Author: Helen Whitehouse

Essential tax compliance for limited companies

Managing a limited company requires meticulous attention to regulatory obligations, particularly with regard to tax and accounting. Financial compliance is punctuated by a series of key deadlines and potential penalties for non-compliance, demanding a proactive and informed approach from company directors.

This guide delves into the intricacies of these obligations, offering a comprehensive overview to help ensure your company remains in good standing.

Initial setup

Filing the first accounts with Companies House

The journey of compliance begins shortly after the incorporation of your company. Your first significant deadline is the submission of your initial set of accounts to Companies House, due 21 months from the date of registration.

This extended deadline for the first submission recognises the challenges new businesses face in establishing their operations and sets the stage for regular annual reporting thereafter.

Annual obligations

Annual accounts submission

After the initial submission, your company is required to file annual accounts within nine months following the end of its financial year. These accounts must provide a transparent overview of the company’s financial performance and position, encompassing elements such as the profit and loss statement, balance sheet, director’s report and, depending on the company’s size, an auditor’s report.

This documentation ensures stakeholders, including shareholders, creditors and regulatory bodies, have access to accurate information about the company’s financial health.

Corporation tax obligations

Parallel to filing annual accounts is the obligation to address corporation tax. Companies must calculate and pay this tax nine months and one day after the conclusion of their financial year. Importantly, this responsibility includes informing HMRC if the company believes it is not liable for any corporation tax, thus avoiding penalties for presumed non-payment.

Company tax return

A critical component of tax compliance is the filing of the company tax return with HMRC, which is due 12 months after the end of the accounting period for corporation tax.

This return is comprehensive, detailing the company’s tax liability based on its annual financial report and calculations. It’s a fundamental process for declaring tax obligations to HMRC and requires precision and thoroughness.

Understanding penalties for non-compliance

Penalties for late filing

The consequences of missing filing deadlines are significant and tiered based on the delay.

For corporation tax, the following applies:

• 1 day late: £100
• 3 months: Another £100
• 6 months: HMRC will estimate your Corporation Tax bill and add a penalty of 10% the unpaid tax
• 12 months: Another 10% of any unpaid tax

For statutory accounts with Companies House, the following applies:

• Not more than 1 month: £150 for a private company or LLP (£750 for a public company)
• More than 1 month but not more than 3 months: £375 for a private company or LLP (£1,500 for a public company)
• More than 3 months but not more than 6 months: £750 for a private company or LLP (£3,000 for a public company)
• More than 6 months: £1,500 for a private company or LLP (£7,500 for a public company)

Penalties for late payment

Late payments of taxes incur interest charges at a rate of 7.75%. This applies to various taxes, including corporation tax and income tax, and underscores HMRC’s stringent approach to tax collection.

Failing to make tax payments can lead to severe consequences, ranging from intervention by debt collection agencies to the potential liquidation of the company, illustrating the critical nature of timely tax payments.

Importantly, all companies, including dormant and non-trading entities, are required to submit a confirmation statement at least once a year. This ensures the accuracy of the information HMRC have on record for your company.

Although there is no penalty for late filing, it is mandatory to submit a confirmation statement even if there have been no changes to your company during the review period.

Additionally, you must declare that the planned future activities of the company are lawful. This requirement is applicable to all confirmation statements dated 5 March 2024 or later.

Strategies to avoid penalties

Avoiding penalties and ensuring compliance is not just about adhering to deadlines; it involves strategic planning and best practices, including the following.

Accurate record-keeping

Maintaining detailed and accurate financial records is more than a procedural task – it is the backbone of fiscal responsibility and regulatory compliance for any entity. This record-keeping ensures that financial statements and tax returns are prepared with precision, minimising the risk of inaccuracies that could potentially result in penalties or audits.

Furthermore, such diligence in financial documentation offers invaluable insights into your financial health, enabling informed decision-making. It also simplifies the process of identifying and rectifying discrepancies early, ensuring compliance with relevant tax laws and financial regulations. This proactive approach safeguards against non-compliance and facilitates strategic financial planning and management.

Proactive financial planning

Setting aside funds for tax liabilities as they accrue throughout the financial year is a prudent financial strategy that ensures preparedness when tax obligations become due. This methodical approach eliminates the last-minute rush to gather sufficient funds for tax payments, thereby reducing stress and the risk of incurring penalties for late payments.

Additionally, by allocating funds for taxes in advance, individuals and businesses can improve their cashflow management, allowing for a more stable financial outlook.

