Have you reviewed your personal and/or business financial affairs recently?
How well are they structured from a tax efficiency perspective?
The approaching end of tax year can be an opportune time to focus the mind in terms of making use of various breaks, allowances, and available reliefs in order to improve your taxable profile. This is particularly the case when considering the upcoming changes the next tax year can bring.
Whether you're a business owner, or an individual, it would be very wise to set some time aside do this, as a review can help you understand what opportunities, if any, may be available to you and your family. After all, the UK tax system is vast and very complicated!
We'd recommend talking to a tax advisor to help you:
Whilst tax advice is very much geared to your personal circumstances, in this post we list the various areas you should consider carefully, and discuss with your tax advisor. It might just save you some significant time, money, and hassle!
In the UK, the tax year begins on 6 April and ends on 5 April of the following year. This schedule doesn't align with the calendar year because of historical, religious, and agricultural factors. The timing is influenced by the Spring Equinox and the transition from the Julian calendar to the Gregorian calendar.
The tax-free personal allowance (the amount of income you can earn before being subject to tax) for the current tax year (2024/25) is £12,570. It, along with the tax rates, will remain frozen at this level until 5 April 2028 across the UK.
For UK tax payers (excluding Scottish tax payers) the basic-rate is £37,700 whilst the starting point at which you would pay the higher-rate is £50,270.
The additional-rate threshold is £125,140 and you need to understand that the personal allowance is reduced by £1 for every £2 that your income exceeds £100,000. This is known as 'adjusted net income' and means if you're earnings are in excess of £125,140, then you don't benefit from the personal allowance.
Unfortunately this also means that your effective tax rate (the average) on your income in the £100,000 - £125,140 range can be up to 60%! This is as a result of the income being taxed at the main rate of up to 40%, whilst losing the personal allowance meaning more income at the lower end is dragged into being taxed at up to 20%. Thankfully there are ways you can avoid this issue, either through pension contributions, claiming gift aid on charitable donations, or both.
| UK Income Tax for the tax years 2024/25 - 2027/28 |
|
| Tax band |
Tax rate (Non-savings income) |
|
Personal allowance Income up to £12,570 |
0% |
|
Basic-rate Income of £12,571 - £50,270 |
20% |
|
Higher-rate £50,271 - £125,140 |
40% |
|
Additional-rate > £125,140 |
45% |
The government encourage saving for retirement through tax relief on pension contributions. This means you can potentially use these contributions and donations to plan and reduce your taxable income so as to prevent it breaching the £100,000 threshold.
Another option is if you're in business with your spouse then you could look at the profit-sharing arrangements. Alternatively, if self-employed, and your spouse works in the business, you may be able to increase their wages assuming that is commercially viable, and reflective of the work being undertaken.
It's essential however, that any of the above measures are compliant with the relevant legislation and therefore we'd recommend you seek professional advice before implementing any potential strategies.
If you're employed then from 6 April 2024, the main rate of Class 1 Primary National Insurance Contributions (NICs) was reduced from 10% to 8%. This is said to result in an annual NIC saving of £450 for the average worker earning £35,400.
If you're self-employed then Class 2 NICs were abolished from 6 April 2024. This potentially saves you up to £182 per year. If you are self-employed and your profits are below £6,725 or if you pay voluntary class 2 NIC, you will still have the option to continue doing so.
If you're a married couple, or in a civil partnership, check if you qualify for the marriage allowance. It could save you £252 per year in tax. Furthermore, you could back date your claim by up to 4 years, if you haven't made use of the allowance in that time frame, potentially saving you up to £1,008.
According to HMRC, more than 2m couples could be missing out, and 4.2m can gain from the allowance. It applies where one partner earns below the income tax personal allowance of £12,570, and the other partner pays basic-rate income tax. You have to be married, or in a civil partnership, but if you're cohabiting then you won't be eligible.
It works whereby one of you can transfer £1,260 of your personal allowance to your spouse, or civil partner, if they're earning more. There are certain qualifying conditions in order to be able to make this election, one of which is that you cannot be a higher, or additional-rate tax payer.
