June 2024 Newsletter – Election, Tax Updates and What’s Next

We now know that the General Election will take place on 4 July.

In our Spring Newsletter, we considered some of the tax reforms the next government might introduce. So far, the election campaigns have done little to clarify what lies ahead. Regardless of who forms the next government, it is likely that we will see a fiscal statement in September. This will be followed by a main Budget either in November 2024 or March 2025.

In this issue, we focus on recent tax developments and several key measures announced in the March Budget. Many of these measures are due to take effect from April 2025.

What’s Inside This Edition

For those involved in the construction industry, we review the updated rules on obtaining and keeping Gross Payment Status (GPS) under the Construction Industry Scheme. We also discuss a recent case. It highlights how a lack of proper compliance supervision can lead to serious liabilities when errors occur.

If you are self-employed, you will be interested in HMRC’s revised guidance on the tax relief available for business training costs. This is a welcome clarification that allows more flexibility for upskilling and professional development.

Employers should also note the new PAYE reporting rules for salary advances. These rules have been simplified to reduce administrative burdens. Meanwhile, families will benefit from changes to the High-Income Child Benefit Charge (HICBC). These changes mean that more parents will retain their full Child Benefit payments rather than losing them to a tax charge.

Headline Announcement – National Insurance Cut

The biggest announcement from the March Budget was the further 2 percentage point cut in the main rate of National Insurance Contributions (NICs) for both employees and the self-employed.

This followed on from the earlier reductions introduced in the Autumn Statement. It marks another step in the government’s drive to reduce personal tax burdens.

However, for company directors and business owners, this change cannot be viewed in isolation. It must be considered alongside other recent tax changes, including:

• The rise in dividend tax rates (up 1.5 percentage points compared to recent years); and

• The sharp increase in corporation tax for companies with profits above £50,000.

Corporation tax now operates on a tiered system:

• 19% on profits up to £50,000;

• A marginal rate of 26.5% on profits between £50,000 and £250,000; and

• A main rate of 25% on profits above £250,000.

(These thresholds are usually reduced where companies are under common control.)

Salary vs. Dividend – A Changing Balance

Traditionally, dividends have been the more tax-efficient way to withdraw profits from a company, mainly because they avoid employer NICs.
However, this advantage has narrowed due to the recent rise in dividend and corporation tax rates, alongside the reductions in employee NICs.

At certain profit levels, taking salary may now be as efficient — or even more efficient — than dividends, once both company and personal taxes are taken into account.

That said, the optimal approach depends on individual circumstances, including other sources of income, cash flow requirements, and long-term financial goals.

How We Can Help

The rules surrounding profit extraction, National Insurance, and tax reliefs are constantly evolving. At Merranti Accounting, we can help you review your position. We aim to make the most tax-efficient decisions for your situation.

We are also here to guide you through the recent developments discussed in this newsletter. They range from Child Benefit and PAYE changes to training expense relief and construction compliance updates.

If you have any questions or would like tailored advice on how these changes affect you or your business, please get in touch with our team.