This foresight not only guarantees timely compliance with tax laws but also enhances financial planning, as it provides a clearer picture of the entity’s available resources for investment and operational expenses.

Leveraging technology

The Making Tax Digital (MTD) initiative by HMRC represents a transformative approach to tax filing, mandating a digital-first methodology. The adoption of digital accounting software under this initiative significantly streamlines the tax-filing process, leveraging technology to ensure accuracy, efficiency and compliance.

For instance, software solutions such as QuickBooks, Xero and Sage are designed to integrate seamlessly with HMRC’s systems, automating the submission of VAT and PAYE returns directly from the software.

These options not only reduce the manual effort involved in tax preparation but also minimise the risk of errors that can occur with traditional paper-based methods. Moreover, these digital tools offer real-time visibility into financial data, enabling businesses to maintain up-to-date records and make informed financial decisions.

The shift towards digital accounting facilitated by MTD helps businesses adhere to regulatory requirements while enhancing their operational efficiency and financial transparency.

Addressing penalties

When companies face penalties for late tax filings or payments, the option to appeal provides a recourse if they can present a valid reason for the delay, such as severe illness or unexpected technical disruptions.

This appeal process, however, is stringent and demands comprehensive documentation as evidence to support the claim of a reasonable excuse. It necessitates a detailed explanation of how the specific circumstances impacted the company’s ability to comply on time.

Successful appeals hinge on the ability to conclusively demonstrate that the company took all reasonable steps to meet its tax obligations, despite the challenges faced.

Staying compliant with diligence

The path to compliance for limited companies is marked by a series of statutory obligations and deadlines, designed to ensure transparency, accountability and the equitable collection of taxes. Understanding and adhering to these obligations is not merely a legal requirement but a testament to the company’s commitment to financial integrity and stability.

Get help

Regular consultations with an accountant are often an indispensable strategy for maintaining compliance. Seeking professional help not only facilitates adherence to statutory deadlines but can also enhance your operational efficiency and financial health.

Managing tax obligations and complying with filing deadlines are foundational to the successful operation of a limited company. By embracing a proactive and informed approach to these responsibilities, and seeking help from an expert, you can manage the complexities of financial regulation, ensuring your company not only avoids penalties but also thrives.

Get in touch to discuss your company’s tax planning.

There was a significant uplift for families from 6 April as the annual entitlement for one child was raised. Additional child payments also increased.

HMRC has announced that, from 6 April 2024, millions of UK families receiving Child Benefit will see their payments increase. In a move to support households, the Government has raised the annual entitlement for families with one child to £1,331, marking an increase of £83.20.

Similarly, payments for additional children will now reach up to £881 per year, with no restriction on the number of children a family can claim for.

The revised scheme outlines payments of £102.40 every four weeks (£25.60 weekly) for the first or only child and £67.80 (£16.95 weekly) for each subsequent child.

HMRC has streamlined the process for families with existing claims, ensuring continued direct bank deposits without the need for contact.

From April 2024, the High Income Child Benefit Charge (HICBC) won’t affect families where the highest earner earns up to £60,000 – up from £50,000. For incomes between £60,000 and £80,000, the benefit reduces gradually, aligning with the HICBC for earnings above £80,000.

Parents earning over £50,000 are advised to adjust their Child Benefit claims before April to avoid potential charges for the 2023/24 tax year, while new thresholds apply to claims from April 2024 onwards.

Laura Trott, Chief Secretary to the Treasury, said:

“We are ending the unfairness in the Child Benefit system, and as a result, 170,000 families will no longer have to pay back Child Benefit, and nearly half a million families will save an average of around £1,300 next year.”

Talk to us about your finances.

Fees of up to £145 will be charged from 30 April. Small imports such as sausages and cheese are included in the charge.

Trade groups have warned of potential increases in food prices following the Government’s announcement of new post-Brexit import charges on EU food and plant products.

These charges, known as the common user charge, will affect small imports of items such as sausages, cheese and yoghurt entering through Dover and Eurotunnel at Folkestone. The Department for Environment, Food and Rural Affairs has outlined fees up to £145, effective from 30 April, intended to cover border inspection costs and enhance biosecurity by preventing the import of diseases.

These charges will apply to imports arriving in the UK and those transiting through. However, trade groups have criticised the move, arguing it will increase business expenses, raise food prices and possibly reduce consumer choice.

