Budget Review 2024

VAT Threshold

Increase from £85,000 to £90,000

This is the first increase since 2017. Had this risen with inflation as it used to, it would now stand at £108,000. There is quite a significant ‘hold back’ to business when bunched under the limit, as explored here. I know from our own clients many sit under the threshold, as going just over reduces their margins sharply and makes their business uneconomic, so this might actually raise tax revenues with higher economic activity and quite frankly less underdeclared incomes albeit the OBR suggests it will be a net cost.

Late edit this caught my eye.  A massive irony to find out the EU now effectively sets the VAT threshold ceiling given prior to Brexit the UK was free to set the limit as it saw fit.  One of those ellusive Brexit Dividends.

Already Announced

Please see Appendix Two for details on the new Corporation Tax Regime which is still very relevant and updated for changes in sole trader vs limited company.

Please note the changes to relative tax rates of sole trader and limited companies may change your decision to incorporate.

Companies House Changes

There are number of changes at Companies House aiming at tightening up a very lax regime.

These include:

Higher fees, including confirmation statements increasing from £13 to £34 from 1st May.

If you have a dormant company, then the cost of striking off increases from £10 now to £33, so do consider if you really need it.

Increased reporting requirements, including the need to file a profit and loss account.

This in sharp contrast to the current very minimalist balance sheet only reporting. We don’t know at this stage what level of disclosure will be required, nor do we have a start date. I would expect to see details later this year.

Much increased levels of checks on ID and filed documents.

Currently documents filed with Companies House are assumed correct and essentially published as presented. HMRC will start to scrutinise filings and may in theory ask many more questions about your documents. For comedy effect, one major change is to have a “statement of lawful purpose”, which I am sure will have anyone setting up a business with unlawful purposes quaking in their boots ticking that box. They must have seen the “are you a terrorist?” question on landing cards and thought “brilliant”.

R&D Tax Credits

Pre-notification of claims required.

This is worth repeating – the administration around R&D tax credits is being considerably tightened. This has been a long time coming with HMRC estimating 50% of claims contain an element of non-compliance. Which on £8BN of annual tax relief (about 1p on income tax) is a tad on the high side.

The new guidance notes add a pre-notification process to making a claim. Pre-notification requirements are likely to kill off most of the more dubious claims from the “ambulance chasing” outfits who you can easily spot from not only cold calling you, but starting with the line, “your accountant doesn’t understand R&D tax credits”.

The good news in all of this is that genuine projects which do require R&D relief for the development of something groundbreaking should be able to get funding, which is its original purpose. It is not supposed to be just a big number for the Chancellor to read out and sound like there is genuine investment in the UK economy.

Changes to Furnished Holiday Lettings Rules

Furnished Holiday Lettings status removed from April 2025.

This will apply to traditional holiday lets and shorter term AirBnB.

The impacts are:

• Rate of CGT on sale rises from 20% to 24% for higher rate tax payers in line with residential lettings.
• Removal of ‘business asset’ tax breaks which allowed roll over relief.
• Mortgage interest relief moves to the residential regime, which treats interest as a basic rate deduction from tax and not a business expense.
• Initial furnishings will be a “tax nothing” with no deduction.

This is quite hard on holiday lettings which are normally marginal activities from a profit point of view in any case. The long term impact of this is likely to reduce the supply of holiday lets, which will please those living in communities which have been “hollowed out” by seasonal lettings, but less useful for those looking for a UK holiday as prices in peak months will no doubt rise if supply reduces.

The really pernicious part of this will remove the ability to claim tax relief initial furnishings which is a “tax nothing” for essentially historic poor legislative drafting reasons, and a major claim for holiday letting businesses in the first year. This points to a return to “grannies sofa” style accommodation.

The only good news is the rise in the VAT threshold which allows higher rents before VAT registration.

Lower Rate of CGT on Let Property

Higher rate reduces from 28% to 24%.

This is somewhat unexpected change, and will be welcomed by many of our landlords.

The OBR claim this will accelerate sales and actually lead to an increase in taxation of some  £310,000,000 in 2024/25 which is a little surprising to me as landlords normally sell for reasons other than the CGT rate.