One partner may pay more tax than the other, but as a couple, you'll likely pay less. Plus, once you've applied, you automatically get the tax break every year, until you choose to withdraw it. How much you save depends on how much you earn, so be sure to use the government's marriage allowance calculator to work this out.
If you, or your partner, receive Child Benefit payments from the state, and you have income greater than £60,000, then the High-Income Child Benefit Charge (HICBC) kicks in. The term partner refers to a spouse, civil partner, and can include someone you live with as if you're married.
HIBC takes back Child Benefit payments at a rate of 1% for every £200 of income over £60,000 up to £80,000. Once your income reaches £80,000, and above, you lose all Child Benefit payments. An option above this range is to elect not to be paid. It is often advisable to continue to be registered but not be paid, as this can help to ensure you maintain a qualifying year for State Pension purposes if you otherwise would not have been eligible.
If your income is above £60,000, and you received child benefit payments, then it's your responsibility to notify HMRC, and declare this in a tax return, so that some of the benefit payment can be recouped. If you, and your partner, are both above the threshold, then it is the responsibility of whoever has the higher income to notify HMRC.
Where applicable, consider how income can be distributed, and assets held, between you and your spouse. This combined with pension contributions and making Gift Aid payments means you may be able to avoid the charge dependent on your combined level of earnings.
The tax-free childcare scheme offers you up to £2,000 towards your childcare costs per year. The scheme can be used to help you pay for up to £10,000 of childcare per child each year, or £4,000 in cases of disability. This sum can go towards childminders, nurseries, childcare costs and potentially even some holiday camps, and the scheme is open to all workers including the self-employed.
Eligibility for tax-free childcare is lost when one parent’s income is above £100,000. Pension and gift aid contributions are, however, deductible in calculating the £100,000 income figure. Following such a strategy could therefore result potentially in tax free childcare being retained.
The scheme runs until the September after your child turns 11, or age 16 if they're disabled, so it's definitely something to consider if you are below the £100,000 threshold.
For the 2024/25 tax year you can withdraw £500 worth of dividends from your company without being subject to taxation. Known as the dividend allowance, if you don't make use of it, then the allowance can't be carried over to the next tax year meaning you lose it. So, where feasible, be sure to maximise your allowance.
Dividends don't incur NICs and are also subject to lower overall Income Tax rates compared to salary through employment. Just remember that dividends are paid through what is referred to as 'retained profits', namely profits after Corporation Tax, and the rates for this have increased in recent years.
Furthermore, dividend payments don't qualify as earnings for personal pension payments. This means there are many different aspects to your personal circumstances that need to be reviewed, and planned for, to devise the most tax efficient strategy for extracting money from your limited company.
| Income tax band |
Dividend tax rate |
|
Dividend allowance Up to £500 |
0% |
|
Basic-rate £12,570 - £50,270 |
8.75% |
|
Higher-rate £50,271 - £125,140 |
33.75% |
|
Additional-rate > £125,140 |
39.35% |
The changes that have taken place to the allowance and the rates means dividends aren't as tax advantageous as they used to be. This is particularly the case for director-shareholders that historically relied on a combination of a basic salary, combined with dividend payments.
If you've sold a capital asset, or assets, for profit then you currently benefit from an allowance of £3,000. Above this the Capital Gains Tax (CGT) rate you're charged depends on your tax band. As with the dividend point above, your CGT allowance can't be carried forward meaning it makes sense to make use of it for your gains every year.
| Tax band |
CGT on assets |
|
Annual allowance Gains up to £3,000 |
0% |
|
Basic-rate £3,001 - £50,270 |
18% |
|
Higher-rate / Additional-rate £50,271+ |
24% |
Per the table above, the lower CGT rate was raised 8 percentage points in the Autumn Budget 2024, and the higher rate rose by 4 percentage points, both increases taking effect from 30 October 2024. This brought them into line with the rates for residential property disposals that existed at that time. So, from that date these are the uniform rates.
