New Tax year
Main Tax Events
Date | What’s Due? |
1/04 | Corporation tax payment for year to 30/6/23 (unless quarterly instalments apply) |
5/04 | End of 2023/24 tax year. 2024/25 tax year starts on 6 April |
19/04 | PAYE & NIC deductions, and CIS return and tax, for month to 5/04/24 (due 22/04 if you pay electronically) |
1/05 | Corporation tax payment for year to 31/7/23 (unless quarterly instalments apply) |
19/05 | PAYE & NIC deductions, and CIS return and tax, for month to 5/05/24 (due 22/05 if you pay electronically) |
In this April issue, we highlight some key tax changes that took effect from the start of the new tax year.
Unfortunately, most income tax and national insurance thresholds remain frozen, resulting in an increasing number of higher-rate taxpayers.
For the self-employed, there are important changes on the horizon. From 2024/25, ‘cash accounting’ will be the default method for computing profits unless the accruals basis is chosen. The mechanism for assessing these profits will also change from 6 April 2024. Business results arising between 6 April and the following 5 April will be taxed, which means apportioning results where the business year-end does not align with the tax year. Being aware of these changes is crucial to ensure you’re prepared for the new system.
As far as limited companies are concerned, there is no change in the corporation tax rates from April 2024. There are, however, further changes to R&D tax relief which will apply to accounting periods commencing on or after 1 April 2024.
Remember also that the annual capital gains tax exemption reduces to just £3,000 for each taxpayer for gains made in 2024/25. Still, the higher rate on residential property gains reduces from 28% to 24% as announced in the Spring Budget.
Child Benefit
The changes to the High-Income Child Benefit Charge (HICBC) announced in the Spring Budget have now been incorporated into the latest Finance Bill and are scheduled to take effect from 6 April 2024.
The increase in the threshold for the tax charge was good news; HICBC is intended to claw back child benefits where the higher earner in a relationship has an adjusted income of more than £60,000.
The clawback 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.
In recent years, many couples have chosen not to claim child benefits rather than pay the tax charge. It is estimated that the HICBC will no longer catch some 180,000 couples eligible for child benefits and should restart their claims from 6 April 2024.
Example
Dave and Mary have two children for whom they are eligible for child benefits.
Fred is the higher earner; his income was £68,000 in 2023/24, which is scheduled to increase to £70,000 in 2024/25.
In 2023/24 the HICBC would have been 100% of the child benefit received.
Their child benefit for 2024/25 is £25.60 for the first child, then £16.95 for each additional child = £42.55 x 52 = £2,212.60 p.a.
Based on Fred’s £70,000 net income, there would be a 50% HICBC for 2024/25 of £1,106.30.
Planning
An individual’s pension contributions and payments to charity under Gift Aid reduce net income for the purposes of HICBC. Salary sacrifice arrangements agreed with the employer can also effectively reduce net income for HICBC purposes.
Cash Accounting
Cash accounting was introduced to simplify the preparation of small businesses’ accounts for tax purposes. Previously, it only applied to businesses with turnover up to £300,000, but from 2024, it will be the default method for sole traders and partnerships. It will not apply to partnerships with corporate members or limited liability partnerships.
Businesses affected can opt out of cash accounting and prepare their accounts by Generally Accepted Accounting Practice (GAAP), which means making adjustments for accruals, prepayments and other differences. It will also be possible to subsequently opt back into cash accounting.
Changes in the Basis of Assesments
The method of taxing the profits of unincorporated businesses changed significantly in 2023/24 and will also change from 2024/25 onwards. This was originally intended to align with the introduction of Making Tax Digital for Income Tax Self-Assessment (MTDITSA), which will now start to be phased in from 2026/27.
Under the old basis of taxing profits, a sole trader or member of a partnership was taxed on their share of profits of the business’s accounting period ending in the tax year. For 2022/23, the last tax year when that basis applied, profits of the year ended 31 December 2022 would have been taxed that tax year. Unless that business changes its accounting date, the profits assessed in 2024/25 would be the profits arising between 6 April 2024 and 5 April 2025, i.e. 9 months of the profits from the year ended 31 December 2024 plus 3 months of the profits for the year ended 31 December 2025. As the 2024/25 self-assessment tax return needs to be filed by 31 January 2026, it is highly likely that the profits for the later period would need to be estimated and subsequently revised. As a result of this complication, many businesses decided to change their accounting year end to 31 March or 5 April so that it corresponds with the tax year.
MTD for Income Tax Returns
Making Tax Digital for income tax self-assessment is scheduled to commence in 2026/27 for sole traders and property landlords with gross income of £50,000 or more, and the threshold then reduces to £30,000 from 2027/28.
The government have now confirmed that the four quarterly returns that will need to be submitted will report cumulative income and expenses and that there will no longer be an end-of-period statement. HMRC has published the detailed income and expenditure headings that need to be reported and has also confirmed that those businesses with turnover below the VAT registration threshold will be able to merely submit three line accounts, i.e. total sales, total expenses and profit or loss for the period.
A number of issues remain to be resolved before the new reporting obligation commences, and we will work with you to ensure that your accounting system is compliant.
Furnished Holiday lets
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.
Camping Pods And Capital Allowances
A recent case before the First Tier Tribunal will be of interest to businesses operating campsites and also farmers who have diversified into “glamping” by installing camping pods on their land. The capital allowances legislation states that caravans provided mainly for holiday lettings and buildings intended to be moved for the purposes of the qualifying activity, such as building site portacabins, qualify as plant and machinery.
In the recent case the Tribunal determined that certain camping pods which were not connected to mains drainage qualified as plant as they were potentially moveable buildings. This means that where a limited company incurs expenditure on new pods, the 100% AIA and “full expensing” relief would be available and 100% AIA would be available in the case of an unincorporated business.
HMRC may be appealing the decision of the Tribunal, but in the meantime, it would be beneficial to make a claim for tax relief, and we can review your circumstances to see if they are similar to this recent case.
R&D Changes
In addition to the major changes to research and development (R&D) tax relief that took effect on 1 April 2023, there are yet more changes that take effect on 1 April 2024.
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.
