Key business tax changes you need to know about for 2024-25

This business tax guide for 2024-25 outlines the various tax rates, allowances, and important measures you need to be aware of, as confirmed in the Spring Budget 2024. The information below will be of help when considering your tax planning over the next 12 months.

Corporation tax

UK Corporation Tax rates and thresholds will be maintained at their current levels for 2024-25.

If your company has profits of more than £250,000, you will pay the main rate of Corporation Tax, which is 25%. If your company has profits of £50,000 or less, you will pay the small profits rate instead, which is 19%.

Companies with profits between £50,000 and £250,000 can claim Marginal Relief. This provides a tapered increase in the rate of Corporation Tax between the small profits rate and the main rate.

VAT rates and thresholds

The 12-month VAT-taxable turnover threshold for registration increased on 1 April 2024 from £85,000 to £90,000. This is the point at which a business must register for VAT. If your turnover is below the threshold, you have the option to register voluntarily.

The 12-month VAT-taxable turnover threshold for deregistration increased from £83,000 to £88,000. This is the point at which a VAT-registered business can apply to HMRC to deregister for VAT.

In Northern Ireland, the VAT registration and deregistration thresholds for acquisitions increased from £85,000 to £90,000.

There are no changes to VAT rates for the 2024/25 tax year.

National Minimum Wage

On April 1, 2024, significant changes to the national minimum wage came into effect, marking a crucial milestone in the ongoing discourse surrounding fair wages and economic equality. The updated national minimum wage rates vary depending on the age group of the worker and whether they are an apprentice. Here's a breakdown of the new rates:

From 6 April 2024, Statutory Sick Pay (SSP) for eligible employees increased to £116.75 per week. From 7 April 2024, the rate of Statutory Maternity, Adoption, Paternity, Shared Parental, and Parental Bereavement Pay will increase to £184.03 per week.

Cash basis change to benefit many self-employed people

From 6 April 2024, the cash basis has become the default for calculating the profits of eligible sole traders and partners with trading income.

You can still use the accruals basis (the previous default) instead, but you must elect to do so.

In addition, the £500 annual cap on interest deductions will be removed, and the restrictions on loss relief applying only to the cash basis will cease.

The size thresholds for entering and leaving the cash basis will also be taken away, which means you can use it regardless of your turnover.

Aside from cash flow considerations, factors influencing whether the cash basis is right for you may include:

• The need to prepare Generally Agreed Accounting Principles (GAAP) compliant accounts for other purposes, such as grant or bank loan applications
• The ability to decide when to claim relief for capital expenditure
• The complex adjustments required under the cash basis for private use of capital assets
• The interaction with the future introduction of Making Tax Digital for Income Tax Self Assessment.

Basis period reform for unincorporated businesses

HMRC is changing the time period sole trader and partnership businesses use to work out their taxable profits.

From April 2024, the existing basis period rules (the 'current year basis') will be abolished and replaced with a tax year basis of assessment. Under the tax year basis, businesses will be subject to tax on their profits arising in the tax year, regardless of their accounting period end.

Effectively, where a business has a year-end other than 31 March or 5 April (or a date in-between), they will need to apportion amounts from two sets of accounts to calculate their profits for every tax year from 2024/25 onwards.

Tax year 2023/24 will act as a transitional year, in which we switch over from the current year basis to the new tax year basis. In this transitional year, the basis period will be made up of two different elements:

• A 'standard part' being the normal basis period (i.e. the 12 months following the end of the basis period for 2022/23); and
• A 'transition part' running from the end of the standard part to 5 April 2024 (or 31 March 2024 if accounts are drawn up to that date).

In effect, businesses will be required to bring into account an additional amount of profits running from the end of their normal basis period to the end of the 2023/24 tax year. Two measures are allowed to reduce the impact of this:

• businesses can deduct any overlap relief they may have from the additional transition part profits; and
• any remaining transition profits can then be spread over a period of up to five years.

New research and development tax reliefs

The system of corporation tax reliefs for research and development (R&D) will simplify and change from April 2024.

R&D Expenditure Credit and R&D Tax Relief for SMEs will merge into one new R&D Credit equal to 20% of qualifying expenditure.

Separate 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.

The rules for contracted-out R&D will also change. As of 1 April 2024, to be qualifying R&D costs, subcontracted R&D work and the cost of externally provided workers (EPWs) will be limited to work done in the UK; unless it's classified as qualifying overseas expenses.

Other changes

From 1 April 2024, the small business multiplier for business rates will be frozen for another year in England. The 75% Retail, Hospitality and Leisure relief will be extended for 2024/25. The standard multiplier will be uprated in line with September's Consumer Prices Index.

Multiple Dwellings Relief (MDR) for stamp duty land tax (SDLT) will be abolished with effect from 1 June 2024. MDR currently applies where several dwellings are acquired in the same transaction and allows SDLT to be based on an average consideration per property, which can sometimes result in a lower effective SDLT rate.

MDR will no longer apply to transactions relating to property in England and Northern Ireland completed on or after 1 June, unless the completion is under a contract entered into on or before 6 March 2024.

Companies and some other entities may need to file the Annual Tax on Enveloped Dwellings (ATED) returns or pay ATED if they hold residential property. ATED charges have risen by 6.7% from 1 April 2024 in line with the September 2023 CPI. This has seen the entry rate for properties worth £500,001 to £1m rise to £4,400 from £4,150, while the charge for properties over £5m to £10m has increased to £71,500 from £67,050.

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