If you currently are selling a property, then ensure the exchange is after the 6^th April, as this is the tax point, not the date of completion. The OBR expect to lose £70 million to such planning, so don’t disappoint them.

Multiple Dwelling Relief

This reduced SDLT when two dwellings are purchased on one title.

Following frequent abuse of this scheme it has been abolished. This seems quite sensible given some quite outlandish claims by “ambulance chasing” SDLT firms offering to reduce SDLT for ‘mixed use’ dwelling which in reality is a single private dwelling with a very minor use for ‘country pursuits’ such as a few sheep, equestrian or other uses, or prehaps a small annexe which is not really a seperate dwelling. I am a little disappointed they didn’t just apportion the dwellings at market value which makes more sense.

Worth reminding you of:

SDLT Threshold

The temporary expansion of the nil rate SDLT band to £250,000 will end in March 2025.

60 Day Report and Pay

If you sell your let property any Capital Gains Tax needs to be reported and paid within 60 days of the sale, unless you sell during February or March and we can file your 2023/24 tax return before the 60 day clock runs out.

A few points here.

Employees National Insurance

Main rate of employee NI cut from 10% to 8% from April 2024.

Self employed falls from 8% to 6%.

This comes on top of the 2% cut in the Autumn for employees and 1% cut for self employed, however it only partly makes up for a failure in inflation linked personal allowances for tax payers in a narrow band of PAYE incomes between £32,000 and £57,500. See the Appendix 3 below for further analysis.

Employer’s NI remains unchanged at 13.8%, and it would appear the rate for higher rate tax-payers remains at 2%.

Child Benefit Repayment

The repayment threshold for child benefit increases from £50,000 to £60,000.

The taper increases from a £10,000 band to £20,000 band.

This to be a household system by April 2026.

This seems sensible as the taper reduces the marginal rate of tax considerably. Under the current system employees with two children earning between £50,000 and £60,000 will have a marginal rate of tax of 62.5%. This falls to a slightly more palatable 52% between £60,000 and £80,000, and should reduce the disincentive of higher marginal tax rates on work. It is worth noting had the £50,000 band kept in line with inflation since it was announced in 2013 it would now be £67,000.

In the longer term it sounds as if we are going to move to a household basis, which one assume will benefit one parent families/penalise two earning households. This sounds like a major IT headache for HMRC as they don’t normally collect household data and so it is not planned to start until April 2026. As ever policies are all very well, but delivering them in the real world is much harder.

Non Domiciled Status Removed

• From April 2025, non-doms to be taxed as ordinarily resident persons.
• For new arrivals, there will be temporary 4 year rule.

This announcement is a core Labour policy, and moves all residents to being taxed on their worldwide income, removing the optional “remittance” basis i.e. taxed only on monies brought into the UK.

There appear to be sensible four year arrangements for those coming to the UK to work or study which will benefit many sectors which rely on skilled labour from overseas, such as science and education, and those choosing to stay will move to a worldwide basis in time. This seems to be limited to stop people gaining/losing residence to game this.

The main concern is that the “transitional arrangements” sound very much like a big loop hole for some friends before this comes into force fully, with an ultra low 12% rate of tax in the notes.

Already Announced

Sole Traders NI

Class 2 NI abolished (from 2024)

My main practical concern remain is that the Class 2 record is the trigger for a qualifying year for state pension, and it’s unclear what happens now. Given how poor this system is, and without a missing payment to trigger investigation, it sounds like a significant pension problem may arise down the line.

Class 4 NI reduced from 9% to 6% (from April 2024)

Frozen Personal Tax Allowances from 2022

All bands for Income taxes to be frozen until April 2028.

As reported previously, with inflation even at a new “low” rate of 4%, the impact of “fiscal drag” is pronounced. In particular by fixing allowances longer term it hugely flatters forecasts of the point when tax receipts will magically exceed revenues in a few years time, a game that has been played for such a long time it ceases to have any credibility.

Tax Free Dividend Band

Reduces from £1,000 in the current tax year, to £500 from April 2024.

This was £2,000 in the 2022/23 tax year.

Tax Free CGT Allowance

Reduces from £6,000 in the current tax year, to £3,000 from April 2024.

This was £12,300 in the 2022/23 tax year, and I think will catch out a lot of people with modest share portfolios who will need to pay CGT when previously they did not.