The Horticultural Trades Association (HTA) highlighted the announcement’s late timing and expressed concerns over its negative impact on the competitiveness of UK horticulture. It noted that 90% of the association’s growers, predominantly small businesses, import plants at some stage, and many will face the maximum £145 charge.

James Barnes, chair of the HTA, said:

“This will be a huge new cost burden for many, hitting small- or medium-sized enterprises hard.” The policy feels like it is constructed on the back of an envelope at best, he added.

Talk to us about your business.

Higher mortgage rates affect affordability as the cost of buying a home strains budgets.

Nationwide has reported a mixed picture of the housing market. On average, property prices increased 1.6% from March 2023, marking the quickest pace of growth since December 2022.

However, a slight dip of 0.2% was observed in March compared to February, indicating the first monthly decline since December 2023. This fluctuation comes amid a backdrop of mortgage rates descending from their summertime highs but remaining significantly above the low levels post-pandemic.

Despite these rates softening, the cost of buying a home continues to strain budgets. For an individual earning an average salary of around £35,000, mortgage repayments now consume nearly 40% of their take-home pay, underscoring the ongoing affordability challenges within the market.

January’s figures showed a 15% drop in mortgage approvals compared to the pre-pandemic era, reflecting the squeeze from elevated interest rates, which have reached a 16-year peak.

The Bank of England (BoE) recently kept the key interest rate steady at 5.25% but hinted at potential cuts, with financial forecasts anticipating a decrease to around 4.5% by year end.

Nationwide’s analysis, which excludes cash and buy-to-let transactions — accounting for a third of all sales — highlights the affordability pressures dampening market activity and price growth, despite a recent uptick.

Talk to us about your finances.

Practical and effective steps to manage debt

 Managing debt effectively is an increasingly crucial component of personal financial health in today’s economic climate. With rising living costs and the easy availability of credit, it’s easy to find yourself in a situation where debt becomes overwhelming.

This guide offers you practical and effective strategies tailored for managing your debt. Our aim is to empower you with the knowledge and tools necessary to tackle debt management. By implementing these strategies, you can work towards regaining financial stability and achieving peace of mind.

Whether you’re dealing with high-interest credit card debt, personal loans or mortgage payments, our advice is designed to help you manage your financial situation.

Understanding your debt

The first step in managing debt is to have a clear understanding of what you owe. This involves listing all your debts, including credit cards, loans, mortgages and any other financial obligations. For each debt, note the total amount owed, the interest rate and the monthly payment. This will give you a comprehensive overview of your debt situation and serve as a foundation for developing a tailored debt management plan.

Prioritising debts

Not all debts are created equal. Some carry higher interest rates, which can cause your total debt to increase more quickly. It’s essential to prioritise your debts, focusing on paying off those with the highest interest rates first.

This method, often called the ‘avalanche approach’, can save you a significant amount in interest payments over time.

Budgeting for debt repayment

Creating a budget is crucial for effective debt management. Your budget should detail your income, essential expenses (such as rent, utilities and groceries), and allocations for debt repayments. The goal is to identify areas where you can reduce spending and reallocate those funds towards paying off debt. It’s vital to be realistic and maintain a budget that supports your basic needs while maximising debt repayment.

Debt consolidation

For individuals juggling multiple debts, consolidation can be a viable strategy. Debt consolidation involves combining multiple debts into a single loan, ideally with a lower interest rate. This can simplify your payments and potentially reduce the amount of interest you pay.

However, it’s important to carefully consider the terms of a consolidation loan, as extending the loan term can result in paying more interest over time.

Negotiating with creditors

If you’re struggling to meet your debt repayments, it’s advisable to communicate directly with your creditors. Many are willing to negotiate terms, such as reduced interest rates or extended payment periods, to help you manage your payments. Being proactive and transparent with creditors can prevent your account from being sent to a debt collections agency, which can negatively impact your credit score.

Using a debt management plan (DMP)

A DMP is a service offered by financial advisers or debt management companies to help you repay your debts. Under a DMP, you make a single monthly payment to the service provider, who then distributes this payment among your creditors.

While DMPs can offer relief and a structured path to debt repayment, it’s important to understand any fees involved and how entering into a DMP may affect your credit score.

Considering an individual voluntary arrangement (IVA)

For those facing significant debt that cannot be managed through the strategies mentioned above, IVA may be an option. An IVA is a formal agreement between you and your creditors, mediated by an insolvency practitioner, to pay off a portion of your debts over a fixed period, usually five years. At the end of the IVA, any remaining debt is written off. While IVAs can offer a way out of overwhelming debt, they have serious implications, including affecting your credit rating and potentially your current and future employment.

