01235 867519
contact@JamesESmith.co.uk
01235 867519
contact@JamesESmith.co.uk
I enclose our normal budget review, based on statements and announcements available on 29th October 2024, as applicable to our core clients, being small limited companies, landlords and individuals.
The key points today:
Please appreciate this is written very quickly, and will be updated over the next 24 hours.
James Smith
Chartered Accountant
I outline the impacts below, including things that have already been announced and are coming into play over the next year or two.
National Insurance
The employers rate goes from 13.8% to 15%
Employment Allowance [‘free’ employer’s NI] up from £5,000 to £10,500
Starting band drop from £9,100 to £5,000
This is quite a complex set of interactions, but essentially
For sole Directors and no employees this is painful as you are not eligible for the Employment Allowance, however you could potentially employ someone for one month earning £450 or more, and claim.
A surprise bonus for larger employers, the £100,000 NI cap is removed, so all employers are now eligible for Employer’s Allowance which reduces the impact of this measure.
Business Asset Taper Relief
Increase from 10% to 14% from April 2025, and 18% April 2026
This is the tax that is paid on selling a trading business. The main use by our clients is distributing reserves on closing a business without declaring dividends. By putting in a ratchet there is a clear encouragement to ‘get on with it’ in order to raise revenue.
I am far from convinced that anyone really starts a business with the intention of claiming business asset taper relief. It never crossed my mind when I started mine, and I imagine you are the same, so I am surprised to see this remain.
Please see Appendix Two for details on the new Corporation Tax Regime which is still very relevant.
Companies House Changes
There are number of changes at Companies House which are ongoing, which I cover again here.
These include:
Much increased levels of checks on ID and filed documents.
From ‘Spring’ 2025, Companies House are going to check ID for major shareholders and directors. This is likely to be quite painful as each will need to use the government “verify” service. If you haven’t got a valid passport, I would get one now. Please look out for guidance as it’s issued to you, we think it will be tied into your Confirmation Statement cycle.
Higher fees, including confirmation statements increasing from £13 to £34.
This is supposed to be to pay for the enhanced level of checking of documents.
Increased reporting requirements, including the need to file a Profit and Loss account.
We still don’t know at this stage what level of disclosure will be required nor the start date. I will let you know when I do.
SDLT
The ‘penal’ rate of SDLT goes up from 3% to 5% from 31st Oct 24
This is somewhat of a surprise. This is the extra SDLT paid by buying a second home for rent or private use.
Rate of CGT on Let Property
This is unchanged, and remain at 18% for basic rate tax payers, and 24% for higher rate tax payers.
This is also a surprise, not least as the 24% band fell form 28% in April 2024 and looked to be a little ‘gift’ from Hunt to make Labour look bad when putting it up to 30% or more.
SDLT Threshold
The temporary expansion of the nil rate SDLT band to £250,000 will end in March 2025.
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:
Probably the biggest impact is to remove the ability to claim tax relief on initial furnishings. This is essentially a historical quirk for BTL. Given furnishings are a major claim for holiday letting businesses in the first year, this is likely to have a major impact. Replacement furniture is OK, so this perhaps points to a return to “granny sofa” style accommodation, which is swiftly replaced after a year or two.
The only good news is that any losses can now be pooled against regular BTL’s. This benefits some clients with a loss making FHL and a profit making BTL.
You will still however need to track your FHL for VAT purposes, the rules for which are unchanged.
From a tax planning point of view married couples with jointly held properties will have a default ownership of 50/50 applied from April 2025, so if you currently vary the percentage of income declared per person then talk to me if we have not done so already. An unequal split can be achieved using a deed of trust and Form 17 application to HMRC, albeit not retrospectively.
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 2024/25 tax return before the 60 day clock runs out.
Clients are still missing this!
A few points here.
Personal Tax Bands
The current freeze continues, until 2028/29
A somewhat laughable announcement that personal tax bands will be uprated from inflation from, er, 2028/29. Or frozen for another three years as its known. This was Hunt’s policy to essentially make the figures look better in forecasts and it seems to have stuck, and mainly hits lower paid workers. As inflation is now quite low the impact of fiscal drag is reduced, but is still biting.