Company Car Benefit in Kind

The BIK band for electric vehicles stays at 2%, rises to 3% from April 2025 and by April 2026, 5%

This impacts those driving an electric company car. The benefit in kind rate is applied to the list price of the vehicle, and you and your employer are taxed on the computed benefit. Electric cars are still however a brilliant tax break, as are some hybrids.

This section demonstrates where the fiscal drag is really biting, with virtually all allowances left unchanged.

Below I list some major allowances, and in brackets [date of last change, what the rate would be if it kept pace with inflation to Jan-24, and % effective reduction]

• Personal allowance stays at £12,570 [Apr-21, £15,013, 19% reduction]
• Higher rate threshold stays at £50,270 [Apr-21, £60,041, 19% reduction]
• Corporation Tax main rate remains 25% for profits over £250,000 [Apr-23, £252,109, 1% reduction]
• Corporation Tax 19% for profits under £50,000 [Apr-17, £63,897, 28% reduction]
• VAT threshold up from £85,000 to £90,000 from 1st April 2024 [Apr-17, £108,625, 21% reduction despite increase]
• Mileage stays at 45p for business use of private car under 10,000 miles, and 25p for additional miles [Apr-11 & Apr-02, 64p & 44p, 42% & 76% reduction]
• IHT threshold remains at £325,000 [Apr-09, £496,948, 53% reduction]
• IHT threshold for a married couple with a home announced 2017 remains at £1,000,000 [Apr-17, £1,277,940, 28% reduction]
• £100,000 threshold for loss of Personal Allowance remains (frozen since 2010) [Apr-10, £147,422, 47% reduction]

It doesn’t seem like long since the last one of these, and it turns out, just over four months since the red dispatch box was last brought out for the cameras for its day as part of a largely content free political theatre.

So has much changed? Not really. The economy is still technically in a recession albeit really just flatlining for the last two years . Inflation is falling a little but still relatively high. The big story remains. Fiscal drag is biting deep, and the ongoing tax take will still be 37% of the economy compared to around 33% between 2000 and 2020….and climbing. You would expect public services to be first class with that level of spend, but instead seem to be close to collapse, even HMRC is effectively broken which is a bit of a worry if you are trying to plug public finances. To make forecasts look more rosy, they are forecasting further savage cuts in what is left in the public sector.

Anyone would think the public might have noticed given recent polling.

So into the fray steps Hunt, having already preannounced all three of his main policies, something which seems to have gone from deliberate ‘leaks’ to outright announcements to National newspapers. Hunt was looking a little more tired and little less Tiggerish at the dispatch box this time around. Oliver Dowden (green tie) flanked, looking like he was trying hard not to fall asleep during school assembly. Richi seemed to be zoning out for much of the hour of nonsense looking up at the public gallery/ceiling. Only Laura Trott (green dress) was trying to look interested but I suspect was just staring at the back of Hunt’s head with a fixed grin and remembering to nod occasionally.

More or less all of the mammoth 75 minute speech was spent looking smug and laying into Labour and the Lib Dems rather than announcing anything from a policy point of view. He was back to the really tedious “name check every constituency” game which I can only assume is some sort of a bet and met with huge groans from the house. There was almost no new policy announced at all, it was possibly the most empty budget I have had the displeasure to sit through.

There was some real fantasy stuff about a £4billion NHS IT project “largest digitally integrated healthcare system in the world” which has been tried and failed several times. What could possibly go wrong given the excellent government records in IT. The same for the police who will (and I quote) “be sending drones as first responders”. He really said that. Starmer reminded us in response that when Hunt was running the NHS he said it would be paperless by 2018.

The main surprise was the reduction of the rate of capital gains tax on let properties from 28% to 24%, I do wonder if some senior figures have some let property to off load before there is a new government.

Despite his claims to be lowering taxes, the OBR say “no”.

