As the Autumn Budget approaches, the Government has pledged that it will “make the tax system fairer” and avoid raising taxes on working people and certain businesses.

The Government has said that it will not raise:

• Income Tax
• National Insurance (NI)
• Corporation Tax
• VAT

While Corporation Tax is not levied on individuals, the fact that the Government is not changing it may be good news for consumers.

Freezing VAT and Corporation Tax should keep a handle on price rises as businesses will not need to pass on additional costs to clients or customers.

This is a significant announcement, given that the Government seeks to make up a substantial shortfall in public finances.

What does this mean for businesses?

The budget is likely to be good news for businesses, particularly regarding VAT and Corporation Tax.

With no additional taxes to be paid in these areas, businesses may have more room to reinvest in growth – a priority for the Government, particularly in sectors such as sustainable technology.

However, some business owners may still call for the 2023/24 reductions in NI to be extended to employer NI contributions, which seems unlikely under the current Government.

How will this impact individuals?

The pledge will come as a relief to individuals who pay only Income Tax and NI, which includes most workers whose only income source is a regular salary or hourly pay.

However, individuals with additional assets such as property, private pensions, dividends or investments may reap less of a benefit.

With the Government seeking to levy additional income through taxes, these individuals will likely face an increased tax burden on their wealth through a rise in Capital Gains Tax (CGT), for example.

It is, therefore, important for those with high-value assets to engage promptly with proactive tax planning.

Want to optimise tax liabilities on your assets? Contact us today.

For business owners and directors, dividends may form a critical element of your salary strategy and tax planning, keeping your tax liabilities to a minimum.

To extract profit tax-efficiently from your business, you may use a combination of:

• Salary – Typically set at or around the Personal Allowance of £12,570 to minimise Income Tax and National Insurance Contributions (NICs).
• Dividends – Paid to owner/director-shareholders and not subject to NICs.
• Pension contributions – You can claim tax relief on private pension contributions of up to 100 per cent of your yearly earnings.
• Director’s loans – You or a close family member receives money from your company, which may be tax-free for you as an individual, depending on how it is repaid.

Dividends can be an excellent choice for business owners because they are taxed at a lower rate than earnings subject to Income Tax.

The tax is levied depending on your Income Tax band:

• 8.75 per cent for those in the Basic rate tax band
• 33.75 per cent for those in the Higher rate tax band
• 39.35 per cent for those in the Additional rate tax band

For this reason, many business owners choose to take a relatively low salary in addition to dividends, to stay in the Basic rate band and minimise tax on dividend payments.

Could dividend taxes change?

Dividends have been a growing target for HMRC in recent years, with the tax-free allowance falling steadily from £5,000 in 2016/17 to £500 in 2024/25.

Having pledged to avoid raising taxes on income, the Government may seek to levy further tax on wealth in the Autumn Budget instead, which could incorporate dividends.

The Government has various options, including:

• Removing the tax-free dividend allowance
• Raising the rates of tax on dividends.

Should you change your strategy?

If you have a typical tax-efficient profit extraction strategy, with a low salary and dividends, then this is likely to remain the best approach to optimising your tax liabilities – but this is highly dependent on whether tax rates on dividends remain the same.

If tax rates remain unchanged, any dividends will still be subject to a lower rate of tax than if they were taken as salary, even without a tax-free allowance.

However, a rise in rates could result in a significantly higher tax liability.

In this situation, you may consider another method of profit extraction, such as making additional pension contributions if you have not used your full tax-free pension allowance.

For advice on managing profit extraction, salary and dividends, please contact our team today.

As the Government seeks to plug certain gaps in the public purse, we are unlikely to see any change in Income Tax thresholds – despite wages and the State Pension rising.

Under the previous Government, tax thresholds were frozen until March 2028, and it remains to be seen whether this will change under the Labour Party.

This means that more people are set to be pulled into paying Income Tax on their income for the first time or pulled into a higher tax bracket – known as fiscal drag.

How does fiscal drag impact you?

The major effect of fiscal drag is that it reduces the financial benefit of any wage increase because more of your income will be subject to tax.

This leaves many individuals, whether they are employees, self-employed or company directors, no better off than if they had not received a pay increase.

It is sometimes known as a “stealth tax” because no changes are actually being made to taxation rates or thresholds.