Capital Gains Tax
Basic rate up from 10% to 18% (from tonight)
Higher rate up from 20% to 24% (from tonight)
This is essentially aligning the rate of tax for investment gains (such as shares) to mirror those on property, at considerably lower than expected rates. Hinting hard about rises will have driven a large number of disposals in the past 6 months which will raise not inconsiderable sums of tax in the 24/25 tax year. For a Chancellor trying to raise taxes, that is potentially smart politics, albeit some of our clients will be miffed.
IHT Scope Widened
Pension pots fall within the scope of IHT from April 2027.
It has always struck me as odd that pension pots were exempt from IHT. So this is not much of a surprise to see this measure. It is set to raise around £1.5bn a year.
Non-Dom Tax Regime
Non-dom scheme to be scrapped from 2025
There is a continuation of Hunt’s policy with some juggling to tighten some obvious loopholes. The OBR suggest this will raise £13bn more than Hunt’s much more generous scheme. That is to say these changes are far from trivial, I won’t go into them as only two or three of our clients are impacted.
Company Car Benefit in Kind
The BIK band for electric vehicles currently 3% rises by 2% per annum, ie to 9% from April 2028.
This is the same policy as previously. Starting low, and rising slowly. It 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, and look to be for some years.
Fuel Duty
Fuel duty was frozen, but only for 12 months.
This was slightly surprising as I would have assumed the current lull in pump prices would be a perfect time to put in a small rise.
HMRC Resources
Various measures
This seems incredibly sensible, and is a stark change to cutting staff back which we know pay for themselves many times over. HMRC are forecasting an extra £3bn per year just from the new compliance officers, and for once that does not sound unreasonable to me. Hint: we do have tax investigations cover for a small fee, if it wasn’t on your last invoice you are not covered.
Air Passenger Duty
Commercial flight increase between £2 and £12
Private flights, up significantly.
A rather massive dig at Rishi’s private plane obsession, so rather than paying the same as on a commercial airline, you will be paying £142 for flight under 2,000 miles, and over £1,000 above this.
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 Sep-24, and % effective reduction]
Well here we are again, the third budget inside of 12 calendar months and after what seems like an interminable length of time, the first Labour budget since our old friend Darling R.I.P. flashed his eyebrows at us in 2010, having got us through the 2008 financial crash. Sort of.
Rachel Reeves
So Rachel Reeves, our first ever female Chancellor in 700 odd years. She has already managed to last longer than Kwasi Kwarteng (38 days) and Nadhim Zahawi (68 days) and is more than half way towards Sajid Javid (204) the last three chancellors and also the three shortest tenures in history [Excluding Iain Macleod who died after 30 days]. Zahawi didn’t even get a budget out before being found out for his dodgy tax position, KK famously crashed the pound and I can’t remember anything about Javid. Possibly a good thing.
So what are Rachel’s background and politics?
Well her Wikipedia entry outlines her predictable PPE degree from Oxford, but she also is credited with a Masters from the LSE, and a stint at the Bank Of England and HSBC, and has some genuine economic pedigree. Her buzz word is Securonomic’s. No me neither, but essentially it’s about trying to muzzle the sort of late stage capitalism that puts profits first and doesn’t give a damn about how the money was made. Personally this seems long overdue when rivers are running with sewage, due in part to the regulator being neutered,
Sounds good in practice, but so far Labour’s attitude to freebies does not seem to be that far removed from the Tories belief that it was perfectly acceptable to have a VIP lane during Covid, i.e. to award contracts to the government friends and backers, which seems to accept bribery as, well, normal business. Not very on message.
The Fiscal Situation
In short the country has
The previous government left it with a £40bn black hole, according to the Institute of Fiscal Studies (by essentially excluding core government spending from the projections) but Labour conveniently only “discovered” £22bn of that once they came to power. Funny that, or they would have had to put in more tax rises into their manifesto to cover it…
By coincidence £40bn a year in taxes is about the same sum that would have been raised had we remained within the EU. Thanks Nigel! Even the rather staid OBR has been doing a series of “told you so’s” which are widely ignored but quietly point out those boring Remainers might have had a point, albeit few in Parliament will dare say this out loud.
Part of the problem is spending. HS2, our railway to nowhere cost a heady £8.56bn in 2023/24, and with the “cost plus” contracts which essentially reward contracts for spending more, rather than less (yes really, the more they spend, the more profits the contractors make…..brilliant!) these costs aren’t going to be going down any time soon. Similarly scientifically dubious projects like the carbon capture are still going ahead, at a £1billion a year subsidy.