What we didn’t get – I have been predicting for some time that all the band freezing and fiscal drag should open a large door for some pre-election tax cuts. However as the economy has essentially flatlined Hunt has no real room to do this, and all he has going was the NI cut, which is narrower than an income tax reduction he previously claimed would arise in this parliament,  and so cheaper at £9bn vs £14bn. As policy this is quite interesting as he alluded toward an aim of abolishing NI with presumably a corresponding increase in income tax at some point. It was stated that the long term aim is to cut NI to nil. It is a long standing tax fantasy amongst accountants to remove the two taxes on income (NI and Income tax) and replace with a single tax as it would considerably simplify the UK tax system. This is quite a smart move as it subtly increases the relative taxes on pensions and passive investments without putting the headline rate up. However compared to raising income tax bands in line with inflation the policy is regressive, that is to say does not benefit those at the bottom of the pile.

What he didn’t do is also interesting – the current rate of tax on dividends 8.75% (BR) and 32.75% (HR) was increased when the rate of NI was increased in 2022 – but has not been reversed. This now means that having a small limited company is no longer tax efficient vs a sole trader. This is a long way from 15-20 years ago when there was a nearly 10% tax saving and a “no brainer” to incorporate even on a relatively modest income of £25,000. Now for incomes under £50,000 the marginal rate of tax will be broadly the same as a sole trader at 26% accounting for all taxes. Above £50,000 profit there is a 10% premium on having a limited company, albeit with some kinks and computational differences along the way. The main advantage of a company is now reduced to limited liability and the ability to “time shift” your income over more than one personal tax year. It isn’t however simple to disincorporate and businesses with goodwill would incur a tax charge on exit, and with a new government on the way I would sit tight for now on any major structural decisions for your business.

It was somewhat of a surprise to see the removal of non-dom status go through. I rather cynically assumed senior supporters such as Lord Rothermere (owner of the Daily Mail and other titles) or perhaps ex conservative party chairman, Lord Ashcroft who seemed rather keen to be ‘taxed’ in Belize for many years might stop such policies. Or the boss’s wife for that matter. It would appear taking the wind out of Labour’s key policy was more important, and probably the generous rules around the transitional period which the Conservatives now control. The OBR firmly rebuffed the long run scare stories about non-doms leaving the UK, and forecast a £2.7 billion increase in revenues.

We will see if Hunt has another run out before an election is called but I imagine he won’t have much to say. I am however very much glad it is not me with the red box. My advice to the next incumbent would only be “Well I wouldn’t start from here”.

Politics aside the biggest impact here is they have now largely aligned the tax cost of working through a limited company as a sole trader, which changes quite markedly the “pro business” stance for many years which encouraged incorporations. Going from a limited company to sole trader is however non-trivial and I imagine I will be having conversations about this with clients for some months and years to come.

I normally publish the following tables to give typical extraction strategies undertaken by small Limited Companies. These give the maximum director’s bonus and dividend combinations for company directors to each key “stop” point, of (a) staying basic rate; (b) preserving child benefit; and (c) loss of personal allowance at £100,000 gross income.

This is getting more complex as time goes on, so please treat this as a “loose guide” as your circumstances may of course be different.

The standard salary amount for 2023/24 will by £12,570 in most cases including one and two director companies.

With the increase in the high income child benefit charge announced today, the total to extract for those wishing to retain child benefit has increased from £50,000 to £60,000.

Directors Wishing to Stay Basic Rate

Increase in tax: £44 for no extra drawings.

Directors Wishing To Retain Full Child Benefit

Increase in tax: £3,352 for £10,000 extra drawings.

Directors Wishing To Preserve Personal Allowances

Increase in tax: £44 for no extra drawings.

Alternative Way of Looking at Extractions for Your Limited Company

Your gross income (dividend+salary+other income) should be:

£50,270 if you want to stay basic rate

£60,000 if you want to keep all your child benefit

£100,000 if you want to preserve all your personal allowance

£125,140 if you want to avoid the additional (45%) rate of tax

You can then use the following rules of thumb for how much tax to keep back:

I have put this in again, as quite a number of company clients missed it last time around.

With the new rates of Corporation Tax, decision making about what salaries to pay and what expenses to book through your small limited company become more complex, as what used to be sensible can now become bad planning depending on your income level. The following is an attempt to summarise what will work in most situations, and I will talk to clients on an individual basis about what will work for you, typically with your year end.

The table below summarises the marginal rates of tax, combining Corporation Tax, and Dividend Taxes, at different profit levels, and if the owners are a higher or basic rate tax payer for that drawing.