Mitigating the impact of fiscal drag

How can you plan around fiscal drag? If you have the flexibility to restructure your income, you may consider:

• Dividends – Regardless of which tax band you are in, Dividends are taxed at a lower rate than Income Tax paid on your salary.
• Salary sacrifice – Many businesses allow employees (including directors) to sacrifice a portion of their salary in exchange for a benefit (a company car, private healthcare, etc.), effectively reducing taxable income.
• Investing in an ISA – Income or interest from an ISA is tax-free, helping you to save money for the future and minimising your tax liabilities.
• Pay into your pension – You may choose to pay more money into your pension, either to reduce your taxable income or minimise future tax liabilities, with a yearly tax-free limit of £60,000 or 100 per cent of your income, whichever is lower.
• Marriage allowance – If you or your spouse earn less than the Personal Allowance, you may be eligible to transfer £1,260 of the allowance to your partner, potentially saving up to £252 in tax.

In addition to the marriage allowance, you should ensure you are utilising all available tax reliefs, such as the personal savings allowance.

This prevents you paying tax on savings interest depending on your Income Tax band:

• Basic rate – £1,000
• Higher rate – £500

Unfortunately, there is no personal savings allowance for those in the Additional rate tax band.

Make sure to use your tax-free Personal Allowance of £12,570 before considering another tax-efficient way of receiving income.

High earners

You should also watch out if you are a Higher or Additional rate taxpayer, i.e. you earn between £50,271 and £125,140, or over £125,140 respectively.

Wage increases could pull you into a higher tax band and begin to erode your Personal Allowance if you choose to take the majority of your earnings as salary, or your business cannot pay dividends.

Remember that your Personal Allowance decreases by £1 for every £2 you earn over £100,000 – meaning that you effectively have no Personal Allowance if you earn £125,140 per year or more.

You will also be taxed at either 33.75 per cent (Higher) or 39.35 per cent (Additional) on any dividends you receive.

As a high earner, you could be significantly impacted by fiscal drag, so it is particularly important to plan ahead to avoid paying more tax than you need to.

Please contact our team today to find out how to reduce the effect of fiscal drag on your income.

HMRC has begun to issue ‘nudge letters’ to cryptoasset owners who may have underpaid tax when selling their assets, urging them to amend or submit a tax return.

In this rapidly evolving sector, asset holders are not always clear on what income or profit generates a tax liability.

This follows the introduction of CARF – The Cryptoasset Reporting Framework – earlier in 2024, requiring cryptoasset firms to share customer data with HMRC when requested.

What do I need to report?

Profit on the sale (disposal) of cryptoassets are typically considered to be capital gains rather than income – although income on investments in cryptoassets may be subject to Income Tax and National Insurance Contributions (NICs).

Any gain (profit) you make when disposing of cryptoassets will therefore be subject to Capital Gains Tax (CGT).

You will be taxed at a rate of:

• 10 per cent – on gains within the basic Income Tax band, if you pay the basic rate on your income.
• 20 per cent – on gains that exceed the basic Income Tax band, if you pay the basic rate on your income or if you are a Higher Rate taxpayer.

Gains should be reported on a Self-Assessment form via HMRC’s Online Service. HMRC will then tell you how much CGT you need to pay, how to pay it, and when to do so.

Mitigating tax liabilities

If your total gains are less than £3,000 (including any other capital gains you have made in the financial year), then you do not have to report and pay CGT on cryptoassets.

You may consider planning the disposal of cryptoassets before or after the start of a new financial year to maximise each year’s allowance.

You should also make sure that you have applied any allowable business expenses to your taxable profit when reporting investment income for Income Tax and NICs.

Contact us for further advice on cryptoassets and Capital Gains Tax.

Having the right team that aligns with your goals and values is key to the success of your business.

However, many sectors are currently facing a skills and staffing shortage. Government data shows that over one-third of vacancies were skills-shortage related, with around a quarter of all employers having at least one vacancy within their organisation.

Addressing skills and staffing shortages

Chronic shortages of skilled staff can lead to issues for your business that include:

• A high cost of recruitment and training
• Lost or inefficient productivity
• Slower growth
• Poor team morale, which can worsen staff shortages.

It is important to actively engage skilled staff, both prospective and current, with your business and to optimise the efficiency of your existing skills base. This might include:

• Flexible working – It is increasingly common for employees to prioritise work-life balance, which can be supported by flexible hours or hybrid working
• Upskilling – Offering training to existing staff can eliminate the need to recruit and provide progression opportunities to boost job satisfaction
• Compensation – Highly skilled staff will look for appropriate compensation, including salary and benefits, making this a potentially high-reward investment for employers
• Streamlining recruitment – If you work with a recruiter, make sure they are right for your sector and needs
• Outsourcing – You may consider outsourcing a process or service in your business to a specialist external provider, provided they are reliable and gel with your company’s values and goals.