Part of the issue is the fiscal bear traps laid by the last government. Hunt’s passing gift was the £8bn per annum cut in employee’s NI in March which is a big part of the deficit that Reeves now faces, and seems to have gone largely unremarked in the press.
But the big one is the pension triple lock. Pensions account for 11.4% of government spending, which is increasing year on year. Politically Labour have failed to even means test the “pensioners xmas bonus”, or “winter fuel allowance” as its known officially without causing a political storm, and Rachel confirmed today that it was staying put despite it pushing up pension by around 10% (or £10bn per annum) in the past few years vs a simple inflation linked approach.
Political Knots
Coming into this, Labour are working with one hand behind their backs having pledged to not raise taxes on “working people“, a definition of which is hard to find. They also said they would not increase Corporation Tax, VAT, NI (later clarified to mean employees), or Income Tax rates. Given the possibility in 5 years of many external shocks (see the US, Middle East, Ukraine etc), this seems an incredibly naive election pledge which leaves really only fiscal drag and “inventing new taxes” to raise cash. If they break their manifesto pledges I imagine the Tories will not let them forget for a generation. So Rachel is in a very tight spot, with little room to manoeuvre.
The real question is, will RR stand for a “Rolls Royce” Chancellor, or a “Reliant Robin” with one of the three wheels falling off? Well I guess we can only assess that after a full term.
The View of the Day
Reeves stood very proudly and confidently in a Navy Suit which seemed to be standard issue apart from Rayner in green. She seems to be really relishing her job, which is a refreshing change from a series of weird speeches full of in jokes.
On tie watch, Starmer went for blue, Reeves a maroon neckerchief, and Darren Jones (Treasury Secretary) went green.
When in shot, the front bench on the opposition side seemed to spend most of the time looking down having had a good telling off by the new teacher, with Kemi the main one having a good shout.
Rachel ran through the usual guff about investment, growth, forecasts which will be wildly wrong and floats over the top of most people’s heads, including mine. Time wise it went on for nearly 80 minutes. But to be fair she did have some volume to get through, and the good news is she has confirmed only one of these a year ongoing, and the March budget seems to be gone. We hope, there is only so much of this you can expect your accountant to sit through whilst remaining (mostly) sane.
The general upshot was much less going up than had been leaked before hand, albeit it was fairly predictable that everyone would be relieved if having said we would have both legs removed, she only took a couple of toes. I was genuinely surprised to see the CGT changes were more or less invisible, and the Employer’s NI changes we have modelled suggest they will actually benefit virtually all of our clients.
What wasn’t in here is more surprising than what was. The widely expected tightening of pension rules did not materialise. In particular we expected to see changes to the level of pension contributions from the current generous £60,000 maximum back to perhaps £40,000. Possibly some changes to the 25% tax free drawdown, and a reintroduction of the lifetime allowance.
The main people getting a thump are sole directors companies with no employees who can’t be exempt from Employer’s NI. There is a little loop hole here however, hire a temp for one month, pay them £450….we will have a think about that…..
In response we had a rather odd speech from Rishi full of vitriol and bile and seemingly oblivious to what happened during his time on the front bench harking back to what seemed like a vision of 1970’s ‘tax and spend’ style Labour. This apparently was his last major speech before a new leader is anointed and would appear to have prepared it as if all the leaked changes would arise, rather than the few that did. He really didn’t cover himself in much glory. It seemed to be rather tone deaf and probably only made sense to keen advocates of GB news.
So there we are, another one done, I think we can all breathe again.
One of the main practical issues of the increase in Employer’s NI is it widens the gap between “employees” vs “off payroll staff”. This is a significant issue in the UK economy with whole Industries such as Parcel Delivery being run largely “off payroll” with firms engaging many dubiously ‘self employed’ persons earning piece rates, often below minimum wage after costs. Widening the gap between hiring staff and using ‘fake self employed” exacerbates the issues and incentivises firms to risk this business model. This seems a very non-Labour thing to do, as low paid insecure work is precisely the sort of thing they have been campaigning against this past 14 years and highlights the problem with politics vs sensible tax policy.
I will leave with the thought that tax is always political, and no-one really likes paying it. Those that can, will shout shrilly about it, but will mostly pay it anyway.
James Smith
5.30pm, 30th October 2024
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 2024/25 will by £12,570 in most cases including one and two director companies. This currently ignores the NI changes announced today.