In practice, sole company directors will be Basic Rate for the first £50,000 of profit and then move to the Higher Rate once company profits reach £50,000, with the associated jump in tax rate from 26% to 51%. This is a very long way indeed from the position in 2016 with marginal rates of 20% and 40%, aimed at encouraging small business.

So What Does This Mean for Tax Planning?

For many of our clients we will be trying to keep your profits down below £50,000 by adding in as many legitimate costs as possible, and in particular trying to ensure the company pays for all the costs it can tax efficiently, rather than the individual paying for it out of their net income.

Always Good

The following costs are “no brainers” for virtually all clients, regardless of income.

• Small director’s salary up to £12,570 [see notes below on this]
• Gross Company Pension Contribution
• Electric vehicle as a company car [25 to 30% saving, reducing over time due to tax change and initial age of vehicle]
• Hybrid vehicle as a company car [5 to 10% saving again benefits reduce over time, and initial age of vehicle]

Good For Profits Over £50,000

if your business profits, after directors’ salaries, pensions and other sums still exceed £50,000, then we may want to look at some more marginal items.

• Benefits in kind, so the likes of private medical insurance, are *mildly* beneficial, but there is not a lot in it. Under £50,000 profit it will be more tax.
• Electric vehicle as a company car [35 to 40% saving, reducing over time due to tax change and age of vehicle]
• Hybrid vehicle as a company car [10 to 20% saving again benefits reduce over time, and age of vehicle]

All in all this means more complexity around your small business, and inevitably higher compliance costs. Putting in a company car is fiddly, albeit worthwhile for the current tax breaks if you go electric. Some clients may well prefer to keep their business simple and chase business revenue rather than marginal tax savings.

Directors Salary Levels

This is again quite complex. Sole directors with no other employees will pay no National Insurance up to £9,100 annually, but assuming a salary of £12,570, Employers NI arises of £478.86.

Employer’s NI does not arise when you have two directors as you can claim the Employment Allowance which pays for the first £5,000 of Employers National Insurance. Similarly if you have a regular employee you may have some of the Employment Allowance remaining you can use for your own salary.

Historically, we have tended to “keep it simple” and avoid paying any Employer’s NI, even in situations where there has been a small benefit.

From April 2023, for businesses with a profit of less than £50,000 before tax, the exact benefit of paying the higher rate of Employer’s NI will vary depending on the other income of the director but will be broadly £270 per company.

If your profit is between £50,000 and £250,000 this saving increases to £567.

We consider this is enough of a saving to now recommend this as standard policy, albeit if you have other income (such as rents) using up your basic rate allowance then this may not be optimum, especially on profits under £50,000.

Should I pay higher salaries still? 

Short answer, no, as you will also be paying Employee’s NI of 8%. Even if you have unused Employment Allowance the benefit is negligible in most cases, albeit not all. Once your Employment Allowance is fully used up, there are no common situations when a salary will be beneficial.

Company Tax Issues in more Detail

Some of our clients like to understand what is going on in more detail, so to explain a few key points:

Why is the marginal rate of Corporation Tax 26.5% and not 25%?

Since 2014, there has been one rate of Corporation Tax for all businesses.

However from April 2023 the rate of 19% will apply only to profits of £50,000 and less, and the full rate of 25% will apply to profits over £250,000.  Unlike Income Tax or SDLT, the rate is computed with a claw back, which mean Limited Companies earning between £50,000 and £250,000 will have a marginal rate of tax of 26.5%, so as to reach an average rate of 25% by the £250,000 profit level.  Under the old pre 2016 system the ceiling was much higher, £300,000 for the start of the taper.

I should point out businesses which straddle the year end, so have for example a December 2023 year end, will have a hybrid rate with 9/12th at the new rate, and 3/12ths at the old, which I am not going to consider here in detail.

Isn’t the marginal rate of total taxes actually 60%?  Corporation Tax + Dividend Taxes?

Not quite, as the Dividend Taxes are only paid on income already subject to Corporation Tax. So to run the numbers, for every £1,000 you make between £50,000 and £250,000 of company profits, you pay £265 in Corporation Tax. This leaves profits of £735 from which a dividend can arise. The tax on that dividend becomes £248;  Leaving you with just £487. Or 51.3% in taxes.