Your ultimate goal is to create a productive, collaborative and happy working environment that minimises turnover rates – reducing recruitment cost and disruptions.

Is your accountant working for you?

Did you know that your accountant can help you to minimise the impact of staffing shortages on your business?

Most obviously, we can support you with your finances, your reporting, tax returns and your business strategy – with input along the way from you, to ensure that your business is moving in the right direction.

Beyond that, we can also advise you on implementing technology and cloud architecture into your business processes, allowing automations and streamlined workflows to ease the burden of skills shortages.

For further advice on staffing your business, please contact our team today.

Your environmental, social and governance (ESG) strategy might just pave the way to growth for your business.

ESG initiatives are increasingly important for businesses in terms of client values and acting ethically. However, tracking and reporting on ESG objectives may also be the key to achieving efficiency and optimised business performance – crucial drivers of growth.

Setting the right goals

ESG is a wide-ranging term which covers many activities, from supporting a charity to taking your office paperless.

It is important that you set goals which make a material difference, but which are also attainable within your business strategy and budget.

Before setting ESG goals, identify areas of your business where efficiencies could be introduced or improved and try to align your objectives with these areas.

For example, if you want to go paperless, consider investing in a document management portal to more efficiently and securely share information.

Tracking key metrics

To accurately introduce ESG initiatives into your reporting, you need to collate and analyse the right data.

For inclusion in your regular financial reporting, this means data relating to cost, efficiency-related savings and the real impact of your initiatives.

Adopting new technologies may allow you to automate the collection and processing of this data into a report on your ESG affairs, further reducing costs which can be reinvested in growth.

Reporting your findings

Integrating ESG metrics and progress into your financial reporting is both an efficient way of seeing how you are performing and measuring the impact of these initiatives on your overall efficiency, productivity and profitability.

This will show you:

• The cost of your ESG initiatives and any return on investment (ROI)
• Areas where ESG has made your business more efficient
• Areas where your processes could be improved and made more ESG-friendly
• Regulatory compliance and areas for improvement
• Projects for ROI on long-term risk management

With further analysis, you can also highlight any positive trends in brand reputation and talent retention that has resulted from engaging with ESG – creating additional space to invest in growth.

This is where we come in, helping you to identify key metrics and keeping track of them alongside your day-to-day finances.

For example, we can help you streamline the time spent on administrative tasks within your business and guide you on implementing a document management system – one designed to introduce efficiencies and save you time and money.

Your accountant is ideally placed to support you with ESG reporting, with access to and insight into your business operations, financial situation and long-term goals. If ESG is a priority for you, make sure to get us involved.

Need to discuss your business growth with the experts? Contact our team today.

While we’ve made meaningful progress in the global energy transition, the pace is still too slow.

The charity Accounting for Sustainability (A4S) and Aviva Investors have sounded the alarm in their new report, Accelerating the Transition: Assessing Progress and Driving Action.

Despite the shift from voluntary to mandatory sustainability reporting, emissions continue to rise.

Scientists suggest that we have six years to aim for a 1.5°C limit on global warming but current trends indicate a potential increase of 2.7°C, alongside a significant decline in the natural ecosystems that absorb carbon.

For businesses, this means growing pressure to comply with new sustainability regulations, often with limited resources. But with the right guidance, this challenge can be turned into an opportunity.

How sustainable practices benefit your business

Adopting greener energy solutions is a great step towards reducing your carbon footprint, but it’s also a smart financial decision.

Renewable energy sources like solar, wind, or hydro can lead to significant long-term savings, despite the initial costs.

Additionally, businesses that embrace sustainability often see enhanced reputations, attracting customers who value environmental responsibility.

It is crucial to clearly understand the financial benefits of going green. By carefully analysing the costs and savings associated with renewable energy, you can make informed decisions that will pay off over time.

Understanding the financial impact of renewable energy

When considering greener energy options, it is essential to evaluate the full financial impact. This means looking beyond the upfront costs to consider potential savings on energy bills and maintenance over the longer term.

Additionally, there are various Government incentives and grants available that can offset initial expenses and improve your return on investment. Staying informed about these opportunities can provide valuable insights that might otherwise be overlooked.

Tailored energy solutions for your business

Every business is unique, and there’s no one-size-fits-all solution when it comes to energy efficiency. Tailoring your approach to your specific needs and circumstances is key to maximising the benefits of going green.

