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What’s changing in the new tax year for small businesses?

In April, we can expect to see a lot of changes. Some of these affect a large portion of people, whereas others will affect more specific groups. You need to know the changes taking place so your business can comply to any new legislation. It may impact you directly, or simply mean you need to make some small tweaks to how you currently operate.

What changes are coming into effect for the 2024/25 tax year?

A new minimum wage, changes to tax, and differences in statutory pay are all things you may not have thought about. But as April 2024 creeps closer, businesses must get ready for these.

National insurance contributions

Chancellor Jeremy Hunt announced in the 2023 Autumn statement that changes would be coming to the national insurance contributions (NIC) system.

This new rule will more than likely affect those who earn over £12,570, including self-employed people who earn £12,570 and are liable to pay class four NIC.

From April 6th, the main rate of employee class one NIC will be reduced by two percentage points. This will also reduce class four’s main rate of NIC by two percentage points. This is seen as positive for people as it should provide a tax cut for an estimated 29 million during the tax year from 2024 to 2025. This means an employee earning £35,400 should get a tax cut of more than £450 a year when the legislation comes into place.

EFO and OBR have estimated that this reduction to NIC will increase the hours worked by new and existing full-time employees by 98,000. There’s also an expectation that real household incomes will be boosted by around 0.5% as well as create a 0.2% increase to potential output by the end of the forecast.

Dividend allowances

This means the amount of dividends in a year that can be earned tax-free. They’re used by businesses to reward shareholders for their investment. April 6th 2024 divided allowance will be halved from £1,000 to £500, with a loss on average being around £155. It’s been predicted that 4.4 million people will be affected by this. Divided allowances were also halved in April 2023 from £2,000 to £1,000.

So what does this mean for you? As a director of a business, it can save you money on taxes which will help your business grow. If your dividends are within this new allowance, you won’t have to pay tax. On the other hand, this reduction may mean you now have to, which could mean higher tax payments.

Research and development scheme

This scheme allows businesses who carry out qualifying research and development related to their own trade the chance to claim an extra CT deduction for a specific qualifying expenditure.

During Spring Budget 2023, it was announced by the Government that they’d be refocusing measures for the research and development scheme on innovation on April 1st 2024. In Autumn, it was confirmed that the Government would introduce the merged R&D expenditure credit. They also said there would be changes to how contracted out activities are treated from April 2024. Oversea rules apply to this too. This new legislation is included in the finance bill which can be found here: GOV.UK

National minimum and living wage

On April 1st 2024, the national living wage will increase by 10% from the current rate of £10.42 to £11.44. This is the biggest increase the UK has ever seen. Those who are aged 21 and 22 will now be able to receive this too where they previously had to be 23.

This number will also increase for young workers receiving minimum wage. 18-20-year-olds whose minimum wage used to be £7.49 per hour will now increase by £1.11 to £8.60. 16-17-year-olds and apprentices will also now be paid a minimum wage of £6.40. These apprenticeship rates are for anyone who is 19 and over in their apprenticeship’s first year or are 19 or under.

These new rates may cause you to review your staffs pay to see whether changes need to take place.

Flexible working legislation

From April 6th, new legislation under the flexible working act will come into place that allows people to be more flexible with their working schedule. Under the act, employees can make a working request which allows flexibility twice in a 12-month period. Previously, they were only allowed to make one request. An example of this may be someone asking if they can have the option to work from home. Their employer needs to respond to this request within two months. Previously this was three months.

In the past employees had to have 26 weeks service minimum to make a request. This is no longer part of the act, and you can make a request right from day one. If a request is denied, an employer now needs to have a consultation with the employee explaining why.

Your business may need to review your current flexible working policies to make sure they align with the new legislation. Allowing employees to be flexible may help them with issues like mental health and physical health. This can lead to employee satisfaction and less absences.

Predictable work pattern legislation

This is one to look out for in the future as it’s supposed to come into place fully around September 2024. The workers act (terms and conditions act) is like the flexible working act but more about work patterns. It gives workers with unpredictable working hours the opportunity to ask for more stable ones. An example of people eligible for this are people on a zero-hour contracts and agency workers.

This is something to be careful about with your own business as you may need to allow flexibility for those on such contracts.

Basis period reforms

Unincorporated businesses will be taxed on their profits from 2024 and 2025 from the start to the end of the tax year under the new tax year basis. Businesses will only be affected if they draw up annual accounts to a date that isn’t March 31st or April 5th.

Companies will draw up their accounts to the same day every year. A basis period usually covers a business’s profit or loss for the year up to their accounting date. From April 6th, period reform outcomes for profits will be reviewed and then taxed in the tax year where they arise. For some, this will be a new transition period of assessing profits. The way you report your profits for tax purposes may change.

Statutory leave rates

Also, from April 7th 2024, there will be a few changes to statutory leave rates.

For statutory maternity pay and statutory adoption pay, they will be paid 90% of their average weekly earnings for six weeks. After these six weeks, they will be entitled to £184.03 or 90% of their weekly average earnings. This will be whichever works out to be lower.

For statutory shared parental pay, statutory parental bereavement pay, they will be paid £184.03 or 90% of their average weekly earnings. This will be whichever works out lower.

Employers may be able to reclaim 92% of their employees’ statutory rates in any of these categories. If your business qualifies for Small Employers’ Relief, you may be able to reclaim 103%. This is in cases of paying £45,000 or less in class one national insurance in the previous tax year. More can be found out here: GOV.UK

Statutory sick pay (SSP) – The weekly rate will increase to £116.75 a week from £109.40. £123 will remain the amount that a person must earn weekly to receive SSP. These rates apply to everyone, but the calculated amount they get paid for every day they don’t work depends on how many ‘qualifying days’ they work in a week. You can find out how to calculate employees SSP manually here: GOV.UK.

Statutory paternal leave

Employees may be given this if their partner and them are having a baby. This also includes adopting a child or having a baby though surrogacy. This is paid at a weekly rate of £184.03 or 90% of their average weekly earning’s – whichever is lower.

In the past, fathers taking paternity leave had to take their 2 weeks of leave all in one go. A change in the next tax year means fathers now have the choice to take these two weeks separately if they’d like. 28 days of notice must be given before they take any leave and if any changes occur to when they want this time off.

Business owners should be prepared for this and allow flexibility for them to take this time when they need.

Holiday pay and zero-hour employees entitlements

The Government announced in November 2023 that new legislation would be introduced regarding holiday pay starting from April 1st, 2024. Annual leave will now be calculated by 12.07% of hours worked for those who are part-time workers or do irregular hours in a pay period. All workers are entitled to 5.6 weeks of annual leave legally, but with this new rule, people on zero-hour contracts may be granted more time than they had previously. Holiday pay can now also be rolled-up for those working irregular hours and part-time hours whereas this wasn’t allowed before. GOV.UK includes more information on how you can calculate annual leave for your employees.

What do these mean for your small business?

In short – it means you must be prepared. It’s likely that at least one thing in this article will cause you to make a change. For example, minimum wage is one which is being reviewed by many businesses and one which may affect you. Statutory sick pay could be another and you need to make sure that if someone’s off ill that they’re being paid correctly.

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