With the increase in the high income child benefit charge announced previously, the total to extract for those wishing to retain child benefit is £60,000.
| 2024/25 | 2025/26 | |||
| Threshold | Income Tax | Threshold | Income Tax | |
| Director’s Bonus | £12,570 | Nil | £12,570 | Nil |
| Tax Free Dividend | £500 | Nil | £500 | Nil |
| Basic Rate Dividend | £37,200 | £3,255 | £37,200 | £3,255 |
| Total Extraction | £50,270 | £3,255 | £50,270 | £3,255 |
No increase in tax.
| 2024/25 | 2025/26 | |||
| Threshold | Income Tax | Threshold | Income Tax | |
| Director’s Bonus | £12,570 | Nil | £12,570 | Nil |
| Tax Free Dividend | £500 | Nil | £500 | Nil |
| Basic Rate Dividend | £37,200 | £3,255 | £37,200 | £3,255 |
| Higher Rate Dividend | £9,730 | £3,284 | £9,730 | £3,284 |
| Total Extraction | £60,000 | £6,539 | £60,000 | £6,539 |
No increase in tax.
| 2024/25 | 2025/26 | |||
| Threshold | Income Tax | Threshold | Income Tax | |
| Director’s Bonus | £12,570 | Nil | £12,570 | Nil |
| Tax Free Dividend | £500 | Nil | £500 | Nil |
| Basic Rate Dividend | £37,200 | £3,255 | £37,200 | £3,255 |
| Higher Rate Dividend | £49,730 | £16,784 | £49,730 | £16,784 |
| Total Extraction | £100,000 | £20,039 | £100,000 | £20,039 |
No increase in tax.
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:
| Personal Tax Arising | |
| First £13,070 | Nil |
| Next £37,200 (to £50,270) | 8.75% (Basic Rate) |
| Next £49,730 (to £100,000) | 33.75% (Higher Rate) |
| Over £100,000 | Calculator time |
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.
| Profits of Company | Marginal Rate of Tax, Basic Rate | Marginal Rate of Tax, Higher Rate |
| First £50k | 26.1% | 46.3% |
| £50 to £250k | 32.9% | 51.3% |
| Over £250k | 31.6% | 50.3% |
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.
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.
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 £5,000 annually, but assuming a salary of £12,570, Employer’s NI arises of £1,135.50.
Employer’s NI does not arise when you have two directors as you can claim the Employment Allowance which will pay for the first £10,500 of Employers National Insurance from April 2025. Similarly if you have a few regular employees, you will almost certainly have remaining Employment Allowance you can use for your own salary as well.
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 2025, 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 broadly be £518 per company, even with the higher NI rates.
If your profit is between £50,000 and £250,000 this saving increases to £1,171.
This is certainly enough of a saving to 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.
Once we are beyond the political theatre, on a basic level the key questions right now are:
There is nothing major in this budget which suggests you should disincorporate. The taxes on having a limited company vs a sole trader are still fairly neutral. For single director companies who only incorporated to save tax in the first place, then it might be worth moving back as it will be costing your money overall now. However for most of our clients there won’t be enough reason to make the move right now.
The problem with the decision, is that tax is so complicated, it’s very hard to give a one size fits all answer, so let us look at some key factors of why companies are helpful. I expect to be talking to all our relevant clients in the next few months about any decisions to close.
Tax Reasons
Non-tax reasons to have a company
Moving from a limited company to a sole trader can be problematic, some of the issues include:
Goodwill
The key issue for many business is they have inherent “goodwill” that is to say the value of the business which exceeds its balance sheet. A solvent business seeking to move from a limited company to a sole trade, would need to consider this, value it, and pay corporation tax on the value as part of the disincorporation process.
Disincorporation relief used to exist up until 2018, but does not seem to have been put back on the statute:
In short, this can get expensive if you are a “proper” business which could be sold to a third party. If it’s just a personal service business, then you are probably OK.
Banking and Practical Matters
Reserves
If you have reserves built up in the company, you will need to (generally) declare those as a dividends which would generally give rise to a large tax bill.
Unbelievably, this project is still alive and coming up with chippy little announcements every few months. The latest date of “live by April 2026” seems to still be alive. Which is really news to most people as hardly anyone this end is doing much about it.
I have enough to worry about this time around so…….
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 14 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.
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