FreeAgent: What’s changing for small businesses in the 2024/25 tax year?

In just over a week, we’ll be welcoming in a new tax year - and with it, a host of tax changes to wrap our heads around. 

We’ve done the head-wrapping so you don’t have to! Here’s a quick list of all the rates, relief and expense changes that could affect your small business.

Changing from 1st April:

• The VAT registration threshold increases to £90,000. The VAT de-registration threshold also increases to £88,000, meaning if your VATable sales fall below £88,000 in 2024/25, you may de-register. 

• National Living Wage increases to £11.44 - this rate applies to workers aged 21 and over. 

• Any firms bidding for government contracts worth more than £5m will have to demonstrate that they pay their purchase invoices within an average of 55 days.

Changing from 6th April: 

• The main rate of Class 4 self-employed National Insurance (NI) contributions reduces to 6%.

• Class 2 self-employed NI contributions are no longer required. If you’re self-employed, you’ll still continue to receive access to contributory benefits, including the State Pension. You can find out more in our Autumn Statement blog.

• The main rate of Class 1 employee’s NI contributions falls to 8%.

• Scotland is introducing a new 45% ‘Advanced rate’ Income Tax band for Scottish taxpayers on earnings between £75,001 - £125,140. The ‘Top rate’ band increases from 47% to 48% for those earning above £125,140. The additional rate will remain at 45% in England, Wales and Northern Ireland.

• The cash basis of accounting will be the default accounting method for self-employed businesses and partnerships with trading income, with an opt-out for accruals. The turnover threshold for businesses to use the cash basis is being removed, along with the £500 limit on interest deductions and restrictions on using relief for losses. 

• The annual exempt amount on Capital Gains Tax (CGT) will drop to £3,000. This means individuals, sole traders and partners will begin paying Capital Gains Tax on any gains above £3,000 made from selling certain assets between 6th April 2024 and 5th April 2025. Unused annual exempt amounts cannot be carried forward to the next tax year.

• The higher rate of CGT on residential properties reduces to 24% for disposals made after 6th April 2024.

• The dividend allowance decreases to £500. If you own shares in a limited company, your first £500 earned in dividends is taxed at 0%, after which your dividend income is taxed at a rate based on your overall income. 

• The small business multiplier in England remains frozen for a fourth consecutive year at 49.9p. This is part of how HMRC calculate your business rates bill.

• The 75% relief for eligible Retail, Hospitality and Leisure (RHL) properties is being extended for 2024/25. Around 230,000 RHL properties in England could be eligible to receive support up to a cash cap of £110,000 per business.

If you’re looking for a better way to keep track of tax rates and deadlines, FreeAgent can help. You can get on with business while our accounting software calculates your tax in the background and reminds you of important tax dates. Try it for yourself with 30 days free.

Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.