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The recent UK Budget considered simplifying tax compliance and ensuring fairness in the tax system. Taxpayers should be up to date with the changes in these regulations to prepare themselves for any negative effects or challenges they may experience.

Businesses must adapt to these new updates, as they may directly affect their profitability, cash flow, and strategic planning. Failure to comply could cause companies to face unavoidable penalties, interest charges, and potential legal action, thus harming their financial stability and reputation. If you currently own a business or are looking forward to starting one, you should be consistently checking if your business complies with the latest UK Budget.

Overview of the benefits of the tax updates:

Since the government’s 2023 Autumn Statement, there have been a few adjustments to some of the National Insurance Contributions (NICs):

  • Class 1 NICs – were cut from 12% to 8%
  • Class 2 NICs – abolished to reduce Class 1 and Class 4 NICs, and are no longer due for most self-employed individuals.
  • Class 3 NICs – remained the same.
  • Class 4 NICs – were cut from 9% to 6%

NICs have been simplified and require employees and self-employed people to pay less, making it easier to manage NIC payments. The average self-employed person is expected to save around £650 per year. The abolishment of Class 2 NICs will also minimise financial burdens for self-employed individuals.

From April 2024, many workers would benefit from the increase in the minimum wage. The National Living Wage will rise to £11.44 per hour for those aged 21 and over, marking the most significant growth since. The higher Capital Gains Tax rate on residential property will drop from 28% to 24%.

A new R&D Credit will replace the existing R&D Expenditure Credit and SME R&D Relief, set at 20% of qualifying expenditure. Additional support for loss-making R&D-intensive SMEs will be available to those with qualifying R&D expenditures that make up 30% or more of total costs, down from the previous 40% threshold.

For unincorporated businesses, the tax year Basis Period has changed. From 2024 to 2025, taxable profits have aligned with the tax year (6 April to 5 April or 1 April to 31 March).

From January 2024, platforms such as eBay and Vinted are required to collect and report income information from sellers providing personal services, selling goods, or renting out property. This aims to improve tax compliance among those earning through online platforms.

The effective Personal Tax rate is expected to be the lowest since 1975 due to successive reductions in NICs and other tax measures. This means that from 2024 to 2025, median earners will pay less tax as a share of their income compared to 2010 to 2011.

Potential issues businesses may face:

Despite the increase in minimum wage, this may pose new challenges for businesses, including SMEs​. To offset higher labour costs, they must adopt proactive measures, such as impact forecasting, cost control, and productivity improvement. Also, regarding the CGT rates, the annual exempt amount will reduce to £3,000 from April 2024, down from £6,000 in 2024​.

Despite the newly implemented changes in the Spring Budget, there have been no significant reformations to business, meaning small businesses will continue to face substantial burdens. Tax Cuts and Support Extensions do not necessarily mean that small businesses will be less affected by inflation, thus continuing to face challenges in rising operational costs.

Moreover, the changes to the VAT registration threshold promised to ease tax burdens on small businesses by raising it from £85,000 to £90,000; however, this increase is considered unsatisfactory. If the threshold were to be increased to over £100,000, it would adequately account for inflation from 2018, preventing many small businesses from limiting their growth to avoid VAT complexities by staying below the threshold limit.

Recommended strategies:

  • Regularly review official government publications, HMRC updates, and consult financial news to stay current with changes.
  • Revisit and adjust your financial plans, including investments, savings, and expenses, to align with new tax policies.
  • Optimise available tax reliefs, allowances, and incentives introduced or altered in the budget to minimise tax liabilities.
  • If you own a business, assess if changes in tax regulations require restructuring, such as adjusting salary vs. dividend mix or considering incorporation if operating as a sole trader.
  • Anticipate and prepare for future tax changes by setting aside reserves or adjusting budgets, ensuring you are not caught off guard.
  • Using tax software and tools will streamline compliance and reporting, reducing the risk of errors and penalties.

Consulting on taxes with legal expertise is also highly recommended for specific advice tailored to individual circumstances. At Aldus, we provide a variety of accounting and tax services, as well as professional advice, for many small businesses or those looking to start one.

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