As we enter the new tax year, taxes have, as always, undergone some changes. And let’s be honest—keeping up with the constantly evolving tax landscape can be a bit of a headache, especially when you’re trying to run a business simultaneously.
But here’s the thing: understanding the current tax environment is crucial for making smart decisions, optimising your tax strategy, and staying on the right side of the law.
By anticipating these changes and adapting accordingly, you can not only dodge potential pitfalls but also spot opportunities to help your business thrive.
In this article, we’ll break down the key tax changes for the 2024/25 tax year, focusing on the most important updates affecting businesses of all sizes.
Corporation Tax
One change you’ll need to acknowledge for the 2024/25 tax year is the increase in the main rate of Corporation Tax from 19% to 25% for companies with profits over £250,000.
Companies with profits under £50,000 will continue to pay Corporation Tax at the small profits rate of 19%. Those with profits between £50,000 and £250,000 will be subject to a marginal relief, effectively paying an overall rate between 19% and 25%.
VAT registration threshold
As announced in the 2024 Spring Budget, the VAT registration threshold will rise to £90,000 from 1st April. If your business is approaching the VAT threshold, consider the following:
- Voluntary registration: If your customers are primarily VAT-registered businesses, voluntarily registering for VAT could allow you to reclaim input VAT on your expenses without making your goods or services more expensive to your customers.
- Flat Rate Scheme: For businesses with turnover below £150,000, the Flat Rate Scheme can simplify VAT accounting and potentially reduce your VAT liability.
- VAT efficient pricing: Review your pricing strategy to ensure you’re not absorbing the VAT cost and eroding your profit margins.
Employment taxes
The National Insurance Contribution (NIC) thresholds for employees and employers will remain aligned with the personal allowance (£12,570) until April 2026. This means that employees will continue to benefit from the increased take-home pay, while employers will enjoy lower NIC costs.
However, the Employment Allowance, which allows eligible businesses to reduce their employer NICs by up to £4,000 per year, will remain frozen for the 2024/25 tax year.
To optimise your employment tax strategy, consider:
- Salary sacrifice schemes: Implement salary sacrifice arrangements for pension contributions, cycle-to-work schemes, or electric vehicle leasing to reduce both employer and employee NICs.
- Flexible remuneration packages: Offer tax-efficient benefits such as childcare vouchers or low-emission company cars to attract and retain talent while minimising tax liabilities.
R&D tax credits
Starting in April 2024, the UK is revamping its R&D tax credits system, streamlining the process for businesses and fostering a more innovation-friendly environment.
Unified R&D tax scheme
The government is consolidating the previous R&D tax schemes into a single, streamlined system. This change is designed to make the tax relief process more straightforward and accessible for companies of all sizes engaging in R&D.
Under this new scheme, all companies will be eligible for an above-the-line credit at a rate akin to the current RDEC rate of 20%.
Enhanced support for R&D-intensive SMEs
SMEs that dedicate much of their budget to R&D activities are in for a treat. The threshold to qualify as an R&D-intensive SME is being lowered, meaning more SMEs can benefit from higher rates of relief.
This includes an 86% enhanced deduction on qualifying R&D expenditure and a 14.5% repayable tax credit.
Wrapping up
Navigating tax rules and regulations is complex, as it’s a moving target. However, with vigilance and professional guidance, you can confidently leverage reliefs and keep on the right side of HMRC.
At Pearson May, our dedicated professionals are here to provide the guidance and support you need to navigate the 2024/25 tax year and beyond confidently.
We recognise that every business is unique, and that’s why we take a bespoke approach to tax planning.
Whether you’re a small startup or a large corporation, we’ll work closely with you to develop tailored strategies that align with your goals and maximise your tax efficiency.
For more information about our accountancy and financial services, contact us today.