Spring Budget 2024 - What It Means For Small Business Owners
Read about the Spring Budget announcements made by the Chancellor on 6 March 2024 and discover what they mean for your business.
We’ll cover what the measures mean for employers and your employees, as well as impacts for those of you who are self-employed or are limited company owners.
National Insurance cuts
From 6 April 2024, National Insurance will be cut as follows:
Class 1: From 10% to 8% for employees
Class 4: From 9% to 6% for the self-employed
If you’re self-employed, you will benefit from the Class 4 reduction and if you employ staff they will pay less Class 1 NICs. You’ll need to make these updates to your employees’ payroll at short notice.
High-Income Child Benefit Charge threshold change
If you are a parent, either employed or self-employed, the changes to the High Income Benefit Charge (HICBC) threshold were welcomed.
From 6 April 2024:
The threshold for incurring the charge will increase from £50,000 to £60,000
The upper taper range will rise from £60,000 to £80,000.
If you are a parent and have previously opted not to receive child benefit payments, you should now reconsider this in light of the announcements and change to the thresholds.
For example, if the highest earner in your family earned £65,000 per year, you would have previously had the full amount of child benefit clawed back. Rather than having to pay HICBC, you may have chosen not to receive child benefit. For 2024/25, HICBC will claw back only 25% of the child benefit. Therefore, you may wish to consider claiming child benefit to keep 75% of it.
In the longer term, the Government hopes to reduce the unfairness of the current system by assessing child benefit eligbility against household income rather than the highest earner’s individual income by April 2026.
VAT registration threshold increase
The VAT registration threshold will rise from £85,000 to £90,000 from 1 April 2024.
We note that this is a modest rise given that the threshold has been frozen for seven years. If this had risen in line with inflation, it would be over £100,000.
If you are a business owner, this change may not make a huge difference to your plans to register for VAT. It is best to speak to an accountant if you are deciding whether to register as there lots of factors to consider.
CUt in top rate of Capital Gains Tax
From 6 April 2024, the higher rate of Capital Gains Tax (CGT) rate on residential property will drop from 28% to 24%.
This will be relevant to you if you are a landlord or you are a business owner who is thinking about selling properties.
Furnished holiday lettings regime abolished
The Furnished Holiday Lettings (FHL) Tax Regime will be abolished from 6 April 2025.
If you operate a short-term let business, you will no longer be awarded favourable tax treatment over longer term residential lettings.
This will mean that:
Interest and finance costs will be restricted to 20% basic rate relief
No capital allowances, instead replacement of domestic items relief
On sale the business asset reliefs will not be available meaning a higher rate of tax on sales
Profits will no longer be included as relevant earnings and will therefore result in lower tax relief for pension contributions
Our final thoughts
There were lots of measures announced in the Spring Budget but this was rundown of the top 5 affecting small business owners.
In our view, there were positive steps but it was generally underwhelming especially given the impact of frozen thresholds known as “fiscal drag”.
It is worth noting that you are a limited company director like our clients, then you’ll likely be paying yourself a salary below the Employee National Insurance threshold so you won’t benefit from the reduction in Employee NIC. If you are an employer, there was sadly no reduction in the Employer NIC. There was no change to corporation tax rates (which were hiked in 2023/24) or dividend tax rates.
In certain circumstances, you might now find that taking salaried income rather than dividends is more tax efficient, especially if you’re a higher earner. A good accountant will help you reassess your director remuneration strategy.
We love talking to our clients about the Spring Budget 2024 announcements and how to prepare their limited company for changes in the upcoming tax year.
If you’d love to work with a collaborative female accountant then please get in touch with us.