For a basic rate tax payer, your marginal rate of tax will be 32.9%.

If I have second Company, can I have two £50,000 limits?

No, is the short answer. If you have two or more companies under common control the £50,000 band will be divided between the businesses, so you have £25,000 in each one. In some circumstances, where there is no commercial interdependence, then it will be possible for (say) a husband and wife to operate separate companies, and have their own £50,000 band, but this is quite delicate.

Should I close the company and be a Sole Trader?

You almost certainly don’t want to form a limited company just for tax reasons if you have an existing sole trader as the tax benefits have vanished with the steep fall in the rate of National Insurance for sole traders.

The rates of tax are broadly similar for basic rate tax payers, and companies are worse with full extraction over £60,000 of profit.  The main benefits are around choosing which tax year incomes are declared and rolling up incomes to distribution later on which is quite frankly a marginal benefit for many clients. Coupled with the increased reporting regime for small limited companies they are not looking very attractive other than for limited liability for businesses with risk.

Going the other way is however hard. Any business with goodwill will face a tax charge on exist as it is sold to the sole trader – there is no tax relief available in that direction.

Below is a table summarising the impact on PAYE incomes of the 4% reduction to the main rate of NI (2% announced in the Autumn plus 2% announced today).

I also enclose a table modelling the real terms impact of ‘fiscal drag’ since April 2021 on income taxes and NI, had allowances and NI thresholds increased in line with inflation. This incorporates the impact of the reduction in NI announced today and in the Autumn for those of you with PAYE income.

In short, the combined 4% reduction to NI within the last two months, does not compensate for ‘fiscal drag’ for earners in the band £20k-£32k or anyone over £57.5k. Anyone earning between £32k-£57.5k will be better off, although both lower earners and higher earners are still very much affected in real terms by ‘fiscal drag’.

I will recyle most of this from earlier years,  but the zombie project lumbers on with a flurry of further announcements since Christmas still beating the same old drum with nothing visible resolved.   In theory the deadline is still April 2026. O how accountants laughed at the news.

As previously reported……

A few clients have asked me what has happened to my bete noire.

To recap, way back in 2015 it was announced that from April 2018 all sole traders, partnership and landlords with a turnover over £10,000 would be merrily filing quarterly figures in addition to the annual tax return. The aim was “efficiency” for small businesses through effectively compulsory digitisation of record keeping. Small Limited Companies were to follow.

So where are we with this now?

Well the new deadline having been put back and back, year after year is now April 2026 for a turnover over £50,000 (sole traders or landlords) and April 2027 for turnovers over £30,000.  A mere 9 years after the initial launch date. There was to be a “review” for businesses with a turnover between £10,000 and £30,000 but this seems to have been dropped and there seems to be no requirement for thresholds under £30,000.

Behind the scenes the project is in tatters. The pilot has a handful of users (largely software developers), and is closed to new joiners. No software is available for anything other than very basic situations. A huge number of fundamental issues remain unsettled in terms of the basics of reporting periods, corrections, and indeed, what the data will actually be used for. Software developers who have been rubbing their hands with glee and heavily pushing this project are abandoning ship and not best pleased with the continued delays and lack of a firm specification to code to.

In flying pig terms, the project has not yet resolved how the wings are going to work on a standard sized pig and just hoping the solution will also work on all breeds and sizes. None of the remaining team dares acknowledge that a functioning system will require not just all the pigs aloft, but the whole farmyard, including the fowl who can fly anyway, but will have to fly using the universal farmyard solution. The fundamental question of why the animals need to fly in the first place is being quietly debated, privately at least.

This is a classic government IT project failure in action. We seem to be getting to beyond the denial stage, past anger with the profession for pointing out its many flaws, and into bargaining and potentially even sullen depression. Acceptance of failure may be a few years off, but it looks to be on its way, but like all good zombies may yet rise from the grave and come back to frighten everyone in a while.

So what do I need to do?

Well apart from tutting and rolling your eyes like my 12 13 year old twins, nothing much.

I would however come back to the point that having all your business banking flowing through a dedicated bank account, is generally good thing from a bookkeeping point of view regardless of HMRC’s software dreams.