Hi

As a new financial year begins for individuals and the self-employed today, now is a good time to catch up with forthcoming changes to tax rules. 

Please note:

• Changes which may take effect during the 2024/25 tax year (for example, measures that apply on or after the date that Finance Bill 2024 received Royal Assent) are not covered here. 
• Self-employed refers to individuals who work on a freelance basis or as sole traders not the sole directors of a limited company.

National insurance

It was announced in the Spring Budget 2024 that the headline rate of class 4 national insurance contributions (NIC) for 2024/25 is 6%, reduced from 9% for 2023/24.

From 6 April 2024, a person with profits in excess of £12,570 no longer has to pay class 2 NIC. Where profits are at least £6,725, the person continues to receive access to contributory benefits (eg, the state pension). Where profits are under £6,275 or a loss is made, the person may make voluntary class 2 NIC at the rate of £3.45 per week in order to get access to contributory benefits.

Tax year basis replaces accounts basis

2024/25 is the first year for which profits are taxed fully on the tax year basis. This means that the person’s taxable profits for 2024/25 are those attributed to the period from 6 April 2024 to 5 April 2025 (or 1 April 2024 to 31 March 2025). Where the person prepares accounts to a date other than 5 April (or 31 March), the results for the periods covering the tax year are pro-rated. 2023/24 was a transitional year; where relevant, adjustments are required to ensure that profits up to 5 April 2024 (or 31 March 2024) are taxed and overlap relief (if any) is utilised. 

Cash basis replaces accruals basis for calculating profits

Significant changes apply to the cash basis for 2024/25 onwards, as follows:

• the cash basis is the default basis for calculating the profits of eligible businesses. Should the person want to use the accruals basis, they must elect to do so;
• the turnover test on entering and leaving the cash basis is removed, making the cash basis relevant to many more businesses;
• the £500 annual cap on interest deductions is removed; and
• the restrictions on loss relief applying only to the cash basis are removed.

Off-payroll working regulations

From 6 April 2024, HMRC has the power to offset tax and national insurance contributions (NIC) already paid by a contractor or their service company against PAYE due by a deemed employer where an employment status determination error has been made when applying the off-payroll working rules.

Perhaps just as interesting as what is changing in April, is what is not changing. For example, the income tax personal allowance and the thresholds for the rates of income tax set by the UK government continue to be frozen at the amounts for April 2021. 

This decision not to uprate a wide range of tax allowances and thresholds means not just a higher tax bill for many, but also increased engagement with the tax system overall. 

It is likely that more people will be brought within self-assessment and that many will encounter complicated tax rules for the first time. Issues to consider include whether ongoing claims to marriage allowance are still valid or beneficial, and the possibility of making gift aid donations or pension contributions where the taxpayer is above one of the cliff edge income tax thresholds (eg, £100,000 for the abatement of the personal allowance).

If you haven’t been made aware of these changes by your tax adviser now may be the time to take advice to see how they impact you.

Noel Guilford