As you’ll likely know last week, on Wednesday 6 March the Spring Budget 2024 was announced by Jeremy Hunt. By now, you’ll no doubt have seen the headlines but if you’re interested in the key announcements for small businesses and our thoughts on the changes, read on.
We intend to strip away a lot of the ‘noise’ that can often come with budget announcements and bring you the key headlines most relevant for small businesses and their owners.
Before we dive into the detail let us remember this is an election year and some of the announcements no doubt reflect this political pressure. A weak economic backdrop however meant the Chancellor had less to play with than he had hoped and so there are some rises to look out for.
The headlines you’ll have seen:
Personal Tax
1. High Income Child Benefit Charge – from 6 April 2024 the threshold at which you begin paying back Child Benefit will rise to £60,000 and the taper extended, meaning Child Benefit will only be fully repayable once income is over £80,000.
Takeaway: This is a welcome change to what has always been an unfair regime. Current rules mean that once a higher earner’s income is over £50,000 they begin repaying child benefit and it is fully repaid by the time income reaches £60,000. This means a family where only one parent is working could be due no Child Benefit if that individual’s income is £60,000 whereas a family where both parents are working, and each earn £49,999, would receive full child benefit. This change goes some way towards addressing this.
Further changes are expected – whilst we welcome this announcement it still does not tackle the fundamental unfairness. The clawback test is therefore to be moved to “household income” but only once HMRC systems have the required information which is expected to be from April 2026.
2. National insurance cut by 2% – from 6 April 2024 main rate of Class 1 employee national insurance will drop by 2% to 8%, saving a maximum of £754 per annum. For the self employed, Class 4 NIC will also be cut by 2% to 6%, saving a maximum of £1,131 per annum compared to last year.
Takeaway: A further reduction to NIC had always been expected, particularly against the political backdrop of it being an election year. Whilst it does put more money in people’s pockets now, it sadly does not compensate for years of frozen allowances which have been vastly outstripped by inflation. We explained the effect of this in our Autumn statement commentary here.
A note on Class 4 NIC – the Autumn Statement had already announced a 1% reduction from 9% to 8% that was due to come in from April 2024. The further reduction by another 2% means the self employed will be paying a total of 3% less than last year come April 2024 and it is the figure used to calculate the maximum saving of £1,131.
3. Capital gains tax on residential property to fall from 28% to 24% for higher rate taxpayers
Takeaway: Currently, if you sell a residential property which is liable to capital gains tax then the gain will be taxable. There are two different rates of tax, 18% for gains that fall within the basic rate band and 28% for gains over this amount. For disposals that exchange on or after 6 April 2024 this rate will drop from 28% to 24%. The key takeaway is that if you are currently disposing of a property it may be worthwhile to delay exchange to benefit from the lower rate but do speak to your accountant first to check that is the case as there are other considerations.
A couple of notes: capital gains is only paid on investment properties or properties that have at some point in your ownership been rented. Capital gains on the property which is and has always been your main residence is fully exempt.
4. Furnished Holiday Lets – the furnished holiday let regime is to be abolished from 6 April 2025.
Takeaway: We haven’t considered this in detail in this blog as it is a specific piece of legislation that applies to a limited number of individuals we work with. We will be contacting those clients impacted separately. If this impacts you, we urge you to contact your accountant for advice.
VAT
5. VAT threshold to be increased from £85,000 to £90,000 from 1 April 2024
Takeaway: With inflation, more and more sole traders and small limited companies have found themselves close to or breaching the VAT threshold. The rise to £90,000 will help an estimated 28,000 businesses (according to the Government) avoid the need to register for VAT. For many though, the £5,000 threshold rise does not come close to the impact of inflation since 2017 when it was last increased.
Business/Corporate Taxes
6. There were no mainstream announcements to business/corporate tax regime except for a 100% expensing which only benefits the very largest of companies.
Takeaway: The lack of any change here is particularly noticeable and frankly whilst the budget goes some way to trying to appease individuals (voters!) it does little for small businesses or their owners. In a world of higher corporate tax rates, some relief here would have been welcome but alas there is nothing noticeable to shout about.
Our thoughts – summary
As mentioned earlier, when commenting on the budget announcement overall, we can’t ignore the political backdrop of the upcoming election – with most notable announcements falling into the ‘individual’ (voters) category.
Even then, whilst the changes will go some way to helping, the reality is voters and small businesses will continue to be impacted by the points below which the government has done little to address.
- Frozen personal allowance at £12,570 for personal tax – once again no increase with inflation
- Frozen higher rate threshold at £50,270 – once again no increase with inflation
- Employer National Insurance remains 13.8% and the employment allowance is unchanged at £5K.
- Still on the cards – Dividend tax free amounts falling from £1k to £500 (announced previously but no amendment)
- Corporation tax rates remaining stubbornly high
- Still on the cards – Capital gains tax free amounts falling from £6k to £3k
So, against this backdrop, support with tax affairs for small business owners will remain key for those who want to make the existing system work for them. If you’re interested in our support with this/any of the accounting services we offer at Raw, please do get in touch.