The sphere of taxation is on the brink of substantial changes as the approaching new tax year looms. James Milne has curated an exhaustive overview to illuminate the forthcoming developments. Below, we have outlined pivotal points, and should you require clarification or assistance, we urge you to reach out to the team of experts at James Milne.
Alterations in Income Tax and National Insurance Thresholds
As we venture into the new tax year, notable changes demand our attention. Unfortunately, the majority of income tax and national insurance threshold levels remain stationary, resulting in a higher tax burden for many individuals. However, a commendable increase in the high-income child benefit payment threshold offers a glimmer of positivity. Moreover, there are further reductions in national insurance contributions for employees and self-employed persons, setting the stage for potential future elimination of these contributions.
Novel Profit Calculation Method for Self-Employed Individuals
Self-employed individuals will encounter substantial amendments in profit calculation methodology in the tax year 2024/25. Henceforth, “cash accounting” will serve as the default method for profit calculation, unless an alternative accrual method is chosen. Additionally, the mechanism for evaluating profits will change, leading to a clearer demarcation between financial and tax years.
Corporate Tax and R&D Incentives
For limited liability companies, corporate tax rates remain unaltered for the impending year. Nevertheless, modifications to tax incentives for research and development (R&D) will take effect for accounting periods commencing on or after April 1st, 2024.
Updates on Capital Gains Tax
The annual exemption for capital gains will decrease to £3,000 per taxpayer for profits earned in 2024/25. Furthermore, the higher rate for gains on residential property will be reduced from 28% to 24%, as per the spring budget announcement.
High-Income Child Benefit Charge (HICBC)
Changes to the HICBC delineated in the Spring Budget have been integrated into the latest Finance Bill, effective April 6th, 2024. While the heightened threshold marks positive progress, there are calls for the complete elimination of the charge. The HICBC aims to recoup child benefits when the higher-earning individual in a relationship has adjusted income exceeding £60,000 (£50,000 until 2023/24).
Critical Planning Considerations
A thorough comprehension of the repercussions of these changes on taxable profits is imperative. Strategies such as pension contributions and charitable donations can diminish net income for HICBC purposes. Similarly, salary sacrifice agreements with employers can effectively reduce net income for tax assessment purposes.
Transition to Cash Accounting
Cash accounting was introduced to simplify tax preparation for small businesses. From 2024 onwards, it will become the default method for sole traders and partnerships, excluding those with corporate members or limited liability partnerships. Businesses have the option to opt out of cash accounting to adhere to Generally Accepted Accounting Practice (GAAP) standards, necessitating adjustments for accruals and prepayments.
Navigating Transitional Year 2023/24
The shift in profit assessment methods introduces complexities during the transitional year. Businesses must navigate the calculation of profits for 2023/24, transitioning from the old ‘current year’ basis to the new tax year basis. Accuracy in assessing transitional profits is indispensable, as is the planning of tax liabilities accordingly.
Seeking Expert Advice
Given the intricacies of these tax changes, collaborating with tax professionals such as James Milne can furnish invaluable guidance and support. They can lend aid in calculating transitional profits, comprehending tax liabilities, and devising optimal strategies for the new tax year. For personalised advice and assistance tailored to your specific circumstances, please do not hesitate to make contact. They are prepared to assist in navigating the evolving tax landscape with confidence.
This blog post encapsulates the intricate tax changes anticipated in the upcoming year, underscoring the significance of seeking professional guidance to optimise tax planning strategies. For additional information or exploration of specific tax implications, please feel at liberty to engage with James Milne’s team.