For example, a small retail business might benefit from simple energy-saving measures like switching to LED lighting or improving insulation. In contrast, a larger manufacturing company could explore more substantial investments in renewable energy generation.

Conducting an energy audit is a practical first step. An audit will identify where energy is being wasted and highlight opportunities for improvement. With this data, you can make informed decisions about the greener energy options that will deliver the best results for your business.

Why now is the time to act

Adopting sustainable energy goes beyond fulfilling regulations by offering a meaningful chance to boost your business, satisfy your customers, and safeguard the environment.

By combining financial expertise with a commitment to sustainability, you can make decisions that benefit everyone.

If you’re ready to explore how sustainable practices can benefit your business, we’re here to help. Please get in touch for tailored advice and support.

The furnished holiday lettings (FHL) tax regime is set to be scrapped from April 2025, with draft legislation already on the table.

If you own a holiday home, now is the time to get familiar with these forthcoming changes and consider how they could impact your tax liability.

From April 2025, the tax incentives associated with Furnished Holiday Lets (FHLs) will no longer be available, meaning you will lose the advantages that come with the current regime.

Current tax benefits

At present, FHL owners enjoy several tax benefits, such as being able to claim up to £1 million of capital expenditure under the Annual Investment Allowance (AIA).

FHL owners may qualify for Business Asset Disposal Relief (BADR), which offers a lower tax rate compared to standard Capital Gains Tax (CGT) if their FHL activities are deemed a business.

Expenses like mortgage interest can be fully deducted from rental income, reducing taxable profits for FHLs significantly more than for non-FHL properties.

Additionally, income from FHLs is classified as earned income, making it eligible for relief at the owner’s highest Income Tax rate.

What’s changing?

When the FHL tax regime ends, the tax treatment of these properties will likely become similar to that of standard residential rentals. This will result in:

• Interest deductions capped at the basic Income Tax rate.
• Abolition of capital allowances for new expenditures, although relief for replacing domestic items will remain.
• Income no longer counting as UK earnings for pension relief purposes.
• Profit splitting for jointly owned FHLs will also cease, aligning with rules for traditional investment properties where income must be split according to ownership shares. This will remove the current flexibility FHL owners have to optimise their tax liabilities by adjusting income distribution.

What should you do next?

If you are running a FHL business or managing FHL properties, you have until April 2025 to take full advantage of the available tax reliefs. Now is the perfect time to claim capital allowances on your eligible properties if you haven’t already done so.

If you have delayed making a capital allowance claim due to cash flow concerns or a lack of urgency, it is important to act now to secure these tax benefits.

Even if your FHL business is currently running at a loss, claiming these allowances can still be a smart move. It can increase the amount of loss you report, which you can carry forward to offset against future profits.

Plus, you can review and claim allowances for past expenditures as long as your FHL business is still up and running.

Alternatively, you might want to consider selling your property, especially if you planned to do so already, as the sale could benefit from the current 10 per cent Capital Gains Tax relief under BADR.

If you own a furnished holiday let and would like to discuss how these upcoming changes may affect you, don’t hesitate to get in touch.

When you’re self-employed, keeping track of essential dates and deadlines can be challenging.

One crucial date to remember is 5 October 2024, which is the deadline to register for Self-Assessment. If you started working as a self-employed individual on or after 6 April 2023, you must register with HM Revenue & Customs (HMRC) by this date.

This registration informs HMRC that you will be submitting a tax return for the upcoming year. It’s a one-off requirement, so if you’ve already registered in the past, you won’t need to do it again.

It is wise to register as soon as possible to avoid any last-minute rush. Remember, your first tax return will be due by 31 January 2025, so planning ahead will give you ample time to ensure you have the necessary funds to cover your tax bill.

What if you miss the registration deadline?

If you miss the notification deadline, you might face a penalty for failure to notify HMRC.

However, if you notify HMRC after 5 October but pay your Income Tax in full by the 31 January deadline, HMRC may reduce any late notification penalty to zero.

Additional considerations

You should keep thorough records of all your income and expenses. This will not only help with accurate tax return submissions but also provide necessary documentation if HMRC requests it.

You can complete your registration online through the HMRC website, which is generally quicker and more convenient than paper forms.

Tax rules and deadlines can change, so ensure you regularly check HMRC’s website or subscribe to updates to stay informed about any changes that might affect you.

If you are unsure about any aspect of the registration process or your tax obligations, get in touch with our team and we can support you.

