introduced for assets bought outright or on hire purchase agreements last Autumn (with the exception of non-electric cars). In reality, for small businesses, full expensing has been around for many years, through the Annual Investment Allowance, which has permitted full expensing on up to £1m per annum of capital expenditure.
The chancellor announced that full expensing of leased assets will be introduced when it is fiscally prudent to do so; so, it hasn’t actually happened yet. Draft legislation on this is expected in a few weeks’ time, so we’ll update you on it and what it might mean for you when this becomes available.
Student loan repayments
If you have an outstanding student loan, you’ll need to make repayments if your income is above a certain level. For this purpose, income includes both salary and dividends.
If you started your course before 01/09/2012, you currently need to make a repayment if your annual income exceeds £22,015. This threshold will rise to £24,990 from 6th April 2024. You’ll need to repay 9% of the amount by which your income exceeds the threshold. If you started your course between 01/09/2012 and 31/07/2023, the threshold is higher at £27,295 (again, at 9% of your income above the threshold). There will be no increase to this ‘post-2012’ threshold. There’s a different threshold again for post-graduate loans, but for the majority of former students the above will apply.
If you complete a self-assessment tax return, please bear in mind that the student loan repayment for each tax year (calculated as above) is added to the amount of tax you owe and paid through the self-assessment system on 31st January each year.
Furnished holiday lettings
If you own a holiday home and let it, furnished, for at least 105 days a year on a commercial basis, and so long as it’s available for letting for 210 days a year then, subject to one or two other qualifying conditions, you have been eligible to treat it as a ‘furnished holiday let’. This has had several tax benefits. Firstly, capital allowances on the value of fixtures and fittings could be claimed to reduce taxable profit or, in some cases, to create a tax loss. Tax losses incurred could, subject to certain limits, be offset against your other income (e.g. salary, dividends) to result in a tax refund. Mortgage interest could be offset against rental income in full, rather than tax relief being given at just 20% as for buy-to-lets. Also, the value of the property could, in some cases, have been exempt from inheritance tax.
Unfortunately, furnished holiday lettings will no longer exist as from 6th April 2025 (so there’s still another year to go) and profits on holiday homes will be taxed in exactly the same way as for any other buy-to-let properties.
So there we have it! If you have any questions, please don’t hesitate to get in touch.
Have a good weekend.
