Recent and upcoming tax changes

We now know that the General Election will be held on 4 July. In the Spring Newsletter, we speculated on some of the tax reform that the next government might introduce and, so far, the campaigns have not shed any further light on this. Whoever wins power will probably have a fiscal statement of some sort in September, with a main Budget to follow in November or March. In this newsletter, we concentrate on things that have recently happened and also some of the announcements, due to take effect in April 2025, that were made in the March Budget. For those involved in the construction industry, we discuss the recent changes to the rules on obtaining and keeping gross payment status, as well as reviewing a case that has shown that, if you do not have adequate supervision of your compliance processes, you will struggle to avoid liability when errors happen. Meanwhile, all those running their own business as a self-employed trader will be interested in HMRC’s new guidance on tax relief for training costs. PAYE reporting rules for salary advances have changed  and we also expand on and quantify the new tax rules affecting Child Benefit. Which will enable more families with young children to keep more of their money. Rather than having it clawed back as a tax charge.

The biggest headline from the March Budget was, of course, the additional 2 percentage points cut in the main rate of National Insurance Contributions (NICs) payable by employees and the self-employed, over and above what had been announced in the Autumn Statement. For those running their own companies and considering tax-efficient profit withdrawals, this change cannot be looked at in isolation, but needs to be considered within the context of the overall tax changes that have taken place over the last couple of years. Dividend tax rates are now 1.5 percentage points higher than in the recent past and corporation tax has risen sharply for companies with profits above £50,000. Where profits are between £50,000 and £250,000. The marginal corporation tax rate is 26.5%, before dropping to 25% for profits above £250,000. Previously, the 19% rate that applies to profits below £50,000 applied to all profits. (Note that these thresholds are usually reduced where companies are under common control.) Decisions over whether to draw salary or dividends are also complicated by the fact that there is no corporation tax relief for dividend payments, but there is for salaries.

While dividends have traditionally been a more tax-efficient mode of profit withdrawal (mainly because they avoid employer NICs), this advantage has been diminished by the effects of the dividend and corporation tax increases and the employees’ NICs reductions. Indeed, at some profit levels, drawing salary may end up being more efficient. When considering the tax position of the company as well as the individual.

Any decisions in this area always need to be tailored to the individual, who may, for example, have other forms of taxable income or may have specific minimum cash needs.

We are here to help you navigate these changes, as well as those outlined in this newsletter. Please get in touch if you need more information or have any questions.