Insights

As the end of the 2023/24 tax year is fast approaching, we thought it would be useful to have a reminder of the tax changes to expect in 2024. Many of these changes will significantly impact individual taxpayers and businesses operating in the UK. In some cases, the changes require some advance planning, and many clients have already been working with us ahead of time to be prepared.

This article summarises some the key changes, what the consequences are, and what steps you as a taxpayer might need to take to mitigate their impact.

Income tax rate changes

The higher rate and additional rate of tax are both changing from 6 April 2024 and this will mean around a quarter of a million more people will be taxed at the highest 45% marginal rate. The change involves the top band for higher rate taxpayers falling from £150,000 to £125,140 meaning the 45% rate of income tax will be paid on earnings above £125,140 instead of £150,000.

Dividend allowance changes

The nil rate dividend allowance has slowly been eroded in recent tax years. Last year, it dropped from £2,000 to £1,000, and from April 2024 the allowance will be just £500. This reduction is expected to impact over 3 million taxpayers. Bear in mind that dividends are taxed on top of other forms of income so its effects will be clearly felt.

Added to this, the rates of tax that are applied to dividend income have also changed to include a national insurance charge, so the reduced allowance will start to have an even greater impact from April 2024. It is now much more important for shareholders of owner managed companies and who are in receipt of dividend income, to consider other ways to extract profits.

Capital gains tax exemption changes

From April 2024, the capital gains tax exemption will be halved. Under current rules, you can make gains of up to £6,000 before paying any tax. This is a significant drop from £12,300 in 2022-23. From 6 April 2024, the capital gains tax exemption will be reduced again to £3,000. Therefore if you own investments outside an ISA or are planning to sell a second home or other valuable asset(s), you should be aware of this reduction in the amount of the gain that will be exempt.

National Insurance rate changes (NICs)

From 6 April 2024, self-employed workers with profits above £12,570 will no longer be required to pay Class 2 NICs and this will not affect eligibility to benefits like the State Pension. Self-employed workers with profits between £6,725 and £12,570 will continue to have access to contributory benefits through a National Insurance credit, without paying NICs. The government will also cut the main rate of Class 4 self-employed NICs from 9% to 8% from 6 April 2024.

Corporation tax changes

All company profits over £50,000 are now taxed at 25% and only companies with profits under £50,000 will be able to access the old 19% corporation tax rate. It is important that company directors evaluate their plans for the long and short term to mitigate these changes.

Capital allowance changes

The ‘super deduction’ tax relief for capital allowance will become known as ‘full expensing’. It means businesses can claim 100% of the acquisition costs as a capital allowance in the year of purchase. It covers qualifying expenditure, e.g. allowable plant and machinery costs, and applies until 31 March 2026.

R&D tax relief changes

A number of changes were made from 1 April 2023 to the rates of R&D relief that can be claimed by eligible companies, depending on whether they can claim SME relief or large company relief. 1 April 2024 will see the introduction of a merged scheme, although we wait to see what that will involve.

Making Tax Digital (MTD) compliance changes

MTD for Income Tax Self-Assessment (ITSA) has been delayed for a few years and will not now be implemented until 2026. However, it’s important to get ready for the change. Many businesses are already submitting records electronically each quarter as MTD for VAT is already live.

Although the changing legislation means that taxes may be increasing for some taxpayers, it is important not to be swayed by negative headline rates. Each person’s circumstances are different and getting professional tax advice, planning ahead and proactively seeking ways to benefit from tax reliefs is more important than ever. Working with a tax adviser can save you money in the short and long term, plus ensure that you are able to achieve your financial or commercial goals.

To discuss these changes to tax rates and how you might be impacted, please email us at partners@rjp.co.uk.