Wage hike adds to the challenges

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More than three million workers will receive a pay boost after the chancellor confirmed the National Living Wage will increase from £11.44 to £12.21 an hour from April 2025.

The 6.7 per cent rise – which is worth £1,400 a year for an eligible full-time worker – was described by the Labour government as a “significant step” towards delivering its manifesto commitment to make sure “the minimum wage is a genuine living wage”.

The National Minimum Wage for 18 to 20-year-olds will also rise from £8.60 to £10 an hour – the largest increase in the rate on record.

The £1.40 increase will mean full-time younger workers eligible for the rate will see their pay boosted by £2,500 next year.

The minimum hourly wage for an apprentice will also rise next year, with an 18-year-old in an industry like construction seeing their minimum hourly pay increase by 18 per cent, a pay hike from £6.40 to £7.55 an hour.  

While the rises are good news for workers, there is no doubt employers will need to carefully consider affordability when planning their headcount for the year ahead.

Business owners, particularly smaller ones, have voiced concerns over the double impact of higher wage bills and workers’ rights reforms.

The increases also mark the first step towards aligning the National Minimum Wage and National Living Wage to create a single adult wage rate, which would take place over time.

In a statement following the announcement, the government said: “The plan will boost productivity, creating a workforce that is fit and ready to help us deliver our first mission to kickstart economic growth – with good jobs and growth in every part of the country.”

• To discuss any issues raised by this article please contact me on 01772 430000

National Insurance hike – do you know the impact on your business?

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The rise in employers’ National Insurance Contributions (NICs) unveiled in the Budget is undoubtedly a blow to some businesses and, indirectly, to employees.

Combined with the increases in the National Minimum Wage and potential costs associated with recent reforms in employment law, this raft of new measures will stretch employer wage budgets.

And that will potentially lead to slower growth in some employee wages or higher costs for consumers. It may also have an effect on business growth plans.

Businesses need to be aware of any impact these changes will have. Now is the time to take another look at your forecasts and assess what the new rates will mean to your projected figures – both in the short and longer term.

It is also good time to revisit business plans and see what effect the increased overheads may have. Open discussions are needed to find the best ways of managing any increased costs. As always, cashflow will be a vital part of all those discussions.

The chancellor said the rise in National Insurance hike was “difficult”, but the right choice in order to fund public services.

From April 6, 2025 the employers’ NICs rate will rise from 13.8 per cent to 15 per cent.

Added to that is a significant reduction in the threshold at which businesses start paying NI on a workers’ earnings – from £9,100 to £5,000.

The chancellor also announced a widening of availability and an increase in the amount of the ‘employment allowance’, which eligible employers can offset against their employers’ Class 1 NICs liability, from £5,000 to £10,500.

The employment allowance has only been available to businesses who have incurred an employers’ Class 1 NICs liability of less than £100,000 in the previous tax year but that restriction will be removed for 2025/26.

The announcement has not gone down well. Some of Britain’s biggest retailers have warned the chancellor her Budget will stoke inflation in the economy and spark job losses saying that tax hikes add nearly £2.5bn to the industry’s annual tax bill.

Sky News obtained the draft of a letter coordinated by the British Retail Consortium (BRC) to Rachel Reeves in which it produces a stark analysis of the impact of her statement.

It said: “The sheer scale of new costs in the Autumn Budget and the speed with which they occur, together with costs from a raft of other regulation, create a cumulative burden that will make job losses inevitable, and higher prices a certainty.”

The BRC’s members consist of the major supermarkets, including Asda and Tesco, as well as hundreds of other well-known chains, including B&Q’s parent, Kingfisher.

The reaction from manufacturers has also been far from positive. Neil Evans, managing director of Burnley manufacturer VEKA, issued a statement which said: “The rise in minimum wage, employer National Insurance rate and threshold reduction are not insignificant for businesses like ours – a large family-owned business, and key employers in the region.  The NI decision alone takes around £500,000 from our bottom line.”

He added: “It raises questions as to how this will be managed and what impact it will have on the wider supply chain and pricing. Inevitably and sensibly, increases are passed on through price rises for goods and services, ultimately affecting the consumer market and the money in people’s pockets.” 

Analysis by UKHospitality has revealed that the employment tax measures will increase the cost of employing a full-time staff member by at least £2,500.

However, Tina McKenzie, policy chair at the Federation of Small Businesses (FSB) pointed out some positives. She said: “Increasing the employment allowance for small businesses by a record amount is a very welcome move and we’re pleased the chancellor has heard us loud and clear.

“More than doubling it, from £5,000 to £10,500, will shield the smallest employers from the jobs tax, therefore is a pro-jobs prioritisation in a tough Budget.

“The decision to protect small businesses from an inflationary hike in business rates – by freezing the small business multiplier – will help small firms with premises across all sectors.

