Strategic Tax Planning for UK Entrepreneurs in the Upcoming Year

December 13, 2023

December isn’t just about the pre-Christmas rush and sales. It’s a time when entrepreneurs are thinking about how to properly prepare for the coming year. In Britain, several key tax planning updates and changes will come into force in 2024. 

To help businesses re-adjust and not miss out on anything, Payrow has collected the main changes in this overview. Let’s see which factors will influence the strategic planning of UK businesses.

What UK Entrepreneurs Have to Focus on in 2024

Everything we are going to discuss below, as well as the factors that affect strategic planning for businesses in the UK, relates to the Autumn statement, which detailed the government’s initiatives going forward. We have already covered those provisions in an article, but now we will focus more on salary and tax considerations.

National Living Wage & Late Payment Reform

The National Living Wage is set to increase in 2024. This will apply not only to adult employees (23+ years) but also to employees aged 21 to 22 and 16 to 20. This significant increase will take effect from the 1st of April, 2024. 

These adjustments aim to support workers and provide a competitive wage environment, which has an overall positive effect, but this will have an impact on the budgets of companies with younger employees or those earning the National Living Wage. They will need to change their approach to long-term payroll budgeting. 

Additionally, there are new reforms to address late payments. Small business procurement payments are sometimes delayed for various reasons. However, the government is extremely wary of such delays because they harm the ability of contractors to fulfil their obligations. Regulations have been imposed on SMEs that require all subcontractor invoices in the public sector supply chain to be paid within 30 days. Also, the government has set average payment terms (55 days) for companies bidding for large government contracts.

Employee National Insurance Contributions

Starting from the 6th of January 2024, the Employee National Insurance Contributions Primary Class 1 rate will decrease from 12% to 10% for earnings between £12,570 and £50,270. On the one hand, employees will see an increase in their take-home pay as a result of the reduced NICs rate. On the other hand, this change necessitates the updating of payroll software to reflect the new rates and avoid any potential compliance issues.

The adjustment is part of the National Insurance Contributions (Reduction in Rates) Bill 2023-24, and it is aligned with the government’s efforts to provide relief to employees within this income bracket. The Bill implements three changes to NI contributions, which were announced by Chancellor Jeremy Hunt in the Autumn Statement.

National Insurance Reform for the Self-Employed

It’s not just employees of organisations that are affected by the updates to National Insurance. From April 2024, Class 2 National Insurance, which contributes to state pension credits, will be abolished for the self-employed. 

In addition, the Class 4 National Insurance for the self-employed will change. The rate will be reduced from 9% to 8% for profits between £12,570 and £50,270. The rate reduction is designed to lower the tax burden and improve the system. This change will not impact businesses with hired employees but will affect the record-keeping of contributions by the self-employed. 

Business Rates for Small Businesses and Full Capital Expensing

The small business multiplier in the UK will remain frozen at 49.9p in the tax year 2024-25. This decision was announced as part of the 2023 Autumn Statement, in which the Chancellor set out a support package of £4.3 billion over the next five years to help small businesses and the high street.

There’s also a continuation of business rates relief. Eligible businesses currently receive a 75% discount on business rates bills for the 2023/24 billing year, with the highest amount of relief capped at £110,000 per company. The retention of this relief until 2024-25​​ is intended to ease the financial burden faced by small businesses.

Furthermore, the government implemented substantial tax relief for companies investing in information technology, equipment, and machinery, known as the full capital expensing permanent. Companies can reclaim 25p of corporation tax on every £1 of investment by deducting the cost of these items from their profits, which saves them a lot of money. 

Other Changes That Affect Small Businesses

Let’s briefly discuss what other factors and innovations may affect planning for businesses in the coming year. The information in the next section isn’t the best news for companies because it sets out increases in expenses and a reduction in benefits. However, now it’s much more important to prepare for the new year keeping these changes in mind. 

  • Dividend allowance reduction. The bad news for investors is that from the 6th of April 2024, the tax-free dividend will be reduced from £1,000 to £500 per shareholder. This will have a negative impact on profit extraction strategies.
  • CGT allowance reduction. The annual capital gains tax (CGT) will be reduced from £6,000 to £3,000. This means that individuals will be able to gain up to £3,000 in a tax year before having to pay CGT. The reduction in the annual tax-free amount is part of government measures to increase tax revenues.
  • Abolition of the Lifetime Pension Allowance. From 2024, the government will abolish the lifetime allowance in pension tax legislation. The total amount of tax-free cash an individual can receive will be limited to a maximum of £268,275 unless they have a valid lifetime allowance or lump sum protection. It also limits the total amount of lump sums an individual can receive before marginal rate taxation applies. 

Optimising Tax Management with Payrow

As UK entrepreneurs adjust to the upcoming tax changes in the 2024 financial year, they can greatly benefit from Payrow. This platform is designed to help start-ups, online businesses, and established companies. Payrow simplifies multiple financial processes, including order processing, invoice creation, and payment management, while providing the highest level of security. 

The services used to simplify and optimise financial flows make accounting management, especially tax calculations and payments, more efficient. Payrow, with its personalised support and various customisation options, aligns well with the evolving needs of companies facing new tax regulations. Consider using our solutions to manage your financial and tax accounting.

Manage your business easily with Payrow!

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