Exploring debt relief orders (DROs)

DROs offer a solution for managing debts for individuals who owe less than £30,000, have minimal spare income (typically less than £75 per month), and do not own their home. With a DRO, individuals can halt payments towards their debts, including interest, for a 12-month period, during which they must adhere to certain restrictions. After this period, they are released from the debts and restrictions, unless their financial situation improves, which could lead to the cancellation of the DRO, or if they fail to follow the rules, potentially extending the DRO.

Essential payments such as rent, bills and certain debts not covered by the DRO, such as student loans or court fines, must still be met. The DRO imposes several restrictions, prohibiting individuals from borrowing more than £500 without disclosing the DRO to the lender, acting as a company director, creating or promoting a company without court permission, managing a business without informing business partners of the DRO, and opening a bank account without notifying the bank or building society of the DRO. From 28 June 2024, the total amount of debt that can be covered by a DRO will increase from £30,000 to £50,000 for non-homeowners.

Bankruptcy: A last resort

Bankruptcy should be considered a last resort due to its severe and long-lasting impact on your credit history. In the UK, declaring bankruptcy can release you from most debts after a certain period, typically one year.

However, it can restrict your financial freedom, affecting your ability to obtain credit, and might result in the loss of assets, including your home. Before considering bankruptcy, seek professional financial advice to explore all other options.

Maintaining financial health post-debt

Maintaining financial health after overcoming debt is crucial to ensure long-term financial stability and to avoid falling back into debt. This part of your financial journey is about reinforcing good financial habits and making strategic decisions that support your financial wellbeing.

Here’s a more detailed look at how you can maintain financial health post-debt.

• Continuing to budget effectively: Budgeting should not be a temporary measure used only while paying off debt, it should become a fundamental part of your financial routine. An effective budget helps you control your spending, save money and ensure you are not spending more than you earn. It also allows you to allocate funds towards your savings goals, which is essential for building financial security.

Review and adjust your budget regularly to reflect changes in your income, expenses and financial objectives. Consider using budgeting apps or tools to streamline the process and provide you with insights into your spending habits.

• Building an emergency fund: One of the most effective ways to protect yourself from falling back into debt is to build an emergency fund. This fund acts as a financial safety net that can cover unexpected expenses, such as medical bills, car repairs or sudden job loss, without the need to borrow money. Start by setting a goal to save three to six months’ worth of living expenses. If saving this amount seems daunting, begin with a smaller goal, such as £1,000, and gradually increase it over time. Prioritise contributing to your emergency fund by setting aside a portion of your income each month, even if it’s a small amount.
• Regularly reviewing financial goals and progress: Setting financial goals is important for maintaining motivation and providing direction for your financial decisions. These goals can range from saving for a house deposit, investing for retirement or saving for a holiday.

Regularly review your goals to ensure they remain aligned with your financial priorities and adjust them as necessary. Additionally, tracking your progress towards these goals can be incredibly motivating and can help reinforce positive financial habits.

• Investing in your future: Once you’ve paid off debt and built an emergency fund, consider investing as a way to grow your wealth and work towards long-term financial goals. Whether it’s through a pension scheme, stocks, bonds or other investment vehicles, investing can provide you with additional income and help protect against inflation. Before investing, educate yourself on the different types of investments available, their risks and potential returns. You may also want to consult with a financial adviser to create an investment strategy that suits your risk tolerance and financial goals.
• Protecting your credit score: After clearing your debt, maintaining a healthy credit score is important, as it affects your ability to borrow money in the future at favourable interest rates. Continue to manage your credit responsibly by paying bills on time, keeping credit-card balances low and not applying for new credit unnecessarily. Regularly check your credit report to ensure accuracy and monitor for any fraudulent activity.
• Continuing financial education: Staying informed about personal finance topics is key to maintaining financial health. Continuously educate yourself on financial planning, investments, taxes and any changes in the financial landscape that could affect your finances. Many resources are available, including books, podcasts, online courses and financial blogs, that can provide valuable insights and strategies for managing your money effectively.

Seeking professional guidance when needed

Don’t hesitate to seek professional financial advice when facing complex financial decisions or when planning for significant financial goals. A qualified financial adviser can provide personalised advice tailored to your unique financial situation, helping you make informed decisions that support your financial health and stability.

Maintaining financial health post-debt is an ongoing process that requires discipline, planning and a commitment to making informed financial choices. By adopting these strategies, you can build a strong financial foundation that supports your long-term goals and protects against future financial uncertainties.

