HAPPY NEW TAX YEAR!
6 April marks the start of the 2024/25 tax year (1 April for companies), and is the day on which tax rates, allowances and thresholds change. As the changes taking place have been announced over series of Budgets, we have summarised the key changes, which can be found HERE.
As a gentle reminder, don’t forget to check your coding notice, which are now being issued by HMRC and should be checked to make sure the correct tax is being deducted at source on your employment income and/or pension.
The latest HMRC figures showed a £2bn increase in income tax receipts compared to the same month in the 2022/23 tax year, driven by a strong self-assessment period. The hike in income tax more than made up for the slight drop in national insurance contributions (NICs) in February after the Chancellor cut employee NICs by 2% in November Budget.
The total tax receipts reached £761.1bn since April 2023, which is £36.3bn higher than the same period the year before, mostly increased by income tax, capital gains tax (CGT) and NICs. VAT was also £9bn higher than the same period in 2023, as well as business taxes (£8.2bn). Additionally, inheritance tax increased in February, £564m in February 2024, which is £30m more than February 2023. The average bill for those paying inheritance tax is expected to rise to £240,000 this tax year, with over 31,000 families affected.
The impact with fiscal drag, where tax thresholds don’t stay up to date with inflation, results in a significant number of pensioners and others who never expected to pay income tax in retirement or on low pay will find themselves required to do so. In 2010, fewer than 5m pensioners paid income tax. Today, more than 8.5m do so, with their numbers set to grow this month, when another estimated 650,000 will find themselves dragged into the income tax net. This increase in individuals completing tax returns, and tax revenues comes back to tax thresholds being frozen and the triple lock commitment for the state pension.
Tax Gap
Despite the increase in the tax take, Labour analysis of official Treasury documents shows that the tax gap in the UK - the difference between the amount of tax owed and the amount paid - stands at £35.8bn. This figure is £5bn higher than a year earlier and is made up of tax avoidance, evasion, negligence, and error. The analysis Labour states highlights that if the downward trend in the tax gap had continued, the Treasury would have an extra £8.6bn annually to fund public services. This position on the tax gap see’s HMRC continue with its compliance activity, targeted or random selection for enquiry and more aggressive with its dealing with taxpayers. The most recent targeted HMRC campaigns:
- Social media influencers failing to pay tax on 'gifted' items - The influencer marketing industry has become a lucrative career path for many creators, with HMRC cracking down on the unreported perks. HMRC are targeting influencers who fail to disclose freebies and gifts from brands. through brand partnerships and social media platforms. Many influencers are unaware of their tax obligations, with some thinking they only need to disclose income above £12,570. However, online earnings above £1,000 tax-free trading allowance must be reported to HMRC.
- From the beginning of February, HMRC have been writing to company directors to tell them they may have unreported dividend income to declare. HMRC have sourced data from Companies House, i.e. the Company accounts, and if reserves have fallen despite the company making a profit, this could suggest that a dividend or distribution has been paid out.
- We have also been made aware that HMRC have now launched a further campaign targeting mid-sized businesses and asking them to review their Annual Investment Allowance (AIA) claims. The AIA is a valuable relief that allows companies to claim 100% of the cost of plant and machinery as a deduction when calculating profits.
- HMRC have also analysed thousands of tax returns and identified people who have not paid capital gains tax on the sale of shares, giving them 60 days to respond to the latest letter campaign.
Start Up Loans
Start Up Loans is a UK-wide, government-backed scheme that offers a personal loan, up to £25,000 to those that have a viable business idea but no access to finance. All successful loan recipients are offered free mentoring and access to exclusive business offers. The scheme has provided £7.5m of finance to 1,008 young entrepreneurs in the South West aged between 18 to 24 years old since its launch. If you want to find out more details for a loan, take a look HERE.
SME Concerns
A survey of business advisors by ReSolve has found that political uncertainty is now the biggest concern for SMEs, surpassing inflation and interest rates. The high costs of doing business is cited as an issue that could have a negative impact, but not knowing when an election is going to place, and what will happen post, is now a major concern, as can’t be planned for. The survey also shows that 52% of UK SMEs may require debt restructuring in 2024, potentially leading to insolvencies, with access to capital and tighter lending policies posing additional challenges. Despite the obstacles, businesses are optimistic about interest rate cuts, with 93% anticipating lower rates during 2024.
R&D Tax Relief
We have reported consistently the difficulties with the R&D tax credit system, with enhanced HMRC scrutiny, continuing changes, some taking place this month, we now have businesses that received tax breaks for their innovation work being chased to pay the money back. HMRC is now reassessing past R&D tax relief claims and challenging their validity. This comes after the National Audit Office recommended "compliance work on older claims" for the R&D scheme because HMRC had underestimated the level of error and fraud.
DATES FOR YOUR DIARY
- Key tax dates for the period 1st January 2024 to 30 April 2024 can be found HERE.
