Navigating the tax landscape for 2024-25
Navigating the tax landscape for 2024-25
It’s out with the old, in with the new… A fresh financial year is here, but it brings a raft of changes to the tax landscape.
April 25, 2024

With the new tax year just beginning, HMRC has announced several changes, particularly across tax thresholds and personal allowances. Though these are being presented as a positive thing, there are two sides to every coin – so with many potential pitfalls now appearing, it’s useful to know what’s new.

A freeze on the personal allowance and basic rate

Despite inflation and rising prices, HMRC has frozen income tax thresholds, including the personal allowance (tax-free amount of £12,570) and the basic rate band (£50,270). This freeze could be interpreted as positive, but with many employers raising wages to cover the cost of living, their employees are now more likely to be tipped into paying tax (if they didn’t before) or pushed into a higher threshold.

And, although its threshold has been frozen, do remember that for every £2 you make above the £100,000 personal allowance, you’ll lose £1 of your personal allowance – which equates to a very painful 60% tax rate on a slice of your income. If you make £10,000 above the threshold, for instance, you’ll have to wave goodbye to £6,000 of this in tax.

Reduced banding for additional rate tax

Not everything has been frozen, however; the banding for additional rate tax (paid at 45%) has actually been reduced. This means that you’ll now need to pay the higher rate for earnings above £125,140, instead of last year’s figure of £150,000.

NIC payments for sole traders

If you’re operating as a sole trader, you’ll no longer pay Class 2 National Insurance Contributions, and instead pay Class 4. This means paying at a rate of 6% up to the basic rate band, and 2% on anything above this.

Changes to Corporation Tax

If you’re operating as a limited company, you won’t escape changes either. Going forwards, instead of a flat rate of 19%, Corporation Tax will be charged on a sliding scale from 19-25%. If your profits are below £50,000, you’ll be charged at the lower rate of 19%, while if they exceed £250,000, you’ll be charged at the full 25% (and if you’re somewhere in the middle, you’ll pay something between the two extremes).

This £250,000 limit applies even if you have multiple companies. So, if you have two companies, you’d only need to generate £125,000 from each to reach the 25% Corporation Tax charge.

A reduction in tax-free Capital Gains

Capital Gains (CGT) is the tax due when you sell assets, previously paid on anything above £12,300 each year. This threshold has been dramatically reduced over recent years to only £3,000, meaning you’ll pay CGT on any gains that exceed this, depending on the level of your other taxable income. If you’re at the standard rate of CGT, you’ll pay 18% gains on residential property and 10% on other assets. If you pay higher-rate CGT, this rises to 24% on residential property and 20% on other assets.

How you can act

Obviously, there’s nothing any of us can do to change UK tax law. However, the impact this has is firmly within our grasp. By giving these changes your attention and embarking on some forward planning now, you can learn how to navigate this new terrain.

Operating as a company gives you much more control over the amount of income tax you incur and creates many more opportunities to optimise your tax position. Across seemingly small moves like buying an electric car or employing family members, there are a number of ways you can act to keep more of your hard-earned profits.

It’s safe to say that for almost all practices, doing nothing now will result in being worse off this time next year. HMRC’s amendments make it increasingly easy to breach thresholds and incur unnecessary taxes, without even knowing you’ve done so. It’s worth knowing that it’s impossible to backdate any changes – making this the best time to get your new plan in place.

So, if you’re among the many people taking steps to reduce your overheads and outgoings, don’t forget to consider the bigger picture at the same time. Switching energy providers could save you hundreds of pounds per month, but improving your tax position can literally save thousands. On average, we help new clients preserve between £20,000 and £40,000 a year, so do get in touch if you’d like to know how.

The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Hayley Robins ACA Accountancy Director
If you have any questions or comments about this article, please get in touch.
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