Final thoughts

Debt management requires a proactive approach, discipline and sometimes professional guidance. By understanding your debt, prioritising repayments, exploring consolidation options and possibly seeking formal arrangements like a DMP, IVA or DRO, you can work towards regaining financial control. Remember, the path to debt-free living is a journey that requires patience, persistence and a commitment to making informed financial decisions.

As your accountants, we are here to support you every step of the way.

Our expertise can guide you through the complexities of managing your debts, help you develop a tailored strategy that fits your personal financial situation and provide you with the tools and resources needed to navigate the process.

Whether it’s creating a realistic budget, understanding the implications of different debt solutions, or assisting in negotiations with creditors, we’re committed to helping you achieve financial stability and peace of mind.

Let’s work together to build a solid foundation for your future, free from the burden of debt.

Struggling with debt? Contact us today

1.6m additional retirees dragged into income tax levy. 8.5m currently paying income tax, up from 4.9m in 2010.

New research for the House of Commons has shown that due to the income tax threshold freeze of £12,570 until 2028, an additional 1.6m pensioners will have to pay income tax in the next four years.

This is a significant increase from the 8.5m pensioners currently paying income tax, up from about 4.9m in 2010. If the threshold had increased with inflation, it would have reached £15,220 this year and £15,990 by 2027/28.

The Department for Work and Pensions reports there are 12.7m state pension recipients, with the Institute for Fiscal Studies noting over 60% now pay income tax, a rise from 50% in 2010.

The Resolution Foundation estimates that the tax threshold freeze will make the average tax-paying pensioner £1,000 poorer by 2027/28. Despite cutting national insurance (NI) by 2%, Chancellor Jeremy Hunt and Prime Minister Rishi Sunak’s aspiration to eliminate the tax has raised concerns that pensioners will bear the cost.

Both parties have committed to maintaining the state pension triple lock, ensuring it increases annually by the highest of wage growth, inflation or 2.5%. This policy will result in an 8.5% rise in the state pension this month.

A Treasury spokesperson said:

“Now the economy is turning a corner, we have cut national insurance by a third, meaning that – coupled with above-inflation increases to personal tax thresholds since 2010 – we have saved the average earner over £1,500 compared to what they otherwise would have paid.”

Get in touch to discuss your finances.

Please contact us  if you wish to discuss the implications of the new tax rules for you.

INCOME TAX ALLOWANCES

* The personal allowance is reduced by £1 for each £2 of income from £100,000 to £125,140.

** Any unused personal allowance may be transferred to a spouse or civil partner, where the recipient is not liable to higher or additional-rate tax.

*** Landlords and traders with gross income from each of these sources in excess of £1,000 can deduct the allowance from their gross income as an alternative to claiming expenses.

INCOME TAX BANDS AND RATES

* The starting rate does not apply if non-savings taxable income exceeds the starting rate limit. Every £1 of other income above the personal allowance reduces the starting rate ‘band’ by £1.

Income tax in Scotland

* Assumes individual is in receipt of a personal allowance.

** The personal allowance is reduced by £1 for each £2 of income from £100,000 to £125,140.

VEHICLE AND FUEL BENEFITS-IN-KIND 

The taxable benefit-in-kind is calculated as a percentage of the car’s UK list price. The percentage depends on the car’s CO₂ emissions in grams per kilometre (g/km).

* Diesel vehicles not meeting the RDE2 standard will be liable to a 4% surcharge, up to a maximum of 37%.

The list price is on the day before first registration, including most accessories, and is reduced by any employee’s capital contribution (max £5,000) when the car is first made available. Where the cost of all fuel for private use is borne by the employee, the fuel benefit is nil. Otherwise, the fuel benefit is calculated by applying the car benefit percentage to the car fuel benefit multiplier (below).

* Applies where private use is more than home-to-work travel. Payments by employees for private use may reduce these benefits-in-kind. Zero-emission vans have a benefit value of £0.

TAX-FREE MILEAGE ALLOWANCES

The tax-free business mileage allowance rates apply for qualifying business journeys incurred by employees using their own vehicles over the course of the tax year.

For National Insurance purposes, a 45p rate might apply for all business miles incurred by cars and vans.

CAPITAL GAINS TAX

INHERITANCE TAX

* Up to 100% of any unused part of a deceased person’s nil-rate band can be claimed by the surviving spouse/civil partner on their death. This also applies to the main residence nil-rate band, albeit the main residence nil-rate is subject to the taper withdrawal below.

