Towards the end of November 2023, Chancellor Jeremy Hunt announced some of the government’s tax and spending plans for the year ahead. Only a fraction of the changes actually made it to the speech itself, with many other tweaks and changes instead being outlined in the documents published alongside it.
We’ve outlined what some of the less publicised changes are and what they might mean for your small business.
National Insurance changes for the self-employed
Class 2 National Insurance (NI) has been abolished, meaning that self-employed people will no longer need to pay the weekly fixed amount (£3.45 per week for 2023/24) if their profits are above the lower profits limit (£12,570 per year). Access to things such as the state pension and other credits triggered by NI payments will be unaffected by this change.
Class 4 NI has also been reduced, down to 8% on profits of between £12,570 and £50,270 (it was previously 9%).
This means that a self-employed person with an annual profit of £40,000 would pay approximately £450 less in Class 4 NI contributions under the new change, and around £192 less with the abolition of Class 2 NI.
Frozen business rates
The small business rates multiplier has been frozen for another year for eligible retail. Hospitality and leisure businesses, and business rates relief (75%) has been extended for small businesses for the 2024/25 tax year. This was previously set to rise with inflation from spring 2024.
Living wage increases
The national living wage is set to increase in April 2024 to £11.44 an hour and this will now include workers aged 21 and above, whereas the highest rate was formerly applied only to workers aged 23 and over. This means that small businesses will need to ensure their employees are being paid at least the minimum hourly rate by April 2024.
An example is a 21-year-old employee, who is now paid the current national minimum wage for their age, which is £10.18 per hour. From April 2024 this will rise to £11.44 per hour. This means that if they work 40 hours a week, their earnings increase from the current £21,174.40 per year to £23,795.20 per year.
Full capital expensing made permanent
A temporary tax break called ‘full capital expensing’ was introduced in April 2023, which means that businesses investing in the UK in IT, machinery and equipment can claim back 25p for every £1 spent, therefore reducing the amount of corporation tax they ultimately pay. This has now been made permanent from April 2024.
Making Tax Digital (MTD) tweaks
Self-employed people with a gross income of under £30,000 per year will now not be required to use Making Tax Digital for income tax self-assessment (MTD ITSA) for the foreseeable future, although this could change at some point.
Another change to MTD ITSA is that taxpayers will no longer need to file an End of Period Statement (EOPS) and can combine information into a single Final Declaration.
For the time being, sole traders with a taxable income of more than £50,000 will need to register and start using MTD-compatible software from April 2026, with those having an income between £30,000 – £50,000 doing the same from the following tax year. If you want to know more about what these changes mean for your small business and get some support on your business tax planning and accounting, we can help. Get in touch.