The Chancellor has announced some reforms – “cutting taxes and rewarding hard work”

Employees/Payroll

The basic rate of employees national insurance, for earnings between £12,570 and £50,270, is to be cut from 12% to 10%, from 6^th January 2024 – worth up to £754pa. The equivalent annual rate for directors this year is to be 11.5%

Employees national insurance on earnings over £50.570 remains at 2%, and Employers national insurance on earnings over £9,100 remains at 13.8%

National minimum wage for those aged 21 and over is increased to £11.44 per hour from 1^st April 2024.  £8.60 for 18-20 year olds, £6.40 for 16-17 year olds and £6.40 for apprentices

There are plans to add an obligation on employers to offer to pay into an employee’s existing pension rather than automatically pay into a new auto-enrolment pension pot.

Veterans National Insurance break is to be extended by 1 year

There are no changes to income tax rates allowances or bands – effectively a stealth tax.

Self Employed

Class 2 national insurance is effectively being abolished from 6^th April 2024.  There will be no compulsory obligation to pay, you get credits towards state benefits etc if profits exceed £6,750; but if profits are lower then you can voluntarily pay Class 2 National insurance at £3.45 per week to get your credits.

Class 4 national insurance, on profits between £12,570 and £50,270, is to be cut from 9% to 8% from 6^th April 2024.

These two measures are worth up to £556.70 pa but will not be seen until January 2025 tax bills.

New guidance is being drafted for claiming the training costs of upskilling.

The cash basis for preparing accounts will become the default for the self employed, with full expensing for most asset purchases.

MTD has had a few minor adjustments but is still planned to come in April 2026 for all landlords and self-employed whose turnover is over £50,000, and April 2027 for those with turnover over £30,000.

No changes to VAT thresholds.

Business

The business rates multiplier is to be frozen for small business but increased by CPI for other businesses,

75% business rates discount for hospitality, retail and leisure businesses is extended for a further year

Those bidding for Government Contracts in excess of £5m from 1^st April 2024 will need to prove they are paying their suppliers within 55 days, reducing to 30 days over time.

The two R&D schemes are being merged with lots of reforms, for accounting periods beginning 1^st April 2024 e.g.

• Grant funded projects now qualify
• New 30% definition of an intensive R&D business
• Grace period for intensive R&D qualification
• Restriction on refunds going to agents
• Overseas restrictions

Full expensing for companies, 100% tax relief for most new capital purchases, is to be made permanent – no cap.

Increasing Apprenticeship funding especially in engineering

Fast track planning applications – or your money back

State Benefits

8.5% increase in state pension under triple lock from 6^th April 2024

6.7% increase in basic universal credit from 6^th April 2024

Focus on treatments and home working for the sick and disabled – Universal Support

Mandatory work placements to reskill if unemployed for over 18 month

Personal Tax

It will no longer be compulsory for those earning over £150,000 to complete an annual tax return

As previously announced ,

• Dividends allowances reducing to £500pa
• Capital Gains allowance reducing to £3,000pa

No changes to Inheritance tax

VAT (Value Added Tax) is a tax on spending. The person who want the goods or services and uses them to their own ends ultimately pays.  However, those of us who are in business, need to collect this tax and pay it over to HMRC.  We create the goods and services and collect the selling price for us and the VAT for HMRC.

However, there are only a few businesses who operate a simply as this.  Many businesses buy and sell between themselves, in a chain from creation to end use.  When this happens then each business needs to collect and hand over their part – the part for the value they have added in the process.  Hence the term Value Added Tax.

Small businesses may choose to be considered the end use rather than operate the system however VAT registration is compulsory if your business turnover is over £85,000.

Monitoring

When coming up to this level then there are certain things you need to know;

1. VAT registration is per trader, not per business. So, if you own two businesses then the turnover is aggregated.
2. A Partnership, an individual and a company are each separate traders for VAT purposes.
3. First test is, if your turnover exceeded the threshold in the last 12 months then you have to register by the beginning of next month. This is a rolling 12 calendar months, to the end of last month, not your last accounts year or the tax year.
4. Second test is, if you expect to bill over £85,000 in the next 30 days alone, then you need to register today.
5. The above are compulsory registration dates, you can voluntarily register earlier if desired.
6. Turnover tests use the official due date for VAT which is the earlier of:

• Date of payment.
• Date job is complete – but this can be overridden by invoice date if within 15 days of completion, or any alternative invoice date that is standard industry practice e.g. end of the week/month, or for each phase.

7. VAT can be recovered on goods and assets (including stock) you still have at date of registration, as long as purchased with VAT within the previous 4 years
8. VAT can be recovered on services purchased for your own business use, with VAT, within the 6 months prior to VAT registration.
9. Penalties for late registration are based on VAT due for the period between the date you should have registered and the date you notify HMRC.

• Prices are generally quoted to the general public inclusive of VAT, but to businesses exclusive of VAT.
• Most businesses will be able to any recover VAT charged to them, but private individuals and charities will not.
• When VAT registered you will be able to recover VAT on your purchases.

Planning:

1. What effect will VAT have on your business? It will depend on who your customers are:-

• the general public will not pay more, so you will be losing out on the VAT you have to charge on in house created goods & services,
• businesses will pay you the VAT on top of quotes, so you will be gaining by the VAT you can recover on bought in goods and services.

2. Start to include/mention VAT in your quotes, in advance of VAT registration. You can then start to see the reaction of the general public on your business and hence how VAT registration will affect you.
3. The basic rule is that if your clients are all UK VAT registered businesses then VAT registration sooner rather than later is good. If the General Public then later is best.
4. Monitor your Turnover to see when you reach the threshold.
5. Be more aware of dates when invoicing. Which month do invoices fall in, do they effect when you go over the threshold. Get the general public to pay earlier, before VAT registration.
6. Beware of dates of big spends e.g. new website, old truck – so you do not lose out by registering too late for VAT recovery.
7. If you miss the deadline then tell HMRC ASAP before you raise any more invoices.
8. Start to get into the habit of asking for and collecting VAT receipts – each one is worth to you the VAT mentioned thereon.
9. Get your bookkeeping computerised and plan how you are to submit VAT returns, VAT bookkeeping must be digital (i.e. no pen and paper) and submission direct from those digital records.

In Summary,

• VAT will become compulsory as you grow, so consider it from day one.
• The VAT man insists on good bookkeeping – use this to monitor and grow your business
• Learn how VAT effects your business and work with it – do not fight it
• Do not ignore VAT or you will get penalised

If we can be of further assistance, then do contact us at Firestone Accountants