** For estates in excess of £2m the RNRB is reduced by £1 for every £2 of value by which the estate exceeds the taper threshold.

Tax rates

* All lifetime transfers not covered by exemptions and made within seven years of death will be added back into the estate for the purposes of calculating the tax payable. This may then be reduced as shown in the table below.

** Applies if 10% or more of net chargeable estate is left to certain registered charities.

UK COMPANY TAXATION

*A tapered rate applies to profits falling between £50,000 and £250,000 in 2024/25.

MAIN CAPITAL ALLOWANCES 

Initial allowances

Writing-down allowances 

*An enhanced structure and buildings allowance of 10% is available in qualifying freeport tax sites.

VAT

Taxable turnover limits

RESEARCH AND DEVELOPMENT (R&D)

* 14.5% for small companies spending 40% of expenditure on R&D.

** A corporation tax deduction is applied to this.

TAX-EFFICIENT INVESTMENTS

* Reduces ISA limit by amount invested in Lifetime ISA.

** Up to £2m in a knowledge-intensive company.

REGISTERED PENSIONS

* The lifetime allowance will end in April 2024 and will be replaced by new allowances. For most people, the lump sum allowance (LSA) will limit the tax-free cash you can get from your pension to £268,275. The lump sum and death benefit allowance (LSDBA) will limit the total amount of tax-free cash you can get in your lifetime and when you die to £1,073,100, in most cases. An overseas transfer allowance (OTA) will also apply if you transfer your pension abroad.

** Tapered at a rate of 50% of excess income down to £10,000 if threshold income over £200,000 and adjusted income over £260,000. Restrictions can apply based on net-relevant earnings. For 2022/23 it would be tapered to a minimum of £4,000.

Subject to certain conditions, the unused amount of the annual allowance can be carried forward up to three years and used once the current year annual allowance has been fully utilised.

NATIONAL INSURANCE

* Entitlement to contribution-based benefits are retained for earnings between £123 and £242 per week.

** 0% for staff under 21 and apprentices under 25 on earnings up to £967 a week, or for new employees in freeport tax sites on earnings up to £481 a week.

* Exemption applies if the state retirement age is reached by 6 April 2024.

Employment allowance

* One claim only for companies in a group or under common control. Not available where the director is the only employee paid earnings above the secondary threshold for class 1 NICs. Limited to employers with an employer NICs bill below £100,000 in the previous tax year.

Apprenticeship levy

A levy of 0.5% applies where the pay bill exceeds £3m. There is an allowance of £15,000. Further conditions apply, so please consult with us.

STAMP DUTY

PROPERTY TAXES 

Incremental rates of tax are only payable on the part of the property price within each band. An extra 3% rate (6% in Scotland) applies to purchases of additional residential property above £40,000 and all corporate residential properties.

England & Northern Ireland: Stamp duty land tax

* First-time buyers pay nothing on the first £425,000 for properties up to £625,000. A 5% rate will also apply between £425,000 and £625,000.

For residential purchases by ‘non-natural persons’ over £500,000 a rate of 15% applies, subject to certain exclusions.

Scotland: Land and buildings transaction tax

* First-time buyers pay nothing on the first £175,000.

Wales: Land transaction tax

Residential property developer tax

IMPORTANT NOTICE

These rates and allowances are based on fiscal Statement and Budget announcements made by the UK and Northern Ireland, Scottish and Welsh Governments and are for information only.

All information is subject to change before 6 April 2024 and confirmation by the respective governments. The above must not be considered advice and no warranty is given for the accuracy or completeness of the details. Professional advice should be sought before making any decisions.

Rates apply to the UK and Northern Ireland unless stated otherwise.

Plans to simplify tax could require other increases. In 2022/23, NICs generated £178bn, with £103bn from employers, £65bn from employees, and around £10bn from the self-employed.

The Prime Minister, Rishi Sunak, has suggested the possibility of eliminating National Insurance contributions (NICs) for workers, following another 2% cut announced during the Budget.

National Insurance, established in 1911, plays a significant role in UK tax revenue, second only to income tax. In 2022/23, NICs generated £178bn, with £103bn from employers and £65bn from employees. Currently, employers pay a 13.8% rate on NICs for each employee, including those over the state pension age, though these employees are exempt from paying NICs themselves.

The idea of abolishing NICs aims to simplify taxation, as Sunak highlighted the complexity of people paying both income tax and NICs, despite the funds supporting the same public services.