King Charles delivered his speech to Parliament last month following the election, setting out the priorities of the new Labour Government for the months ahead.

The speech included 40 pieces of legislation that the Government plan to implement. To help you understand what the next five years may hold, here are the details of all the finance-focused announcements.

Budget Responsibility Bill

During their campaign, Labour pledged that their decisions would be made with sound money and economic stability at the forefront.

The Budget Responsibility Bill requires all significant and permanent tax and spending changes to be subject to independent assessment by the Office for Budget Responsibility (OBR).

The Bill aims to reinforce credibility and public trust by preventing large-scale unfunded commitments that have not undergone an OBR fiscal assessment.

Wage boost

The Government has committed to delivering a “genuine” living wage that reflects the issue of the high cost of living.

They also plan to remove the current minimum wage age bands to ensure that all adult workers benefit.

Draft Audit Reform and Corporate Governance Bill

Labour plans to introduce a revamped regulator to uphold standards and independent scrutiny of companies’ accounts and accountability for company directors.

A draft Bill will establish the Audit, Reporting, and Governance Authority, replacing the Financial Reporting Council.

This new regulator will have the necessary powers to address poor financial reporting and build public trust.

It will include important changes such as:

• Removing unnecessary rules on smaller Public Interest Entities, which will be beneficial for small businesses that face disproportionate requirements.
• A regime to oversee the audit market to protect against conflicts of interest and help minimise the impacts of corporate failures.
• Powers to investigate and sanction company directors for serious failures in relation to their financial responsibilities.

Pension Schemes Bill

The Pension Schemes Bill seeks to assist over 15 million individuals, who save through private-sector pension schemes.

It will help them achieve better outcomes from their pension assets, aligning with the Government’s goal of fostering economic growth.

To do this, it will establish a system for consolidating pension pots from various employments, ensuring people do not lose track of their savings when they change jobs.

Additionally, this Bill aims to boost the savings for pension savers, potentially allowing an average earner, who saves throughout their lifetime in a defined contribution scheme, to have over £11,000 more in their pension pot.

The Bill will introduce a standardised test that requires trust-based defined contribution schemes to demonstrate they deliver value. This should remove the underperforming schemes leading to a more productive investment of funds.

They will also be amending the Special Rules for End of Life (Pension Protection Fund and Financial Assistance Scheme) by broadening the definition of ‘terminal illness,’ enabling eligible members to receive a lump sum payment sooner.

Economic growth and wealth creation

Business investment in the UK has been persistently low, holding back productivity and living standards.

The introduction of the National Wealth Fund (NWF) will be central to the Government’s mission to drive growth and create a greener economy.

With an additional £7.3 billion in funding, the NWF will make transformative investments nationwide, attracting billions of pounds in private sector investment.

The Labour Party will create new partnerships with businesses and workers to overcome cost of living challenges and prioritise wealth creation.

As local leaders typically know more about what their areas need, Labour will introduce a Bill to move power out of Westminster and back to local leaders, giving them the tools they need to drive growth in their communities.

The new laws will give more powers to metro mayors and combined authorities, helping support local plans that bring wealth to communities.

To kickstart investments right away, the NWF will work through the UK Infrastructure Bank, expanding its role.

This will help attract even more private investment, aiming to bring in £3 from the private sector for every £1 invested by the Fund.

The Fund will make it easier for businesses and investors by bringing together key institutions like the UK Infrastructure Bank and the British Business Bank.

By uniting these organisations under the NWF, there will be a clear, streamlined support system for businesses and a compelling opportunity for investors, to use public funds wisely to open up new investment opportunities.

VAT

Measures will be taken to remove the exemption from Value Added Tax (VAT) for private school fees, which will enable the funding of six and a half thousand new teachers.

European Union

The Labour Government will seek to reset the relationship with European partners and work to improve the United Kingdom’s trade and investment relationship with the European Union.

This aims to gain more favourable trade conditions and attract more European investment into the UK and vice versa, leading to increased funding opportunities for businesses, and facilitating growth and expansion.

What is next?

There are still many unknowns when it comes to Labour’s policies regarding personal and business financials, with very little mention of taxes and funding opportunities.

The Budget date has now been announced to take place on 30 October 2024 and is expected to make the Labour policies clearer.

We will keep you updated with any updates that happen between now and then, alongside a Budget summary following the event.

In the meantime, we encourage you to ask any questions you may have about these new policies and how they impact your business.

Please contact us if you have any questions about what the new Government means for your finances.