Navigating the world of tax is never a walk in the park, especially when you’re running a small business or working for yourself. With 2024 bringing a wave of new tax changes, it’s crucial to stay informed and prepared. But don’t worry—we’re here to make sense of it all for you. In this post, we’ll break down the key changes, what they mean for your business, and how you can ensure you’re fully compliant.
Whether you’re a small business owner in Southampton or a self-employed individual just trying to keep things in order, understanding these updates will help you avoid any nasty surprises from HMRC. So, let’s dive in!
Overview of Key Tax Changes in 2024
2024 has ushered in several changes to the UK tax landscape, some of which will significantly impact small businesses. Here’s a quick overview of the most important ones:
1. Corporation Tax Increase
The headline change for 2024 is the increase in corporation tax for businesses. The main rate of corporation tax has risen to 25% for companies with profits over £250,000. However, if your business makes less than £50,000 in profits, you’ll continue to pay the lower rate of 19%. For those in the middle, a tapered rate applies. This means that for many small businesses, especially those with profits under £250,000, there could be a noticeable impact on your tax bill.
2. Changes to National Insurance Contributions (NICs)
National Insurance is also seeing some adjustments this year. The threshold at which employers start paying National Insurance has been aligned with the personal allowance, which is £12,570. This change is aimed at easing the burden on smaller employers, but it’s essential to understand how it will affect your payroll obligations.
3. Making Tax Digital (MTD) Expansion
Making Tax Digital is no longer just for VAT. From 2026, it will be mandatory for Income Tax Self Assessment (ITSA) for businesses and landlords with annual income above £50,000. This means you’ll need to use compatible software to keep digital records and send updates to HMRC. It’s a big shift, particularly for those who’ve been managing their taxes the old-fashioned way.
4. Dividends Tax Rate Increase
For those who pay themselves via dividends, 2024 brings another reduction in the tax-free dividend allowance. The allowance has been cut from £1,000 to £500. This means that more of your dividend income will be subject to taxation, increasing your overall tax liability if dividends form a significant part of your income. It’s important to factor this change into your financial planning and consider whether alternative income strategies might be more tax-efficient.
5. Super-Deduction Ends
The super-deduction, which allowed businesses to claim 130% capital allowances on qualifying plant and machinery investments, is set to end in March 2024. Without this incentive, businesses planning major investments should reconsider their timing and potential tax implications.
Impact on Small Businesses
These changes are designed to raise revenue for the government, but for small businesses, they can present challenges. Here’s how each of these changes might impact your business:
- Higher Corporation Tax: If your profits are edging close to £250,000, you’ll need to factor in a higher tax bill. Even those under this threshold may find the tapered rate squeezing their margins. It’s essential to plan for this in your budgeting and cash flow forecasts.
- National Insurance Adjustments: While aligning the NIC threshold with the personal allowance simplifies things slightly, it might increase payroll costs for some businesses. Be sure to review your payroll processes to ensure compliance.
- Making Tax Digital: MTD for ITSA is a major shift, especially for smaller businesses and sole traders. If you’ve been relying on spreadsheets or paper records, now’s the time to transition to digital accounting software. It might feel like a hassle, but getting on top of this change early can save you from headaches down the line.
- Dividend Tax Increase: If you rely on dividends, this increase might push you into considering alternative ways to structure your income. We can help you evaluate whether a different approach might be more tax-efficient.
- End of the Super-Deduction: With the super-deduction coming to an end, those big investments you’ve been considering might be more expensive from a tax perspective. If you’ve been on the fence, it might be worth fast-tracking any purchases before March.
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Steps to Ensure Compliance
Now that you know what’s changing, let’s talk about how to stay compliant:
1. Review Your Financial Forecasts
With the increase in corporation tax, it’s vital to review your financial forecasts and budgets for the coming year. Understanding how much more you’ll be paying in tax will help you adjust your spending and savings plans accordingly.
2. Update Your Payroll Software
If you’re not already doing so, ensure that your payroll software is up to date with the latest NIC thresholds. This will help you avoid any underpayment issues that could lead to penalties.
3. Transition to Digital Accounting
For those affected by MTD, start looking into accounting software that complies with HMRC’s requirements. There are plenty of options out there, and getting set up now will give you plenty of time to get comfortable before the deadline.
4. Reevaluate Your Income Strategy
With the increase in dividend tax, it might be worth revisiting how you draw income from your business. There could be more tax-efficient ways to structure your earnings that keep more money in your pocket.
5. Plan Your Capital Investments
If you’ve been planning on making significant investments in machinery or other assets, now is the time to act before the super-deduction ends. Consider the long-term tax implications and whether accelerating your plans could benefit your business.
Preparing for the 2024 Tax Changes
To help you stay ahead, here are some practical tips on how to prepare for these changes:
- Schedule a Review with Your Accountant: This is the perfect time to sit down with your accountant and review your tax strategy. A professional review can identify any areas where you might save money or avoid pitfalls.
- Consider Your Cash Flow: With higher taxes on the horizon, ensure you have the cash flow to meet your obligations without straining your business.
- Educate Your Team: If you have employees, especially in finance or payroll, make sure they’re up to date with the changes. This will help prevent any compliance issues.
- Explore Tax Reliefs and Credits: There are still many reliefs and credits available to small businesses. Take the time to explore what’s available to you, such as R&D tax credits, which can reduce your overall tax liability.
- Stay Informed: Tax laws can change, sometimes with little notice. Keeping up with the latest updates and attending relevant webinars or workshops can help you stay on top of your obligations.
Get Ahead of the Curve with BBK Accounts
Tax changes can feel overwhelming, but with the right advice and planning, you can turn potential challenges into opportunities. At BBK Accounts, we’re here to help small businesses and self-employed individuals in Southampton navigate these changes with ease. Whether you need help transitioning to Making Tax Digital, reviewing your tax strategy, or simply want to chat about how these changes might affect you, we’re just a call away.
Contact us today for a free consultation and let us help you make the most of the 2024 tax changes.