“Meanwhile, extending business rates relief, albeit at a lower level, for small firms in retail, hospitality and leisure will mitigate a potential cliff-edge tax hike for those in some of the toughest sectors.

“The true test of the Budget will be whether small businesses can grow and end the economic stagnation the UK has been stuck in.”

• To discuss any issues raised in this article or any Budget questions please contact me on 01772 430000

IHT – Is your estate planning up to date?

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Chancellor Rachel Reeves announced a series of changes to the Inheritance Tax (IHT) rules which she said will add £2billion a year to government coffers.

Among those changes is the inclusion of inherited pensions for IHT purposes from April 2027. There will also be new rules on combined business and agricultural assets, such as farms, that need to be considered.

The changes to the IHT regime prove a good starting point when it comes to turning your attention to estate planning.

Now it’s a good time to ensure it is up to date and is fit for purpose. It should meet all your wishes when it comes to the distribution of your assets through your family.

IHT is charged at 40 per cent on the property, possessions and money, external of somebody who has died, above a £325,000 threshold.

It is only charged on the part of the estate that lies above the threshold. For example, on an estate worth £335,000, the tax would apply to the additional £10,000.

The chancellor said this threshold will remain in place for an extra two years, until 2030. The rate of IHT is reduced to 36 per cent for estates where 10 per cent or more is left to charity.

The additional nil rate band for passing on the family home to direct descendants will also remain at £175,000 until 2030. This means that married couples and civil partners will generally not pay inheritance tax where their combined estate is valued below £1 million.

However, the residence nil rate band continues to be tapered where the value of the estate exceeds £2m.

Gifts made by an individual in the seven years before their death are classed as ‘potentially exempt transfers’ and can give rise to an IHT liability on death. Despite speculation in the run up to the chancellor’s speech there will be no changes to this.

However, it is proposed that, from April 2027, most undrawn pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.

In a controversial move, the government is also planning the reform IHT agricultural property relief (APR) and business property relief (BPR) from April 2026. Relief of up to 100 per cent is currently available on qualifying business and agricultural assets with no financial limit.

However, from April 6, 2026, it is proposed that 100 per cent relief will only apply to the first £1m of combined agricultural and business property, with the relief reducing to 50 per cent on the value that exceeds £1m

Under the current rules, small family farms – including land used for crops or rearing animals, as well as farm buildings, cottages and houses – have been handed down through the generations without attracting IHT.

The change has been condemned by the National Farmers Union. Its president Tom Bradshaw said: “The current plans to change Agricultural Property Relief (APR) and Business Property Relief (BPR) need to be overturned and fast.

“It’s clear the government does not understand that family farms are not only small farms, and that just because a farm is an asset it doesn’t mean those who work it are wealthy.

“Every penny the chancellor saves from this will come directly from the next generation having to break up their family farm. It simply mustn’t happen.”

• To discuss any issues around IHT or other tax issues raised by the Budget please contact me on 01772 430000.

CGT hike not as bad as feared

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As predicted Rachel Reeves hiked Capital Gains Tax (CGT) – however the changes she announced were less drastic than many had feared.

CGT is tax on any profits or gains you make when you dispose of an asset. Assets not only apply to the sale or exit of business but can also apply to the sale of items such as offices and trademarks. Even the goodwill built up by your company could ultimately be taxable.

The chancellor announced that the lower capital gains tax rate will be increased to 18 per cent from 10 per cent, while the higher rate will climb to 24 per cent from 20 per cent. The changes are expected to bring in £2.5billion for the Treasury.

However, she maintained the £1m lifetime limit on capital gains from the sale of all or part of a company under business asset disposal relief (BADR).

BADR will remain at 10 per cent this year, before rising to 14 per cent in April 2025, and to 18 per cent from 2026/27

The chancellor stressed that this still represented a “significant gap compared to the higher rate of capital gains tax.”

There were pre-Budget fears that hiking the rate would deter investment, not only in large businesses but in SMEs. Tech entrepreneurs were also worried about the future of BADR.

The Federation of Small Businesses (FSB) was among those that campaigned hard to retain entrepreneurs’ relief, which was under significant threat.

Many commentators called for it to be scrapped, which would have resulted in entrepreneurs paying the full rate of CGT.

In a post-Budget statement, the FSB said: Although the rate will gradually rise, it’s welcome that FSB’s campaigning has led to a discounted rate being kept, with a clear differential.

“This is really important for small business owners who have been planning to sell their businesses for their retirement in place of a pension.”

• To discuss any issues raised by this article or by any of the Budget announcements, please contact me on 01772 430000

Beware Companies House scams

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Businesses are being urged to be on guard against scam letters, emails and telephone calls claiming to be from Companies House.

The government has issued guidance on what companies should do if they think they’ve spotted a scam or believe an approach to be suspicious.

