The March Budget featured a cut in the main rates of national insurance. This drops in April 2024 to 6% for the self employed, and to 8% for employees.
This is a quick way to be seen to boost after-tax income for earners. However, most other rates and allowances are static. In particular, the tax-free personal allowance is frozen, and the basic rate band remains the same. The tax-free thresholds for lower-income trades and for savings have not moved, and the allowance for tax-free dividend income is halved. At a time when we have been experiencing high inflation, this ‘fiscal drag’ catches more taxpayers into higher rates of tax, and means that some who have not previously needed to submit tax returns will need to start to do so, without their financial circumstances having changed.
The VAT registration threshold goes up £5,000 to £90,000. This is welcome, but long overdue as it has not risen since 2017, and was due to be reviewed in 2022.
The move to abolish Class 2 National Insurance is a welcome simplification. This has taken some years to work through, and has caused a good deal of administrative hassle to HMRC, taxpayers and advisers along the way.
Year-end planning suggestions include the following:
- Consider pension top ups or charitable donations before 6 April, so that these fit into the 5 April 2024 tax return. For taxpayers whose top rate of tax is 40%+, these can save tax during 2025.
- For families with children, the changes to child benefit rules mean that less of this will be taxed away. Child benefit applies for households with a child up to 20 years old, if they are still in education. You can check here whether you are eligible.
- The start of April is the time to begin gathering records for the next tax return. Most banks offer options to download statements in pdf or spreadsheet (Excel or .csv) format. I suggest doing a whole-year download and keeping both. A .csv version can be a useful starting point for checking transactions for the tax return. There is no need to download month by month: A download from 1 April 2024 through to 5 April 2024 should cover all relevant transactions.
HMRC’s Making Tax Digital project for income tax returns stretches further into the future. The two key suggestion to be reasonably prepared are:
- Ensure you have a personal tax account and can log in. HMRC will use these increasingly and there is certain information tax advisers are not able to access, which taxpayers can see by using their HMRC login.
- Keep self-employment records on a spreadsheet, or in a software program which records each transaction individually (and which can be downloaded or exported, to work on for the tax return).