Tax changes small businesses need to know
The new tax year starts on 6 April every year, and with that often comes a range of new tax rates and thresholds. Here's what you need to know for the tax year 2024/25:
Personal allowance rates
Income tax brackets
National Insurance reforms
National minimum wage rates
Dividend tax changes
Making Tax Digital
Business rates
Working tax credits
1. What’s the personal allowance?
The personal allowance in 2024/25 will remain £12,570. This is how much you can earn tax free.
The government has frozen this tax allowance until 2028. Businesses and taxpayers in general are facing rising costs, so could feel the pinch of this personal allowance freeze.
And over the long-term, if earnings rise and the personal allowance stays the same, then you’ll pay more in tax.
2. UK tax brackets 2024 – income tax
The additional income tax threshold is £125,140 (it reduced from £150,000 in April 2023).
These are the income tax rates and thresholds the self-employed should be aware of in 2024/25:
basic rate – 20 per cent on income between £12,571 and £50,270 – you pay tax on £37,700
higher rate – 40 per cent on income between £50,271 and £125,140
additional rate– 45 per cent on income above £125,140
There are different bands and rates for Scotland.
3. National Insurance tax rate changes
The self-employed usually pay both Class 2 and Class 4 National Insurance through their annual Self Assessment tax return.
The chancellor announced big changes to National Insurance in the Autumn Statement, so from 6 April 2024 the self-employed no longer need to pay Class 2 National Insurance. And the Spring Budget saw a reduction in the main rate for Class 4 NICs.
Small business owners with staff also need to pay employee National Insurance contributions via payroll.
Tax thresholds for Class 2 NICs and Class 4 NICs
2024/25 thresholds | 2023/24 thresholds | |
No National Insurance incurred between | £0 to £6,724 | £0 to £6,724 |
Small profits threshold for Class 2 NICs | No longer applies | £6,725 |
Lower profits limit for Class 4 NICs | £9,880 | £9,880 |
Upper profits limit | £50,270 | £50,270 |
Here are the National Insurance rates for 2024:
Class 4 NICs up to the upper profits limit at 8 per cent (for 2024/25 tax year)
Class 4 NICs above the upper profits limit at 2 per cent (for 2024/25 tax year)
Check the government website for more information.
Employer and employee National Insurance contributions (Class 1)
If you’re an employer, or also have income from employment, here are the Class 1 National Insurance tax thresholds.
Tax thresholds for Class 1 (primary) National Insurance
2024/25 weekly threshold | 2024/25 annual threshold | |
|---|---|---|
Lower earnings limit | £123 | £6,396 |
Primary threshold | £242 | £12,570 |
Upper earnings limit | £967 | £50,270 |
Earnings above the primary threshold incur NICs at 8 per cent in 2024/25.
Earnings above the upper earnings limit incur NICs at two per cent in 2024/25.
Tax thresholds for Class 1 (secondary) National Insurance
Employer NICs are due on annual salary payments to employees above a certain threshold. This is £9,100 in 2024/25 (a weekly threshold of £175).
The rate is 13.8 per cent in 2024/25.
National Insurance is also due at this rate on any work benefits you give employees.
4. Changes to wage rates for employers
Rate from April 2024 | Rate from April 2023 | |
|---|---|---|
National living wage | £11.44 (aged 21+) | £10.42 |
Rate for 21-22 year olds | National living wage rate applies | £10.18 |
Rate for 18-20 year olds | £8.60 | £7.49 |
Rate for 16-17 year olds | £6.40 | £5.28 |
Apprentice rate | £6.40 | £5.28 |
Read more about the national minimum wage.
5. Tax rates for dividends in 2024/25
The dividend tax rate is staying the same in 2024/25.
But Jeremy Hunt slashed the dividend allowances in his Autumn Statement, so for 2024/25 you’ll pay dividend tax on the dividends you earn above £500 (instead of £1,000) at these rates:
basic rate taxpayers – 8.75 per cent
higher rate taxpayers – 33.75 per cent
additional rate taxpayers – 39.35 per cent
6. Making Tax Digital on track for April 2026
Self Assessment taxpayers have until April 2026 to start using Making Tax Digital for income tax. Initially this will apply to those with an income over £50,000 and then those earning £30,000 to £50,000 will need to use the system from April 2027.
Those earning less than £30,000 won’t be required to file using Making Tax Digital (at least for now).
Making Tax Digital was first rolled out in 2019 for VAT-registered businesses with a taxable turnover of more than £85,000. And it came in for all other VAT-registered businesses in 2022.
This system requires businesses to keep digital records and file VAT returns digitally. Businesses need to use relevant accounting software.
7. Changes to business rates
Retail, hospitality, and leisure businesses should be aware of the business rates changes for 2024.
Business rates are now based on a new rateable value. This is to take into account changes in property value since 2017.
This was first introduced in April 2023, but the government brought in a relief for retail, hospitality, and leisure businesses to help with the transition.
However, this relief is set to end in April 2024 and business rates are likely to soar for small businesses.
You can estimate your business rates using the government’s online calculator. There are different rates for businesses with premises in Scotland and Northern Ireland.
8. Tax credits – self-employed changes
Working tax credits are coming to an end, and people claiming solely working tax credit should be migrated to Universal Credit before the start of the 2024/25 tax year. The remaining people claiming will be migrated by the start of the 2025/26 financial year.
Make sure you check your tax credits information and how this could impact your Self Assessment.
Other UK tax brackets 2024
the capital gains tax allowance for individuals will be halved to £3,000 from April 2024 (it’s £1,500 for trustees) and full expensing is now permanent
council tax for second homes and owners of empty properties is rising to a premium rate for 2024/25 (depending on your local authority)
dividend tax allowance is changing to £500
fuel duty is frozen until April 2025
basis period reforms mean business profits will be taxed based on the tax year rather than their individual accounting periods
two years to go until the new HMRC penalty points system comes in for Self Assessment taxpayers (starting in April 2026 for those with an income over £50,000)
the Individual Savings Account (ISA) allowance is staying at £20,000, but savers (from April 2024) can put money into more than one type of ISA each tax year – the government hopes this will encourage competition in the market
the government is also consulting on bringing in a new UK ISA, giving an additional £5,000 allowance to savers a year for investing in UK assets
the plastic packaging tax rate changes from 1 April 2024 in line with the Consumer Price Index
pension changes from April 2024 include scrapping the lifetime allowance
annual flat rate road tax will increase from 1 April by about six per cent (and only electric vehicles will be exempt from VED)
research and development (R&D) relief reforms – the research and development expenditure credit and R&D SME scheme are merging into one
Keep an eye on the Knowledge centre for all the latest resources and news for small businesses and the self-employed.
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What type of business insurance do I need?
Please use this article as a guide and get professional tax advice on self-employed tax brackets if you're not sure about anything.
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