Our latest article highlights some important changes that have come into force for the 2024-25 tax year, which could impact contractors, freelancers and small business owners.
National Insurance Contribution
The 2024-25 tax year brings a 2p cut in National Insurance Contributions, and the new rates are:
- 8% for employees
- 6% for the self-employed
Additionally, as of April 2024, the self-employed aren’t required to pay Class 2 National Insurance. However, under certain circumstances (for example, where the individual isn’t automatically entitled to contributory state benefits), they can continue to pay Class 2 National Insurance Contributions voluntarily to accrue benefits.
Dividend Tax Allowance
For the 2023-24 tax year, the tax-free dividend allowance was halved from £2,000 to £1,000. As of the 6th of April 2024, the allowance has been halved again to £500 tax-free dividend income.
VAT Registration Threshold
Since the 1st of April 2024, the VAT registration threshold has increased from £85,000 to £90,000. The threshold for deregistration has also increased from £83,000 to £88,000, so businesses with declining revenue can deregister sooner.
Capital Gains Tax
The higher Capital Gains Tax rate on the sale of residential property has been reduced from 28% to 24%. The annual capital gains tax exemption amount has also been reduced. Following a massive reduction from £12,300 to £6,000 in 2023, the annual exempt amount has been reduced further to £3,000 for the 2024/35 tax year.
Research and Development Tax Reliefs
As of April 2024, the system of tax reliefs for research and development has changed and simplified. R&D Expenditure Credit and R&D Tax Relief for SMEs have merged into one new R&D Credit equal to 20% of qualifying expenditure. Different rules continue to apply to R&D-intensive SMEs, but the threshold for additional support for loss-making firms will fall from 40% to 30%. This should make around 5,000 more businesses eligible for this relief.
High-Income Child Benefit Charge Threshold
The High-Income Child Benefit Charge threshold has increased from £50,000 to £60,000, and the upper limit of the tapered range has increased from £60,000 to £80,000. You are required to pay the High Income Child Benefit Charge if you or your partner have an individual income that’s over £60,000 and either:
- You or your partner get Child Benefit.
- Someone else gets Child Benefit for a child living with you and contributes at least an equal amount towards the child’s upkeep.
If your adjusted net income is over £60,000 and so is your partner’s, then whoever has the higher income is responsible for paying the tax charge.
Lifetime Allowance
The pensions lifetime allowance (LTA) was abolished following the 2023 spring budget and has been removed for the 2024-25 tax year onwards. The LTA has been replaced by two new allowances: the lump sum allowance (LSA) and the lump sum and death benefit allowance (LSDBA). The LSA has been capped at £268,275 and is the amount of tax-free cash you can take from your pension. The LSDBA allowance is set at £1,073,100 and is the cumulative amount that can be paid out as tax-free lump sums during your lifetime and on your death.
ISA rules
As of April 2024, you can open and pay into different ISAs of the same type in a single tax year. Previously, it was limited to one type per tax year. However, now you can open two cash ISAs or two investment (Stocks and Shares) ISAs, allowing you to invest with different providers and take advantage of better rates. The ISA allowance has not changed and will remain at £20,000 for the 2024-25 tax year.
Contact us today for an impartial consultation
Bluebird Accountancy provides you with state-of-the-art accountancy software alongside support from your own dedicated Account Manager, allowing you to take control of your limited company and thrive as a contractor. For more information about our accountancy service or to schedule a consultation to find out if our service is right for you, please call our friendly team on 0808 301 2389. You can also schedule a call for a time that suits you, and a team member will get back to you shortly.
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