This move could significantly reduce the effective tax rate for basic rate taxpayers to 20%. Chancellor Jeremy Hunt also echoed this sentiment, emphasising the unfairness of double taxation on work.

The recent Budget included a repeat of a 2% NIC rate cut, initially implemented in January, now totaling a 4% reduction. This proposal has sparked debate, with Labour leader Sir Keir Starmer criticising the plan as an unfunded commitment surpassing £46bn, potentially requiring increases in other taxes, like income tax, to compensate for the loss of NIC revenue.

The discussion comes ahead of a general election, indicating efforts to appeal to voters with tax reforms.

Talk to us about your tax return.

Navigating your finances with confidence

As we step into the 2024/25 tax year, it’s now more important than ever to take a proactive approach to managing your personal finances.

Whether you’re navigating the complexities of income tax, considering investment opportunities or planning for your future, understanding the nuances of the UK tax system can help you make informed decisions.

This guide is crafted with you in mind, offering clarity and actionable advice to help you optimise your tax position and secure your financial wellbeing.

Embracing the basics: Understanding your tax obligations

The foundation of effective tax planning is a solid understanding of your tax obligations. The UK tax system may seem daunting at first glance, but once you grasp the basics, you’ll be better positioned to identify saving opportunities.

Income tax: Know your rates and allowances

Income tax is charged on various forms of income, including wages, pensions and savings interest, but everyone is entitled to a personal allowance — the amount you can earn before you start paying income tax. Be aware, however, that those earning above £100,000 have a reduced personal allowance.

For the 2024/25 tax year, this allowance remains at £12,570. Beyond this, tax bands are applied progressively, meaning the more you earn, the higher the rate of tax you will pay on your income over the allowance.

• Basic rate (20%) applies to income over £12,570 up to £50,270.
• Higher rate (40%) is charged on income between £50,271 and £125,140.
• Additional rate (45%) affects income above £125,140.

Understanding which tax bracket you fall into is the first step in identifying how to manage your tax liabilities effectively.

Personal Savings Allowance and Dividend Allowance

For savers and investors, the Personal Savings Allowance (PSA) and Dividend Allowance present opportunities to earn income with favourable tax treatment. The PSA allows basic rate taxpayers to earn up to £1,000 in savings interest without paying tax, which decreases to £500 for higher-rate taxpayers. The Dividend Allowance permits £500 of dividend income to be received tax-free, regardless of your income tax band.

Marriage allowance

Married couples and those in civil partnerships could be eligible to apply for the marriage allowance. Those whose earnings are too low to fully utilise their personal allowance have the option to transfer this unused portion to their spouse or civil partner, up to a certain limit. This benefit cannot be accessed if the receiving spouse or partner is a higher or additional rate tax payer.

For the 2024/25 tax year, the highest amount that can be transferred stands at £1,260.

Maximising your allowances

One of the simplest yet most effective tax planning strategies is to ensure you’re fully utilising your available allowances.

ISAs: A tax-efficient haven for your savings

Individual savings accounts (ISAs) remain a cornerstone of personal tax planning. With a generous annual allowance of £20,000 for the 2024/25 tax year, ISAs offer a tax-efficient shelter for your savings and investments, with no tax on interest, dividends or capital gains. Whether you opt for a cash ISA, stocks and shares ISA, or the innovative lifetime ISA, making the most of this allowance can significantly enhance your wealth, tax-free.

In the Spring Budget 2024, the Government announced the introduction of the UK ISA. The new £5,000 allowance, in addition to the existing ISA allowance, will provide a new tax-free savings opportunity for people to invest in the UK, while supporting UK companies.

Pension contributions: Investing in your future

Contributing to a pension not only secures your future but also offers immediate tax relief. Contributions are topped up by the government at your highest rate of income tax, making them one of the most tax-efficient forms of saving. For the 2024/25 tax year, the annual allowance for pension contributions increases to £60,000, or 100% of your earnings, whichever is lower. Utilising this allowance can reduce your taxable income and the amount of tax you owe; the allowance can also be tapered down for high earners.

Planning for capital gains

Capital gains tax (CGT) is levied on the profit made when you sell or ‘dispose of’ an asset that has appreciated in value. It is important to note that it is the profit or ‘gain’ from the sale that is subject to taxation, rather than the total amount of money received from the sale. The essence of CGT is to tax the increase in value of an asset from the time it was acquired to the time it is sold, covering a wide range of assets including property, stocks and shares, among others.

