Key Tax Changes in the UK for the 2024-25 Tax Year

As we move into the 2024-25 tax year, it's crucial for accountants to be aware of several significant changes in UK tax regulations. These updates will impact both individual taxpayers and businesses, and understanding them will help in providing accurate advice and planning strategies. Here's a brief overview of the most important updates.

1. Income Tax Thresholds and Rates

The personal allowance, which is the amount of income you can earn before paying tax, remains frozen at £12,570 for the 2024-25 tax year. However, the income tax bands have been adjusted:

• Basic rate (20%): £12,571 to £50,270

• Higher rate (40%): £50,271 to £150,000

• Additional rate (45%): Over £150,000

Advising clients on these thresholds can help in planning income distributions and understanding potential tax liabilities.

2. National Insurance Contributions (NICs)

The NIC thresholds have been updated for the new tax year:

• The Primary Threshold (Class 1 NICs for employees) is £12,570.

• The Lower Profits Limit (Class 4 NICs for self-employed) is also £12,570.

The rates for NICs remain unchanged:

• Class 1 NICs: 12% on earnings between the Primary Threshold and Upper Earnings Limit (£50,270), and 2% above this limit.

• Class 4 NICs: 9% on profits between the Lower Profits Limit and Upper Profits Limit (£50,270), and 2% above this limit.

3. Corporation Tax Rates

Corporation tax rates have seen a significant change. From April 2024, the main rate of corporation tax is set to increase to 25% for companies with profits over £250,000. Companies with profits of £50,000 or less will continue to pay at the small profits rate of 19%, and a marginal relief will be available for companies with profits between £50,001 and £250,000.

4. Capital Gains Tax (CGT)

The annual exempt amount for CGT has been reduced to £3,000 for individuals and personal representatives, and £1,500 for trustees of settlements. This reduction will mean more taxpayers are liable to pay CGT on their gains, making it essential to plan asset disposals carefully.

5. Dividend Tax

Dividend tax rates for the 2024-25 tax year remain unchanged, but the dividend allowance has been reduced to £1,000. This reduction means more individuals will need to pay tax on dividend income:

• Basic rate: 8.75%

• Higher rate: 33.75%

• Additional rate: 39.35%

6. Inheritance Tax (IHT)

The nil-rate band for IHT remains frozen at £325,000, and the residence nil-rate band remains at £175,000. It's crucial to advise clients on estate planning strategies to make the most of these allowances.

7. Making Tax Digital (MTD)

MTD for Income Tax Self Assessment (ITSA) will become mandatory for self-employed individuals and landlords with income over £10,000 from April 2026. While this is still a couple of years away, it's important to start preparing clients for the transition to digital record-keeping and quarterly reporting.

Staying informed about these changes is vital for effective tax planning and compliance. As accountants, providing timely advice on these updates will help clients optimize their tax positions and achieve their financial goals. Keep monitoring HMRC announcements and legislative changes to ensure your practice remains current and competitive.