The guidance includes examples of the wide range of scams that are currently targeting businesses including a ‘convincing’ scam letter demanding payments to Companies House.

Other examples given include companies being contacted over the telephone and asked for payment of a late filing penalty.

Companies House stresses that it does not ‘cold call’ businesses to take a payment and will never ask what your authentication code is – or other secure information – over the phone.

It adds that if you receive a suspicious email, you should report it immediately at phishing@companieshouse.gov.uk.

And it stresses: “Do not disclose any personal information or open any attachments.”

There is also currently a scam email circulating which is impersonating Companies House about a ‘company complaint’.

Here, the advice is clear: “Do not click on any links, reply to the email or open any attachments. Please delete the email from all mailboxes including your deleted items.”

That same advice is also given to anyone who receives a suspicious email requesting a correction.

Other scams targeting businesses include an email request to use an a-Sign platform to download documents.

To find out more about scams currently in use and how to deal with them visit: https://www.gov.uk/guidance/reporting-scams-pretending-to-be-from-companies-house

Busting the self-assessment myths

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There are plenty of myths around self-assessment and who needs to file a tax return before the January 31, 2025 deadline.

Here’s some information, courtesy of HMRC, released to help debunk some of the most common ones.

Myth 1: ‘HMRC hasn’t been in touch, so I don’t need to file a tax return.”’

Reality: It is the individual’s responsibility to determine if they need to complete a tax return for the 2023 to 2024 tax year. There are many reasons why someone might need to register for self assessment and file a return, including if they:

• are newly self-employed and have earned gross income over £1,000
• earned below £1,000 and wish to pay Class 2 National Insurance Contributions voluntarily to protect their entitlement to State Pension and certain benefits
• are a new partner in a business partnership
• have received any untaxed income over £2,500
• receive Child Benefit payments and need to pay the High Income Child Benefit Charge because they or their partner earned more than £50,000

Anyone who is unsure if they need to file a return can use the free online tool on GOV.UK to check.
Once registered, they will receive their Unique Taxpayer Reference, which they will need when completing their return and paying any tax that may be due. People will have to reactivate their account if they have registered for self assessment previously but did not send a tax return last year.

Myth 2: ‘I have to pay the tax at the same time as filing my return.’

Reality: False. Even if someone files their return today, the deadline for customers to pay any tax owed for the 2023 to 2024 tax year is January 31, 2025. People may also be able to set up a Budget Payment Plan to help spread the cost of their next self assessment tax bill, by making weekly or monthly direct debit payments towards it in advance.

Myth 3: ‘I don’t owe any tax, so I don’t need to file a return.’

Reality: Even if a customer does not owe tax, they may still need to file a return to claim a tax refund, claim tax relief on business expenses, charitable donations, pension contributions, or to pay voluntary Class 2 National Insurance Contributions to protect their entitlement to certain benefits and the state pension.

Myth 4: ‘HMRC will take me out of self assessment if I no longer need to file a return.’

Reality: It is important that people tell HMRC if they have either stopped being self-employed or they don’t need to fill in a return, particularly if they have received a notice to file. If not, HMRC will keep writing to them to remind them to file their return and may charge a penalty.

People may not need to complete a tax return if they have stopped renting out property, no longer need to pay the High Income Child Benefit Charge, or their income has dropped below the £150,000 threshold and they have no other reason to complete a tax return.

If you think you no longer need to complete a tax return for the 2023 to 2024 tax year, you should tell HMRC online as soon as your circumstances change. Watch HMRC’s YouTube videos on stopping self assessment as a guide to help through the process.

Myth 5: ‘HMRC has launched a crackdown on people selling their possessions online and now I will have to file a return and pay tax on the items I sold after clearing out the attic.’

Reality: Despite speculation online earlier this year, tax rules have not changed in this area. If someone has sold old clothes, books, CDs and other personal items through online marketplaces, they do not need to file a self assessment and pay Income Tax on the sales. HMRC’s guidance on selling online and paying taxes can be found on GOV.UK.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We want to make sure you are clear about your tax responsibilities. These myth busters and our range of resources on GOV.UK can help if you are unsure if self assessment applies to you or think you no longer need to file a tax return.

HMRC urges people to file their return early to provide peace of mind and to also allow time to consider opportunities to spread the cost of their tax bill, claim refunds earlier and avoid costly errors caused by rushing.

People need to keep records to fill in their tax return correctly and they may be asked for documents if HMRC checks their return.

Penalties may be issued if records are not accurate, complete and readable. Self-employed workers must also keep records for their business income, outgoings and make sure they are registered with HMRC as self-employed. Again, more information can be found on GOV.UK.

Anyone who needs to complete a self-assessment tax return for the first time to cover the 2023 to 2024 tax year, should tell HM Revenue and Customs (HMRC) by October 5.

• Please contact me on 01772 430000 to discuss any issues raised by this article or any issues relating to tax matters