The new year – an ideal opportunity to reflect on your business operations and to begin honing the processes that work best and identifying room for growth and success.
To kick off Tax Tuesday this year, we’re taking a look at some of the key tax planning strategies for UK SMEs going into 2024 – from preparing for the reduced capital gains exempt allowance to accessing your tax relief entitlements,
Capital Gains Tax (CGT)
For the 2023/24 tax year, we have already seen a decrease to the CGT annual exempt amount, from £12,000 to £6,000. This is set to decrease further for the 2024/25 tax year to £3,000. If you are looking to dispose of capital assets this year, then it’s important to be mindful of this in order to minimise your tax liability where possible.
Research and Development
From 1st April 2024, the government will merge their two research and development schemes; the Research and Development Expenditure Credits (RDEC) and the SME scheme. The new scheme will maintain the current 20% RDEC rate, with SMEs now also eligible. This marks a clear step in simplifying the UK’s tax system as well as introducing an above-the-line credit that empowers companies to claim the reliefs they deserve for their commitment to the UK’s advancement.
The notional tax rate for loss-makers will also be reduced from 25% to 19%, hopefully encouraging more companies to take the plunge into R&D projects without the usual concerns of profit or loss. Furthermore, the threshold at which SMEs qualify as R&D intensive will be reduced from 40% to 30% – this will mean that your SME could qualify as R&D intensive, providing that at least 30% of your expenditure is on R&D activities. It’s important to consider how the new research and development scheme could benefit your business and whether your eligibility will change.
Employer National Insurance Contributions (NICs)
As a self-employed business owner, you will currently pay Class 2 and Class 4 National Insurance (NI). However, from 6th April 2024, the government is cutting the main rate of Class 4 NICs by 1p from 9% to 8%. Also from 6th April, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs but will still have access to contributory benefits including the State Pension.
Business Structure Optimisation
There are some key differences in the tax efficiency of various business structures. Whether you operate as a limited company, partnership or sole trader, the new year may present a good opportunity to consider whether a new business structure could be beneficial.
If you operate as a sole trader, then you’ll be aware that you and your business are viewed as one entity (legally and by HMRC). This means that you’re required to pay tax on all your profits above the personal tax allowance. Partnerships are slightly similar in that you share the business profits with your partner, paying tax on your own share that exceeds the personal allowance.
However, if you run a limited company, then you are required to pay corporation tax instead of paying tax through your Self Assessment tax return. Although corporation tax rates are lower than sole trader rates, there will be more tax liabilities to consider as your business grows and you begin to hire employees.
Record-keeping and compliance
As the owner of a limited company, there are a number of records you are required to maintain about your company’s accounts, to support your compliance with tax obligations. These must include:
- all money received and spent by the company, including grants and payments from COVID-19 support schemes
- details of assets owned by the company
- debts the company owes or is owed
- stock the company owns at the end of the financial year
- the stocktakings you used to calculate the stock figure
- all goods bought and sold
- who you bought and sold them to and from (unless you run a retail business).
Aside from this, you must also keep records of all the information needed to file your tax returns, including:
- all money spent by the company, e.g., receipts, petty cash books, orders and delivery notes
- all money received by the company, e.g., invoices, contracts sales books and till rolls
- any other relevant documents, e.g., bank statements and correspondence.
As we kickstart the year, it could be the ideal time to reflect on your current record-keeping mechanisms and assess whether your compliance processes could be improved. This will help you to stay organised throughout the year, so that you’re prepared for tax returns.
You must keep records for six years from the end of the last company financial year they relate to, or longer if:
- they show a transaction that covers more than one of the company’s accounting periods
- the company has bought something that it expects to last more than six years, such as equipment or machinery
- you sent your Company Tax Return late
- HMRC has started a compliance check into your Company Tax Return.
How can we help?
We can work alongside you to establish record keeping practices and tax planning strategies that work for you and your company, making sure that you are well-equipped to tackle tax deadlines and compliance checks. For further advice, please do not hesitate to get in touch with our tax team on firstname.lastname@example.org.
This article contains public sector information licensed under the Open Government Licence v1.0.