For the fiscal year 2024/25, there is an annual exempt amount set at £3,000. This exemption allows individuals to realise gains of up to this limit without the need to pay any CGT. This threshold provides a strategic opportunity for taxpayers to manage their assets in a taxefficient manner. By planning the sale of assets, such as real estate, stocks or collectables, individuals can ensure that their gains do not exceed the exempt amount in any given tax year, thereby avoiding CGT on those gains.

Strategic planning can involve timing the sale of assets to take full advantage of the annual exemption. For instance, if an individual anticipates a gain that would exceed the exemption limit, they might consider spreading the disposal of assets over multiple tax years. This approach allows for the utilisation of the annual exempt amount in each year, potentially reducing the overall tax liability.

Inheritance tax planning: Safeguarding your legacy

Inheritance tax (IHT) planning is a crucial aspect of long-term financial planning. With the IHT threshold frozen at £325,000, any estate valued above this amount could be subject to a 40% tax rate on the excess.

However, strategies such as gifting, placing assets into trust or investing in IHT-efficient investments can mitigate potential tax liabilities and protect your estate for future generations.

Contact your accountant or financial advisor to discuss the additional exempt amount for residential properties, in addition to the standard £325,000, as the vast majority of people with inheritance tax liabilities will also have a residential property.

Navigating changes and seeking professional advice

The tax landscape is ever-evolving, with changes introduced in each Budget affecting allowances, rates and reliefs. Keeping abreast of these changes is vital for effective tax planning. However, the complexity of tax legislation means that personalised advice from a tax professional can be invaluable. A tailored approach, considering your unique circumstances and goals, can help maximise your tax-efficiency and financial wellbeing.

As we navigate the 2024/25 tax year, remember that effective tax planning is a continuous process, not a once-a-year task. By understanding your obligations, utilising available allowances and reliefs, and seeking professional advice, you can take control of your financial future with confidence.

Here are a few ways an accountant can assist in navigating changes and seeking professional advice.

• Identifying opportunities for tax savings: An accountant can review your financial situation to identify any opportunities to save on taxes. This could include making use of all available allowances, deductions and reliefs that you may not be aware of.
• Staying compliant: With tax laws constantly changing, an accountant ensures that you remain compliant, avoiding penalties and fines. This involves not just understanding current laws but also keeping an eye on upcoming changes that may affect your financial planning.
• Strategic financial planning: Accountants can assist in long-term financial planning, including retirement planning, investments and business growth strategies, ensuring that tax efficiency is considered at every step.
• Risk management: By understanding the nuances of tax legislation, accountants can help identify potential risks to your financial health and suggest strategies to mitigate them.
• Representation in tax investigations: Should you face a tax investigation, having an accountant can be invaluable. They can represent you, handle communications with tax authorities, and ensure the process is as smooth as possible.
• Tailored advice for major life events: Whether you’re selling a property, starting a business or planning for retirement, an accountant can provide personalised advice to optimise your tax position during significant life events.
• Educating on financial decisions: An accountant doesn’t just manage your finances, they can also educate you on the implications of financial decisions, helping you to understand complex tax issues and enabling informed decision-making.

Talk to an expert

By leveraging the expertise of an accountant like us, you can navigate the complex tax landscape with greater ease and confidence, ensuring that your financial planning is both compliant and optimised for your specific situation.

Need assistance? Get in touch for advice on your personal tax planning.

The average house price increased by 1.2% compared to last year, climbing to an average of £260,420. The last growth was seen in January 2023.

In February, UK house prices experienced their first annual increase in over a year, signalling a rejuvenation in the housing market spurred by reduced borrowing costs.

Nationwide has reported that the average house price climbed to £260,420, marking a 0.7% rise from January and a 1.2% increase from the same time last year.

Despite this positive shift, house prices remain roughly 3% below the peak levels of summer 2022. Both buyers and sellers are becoming more active, with property website Zoopla predicting a 10% boost in home sales this year.

Further optimism comes from the Bank of England (BoE) reporting a spike in new mortgage approvals in January, marking the highest level seen since October 2022, although lending rates are still low by historical standards.

Despite these challenges, the BoE has maintained interest rates at 5.25%, with financial markets anticipating a slight decrease in the coming months.

Nationwide chief economist, Robert Gardner, said:

“The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market. “While the squeeze on household budgets is easing, with wage growth now outstripping inflation by a healthy margin, it will take time to make up for the ground lost over the past few years, especially given consumer confidence remains fragile.”

Talk to us about your property finances.