You need to consider your assets and investments carefully every year. This is with a view to ascertaining if actions, and disposals today, would work best for you by making use of existing allowances, tax rates, and reliefs. This highlights the need for careful planning to make best use of the annual exemption. It is wise to seek professional advice in order to get the detail correct on such matters.
Spouses are taxed independently when it comes to CGT which can be beneficial where assets are held jointly and then sold as it means you can use each person's annual exemption potentially, and thereby save tax. But be warned, the annual exemption can't be transferred between spouses and losses by one party can't be offset against the gains made by another.
Looking at the tax bands and rates, if one spouse is a higher rate taxpayer, and the other hasn't used their basic rate band to its entirety, then assets could potentially be transferred. This means you could then access the 18% basic-rate, rather than being subject to the 24% higher/additional-rate. Make sure you adhere to the transfer rules especially as the donor (the person transferring the asset) mustn't exert any control over the asset, or benefit from it.
Where you've sold a residential property, remember that the gains must be reported and paid to HMRC within 60 days of the sale. If you own more than 1 home, you may need to consider electing one of them as a principal private residence (PPR). Any gains on the sale of your PPR are usually exempt from CGT. Plus, you have 2 years in which to make an election.
If you own assets in joint names then any income is automatically assumed to be shared equally for tax purposes between spouses. That will be the case even if the ownership ratio isn't 50:50. You can change this to reflect the actual share of ownership by making a Form 17 declaration of beneficial interests in joint property and income to HMRC.
If you are separating, or are in the process of divorce, then there will likely be the consideration of the transfer of assets. For the purposes of CGT this works on a no gain/no loss basis. Separating couples have up to 3 years from the end of the tax year in which they separated to transfer assets, and benefit from the nil gain, nil loss, treatment.
Any investment you may have made in cryptocurrencies that results in gains means CGT is likely to apply. The government don't treat crypto as money. This means you will be taxed on the realised profits when you either:
Purchasing assets using cryptocurrency can also trigger a CGT liability! As an example purchasing an asset such as art with cryptocurrency for £60,000 when your crypto originally cost you £50,000 will mean there could be CGT applied to some of the £10,000 of crypto gain.
If you have made use of Investors' Relief (IR), which is applied to unlisted trading companies, then there are changes that have been implemented that you need to be aware of in the 2024/25 tax year.
The lifetime limit has been reduced from £10m to £1m for disposals made on, or after, 30 October 2024. In some cases, this may apply to disposals prior to 30 October, so be sure to consult your tax advisor about this. As per BADR (see below) the IR tax rate will rise from the current level of 10% to 14% from April 2025, then up again to 18% from April 2026.
If you have sold a business, or you're selling a business asset, then Business Asset Disposal Relief (BADR) may apply. Where this is the case, CGT is currently charged at 10% on any gains you make from those qualifying business assets. This is particularly significant for higher-rate tax payers as the CGT liability could potentially be more than halved from 24% to 10%.
However, where this is applicable be sure to make use of the current 10% rate whilst you can as from 6 April 2025 it will rise to 14%, and then again to 18% from 6 April 2026. The timing of any disposals could therefore be critical from a tax planning and efficiency perspective.
BADR is subject to a lifetime limit of £1m per person and applies to a disposal for businesses trading as the following:
If you own a business then you should review your BADR position regularly, the rules are sophisticated and it's easy to deviate away from them. You'll therefore need to plan carefully, and likely with the help of a professional advisor, prior to any sale to ensure you're fully compliant with the relevant legislation.
So, be sure to review your shareholdings and other BADR eligibility requirements carefully to ensure you qualify so that tax relief is maximised.
For Inheritance Tax, the 'nil rate band' (the amount that can be passed on through an estate before IHT is applicable) will remain frozen at £325,000 until April 2028. This hasn't changed since the 2009/10 tax year though asset values have kept rising in that timeframe.
Above this level, IHT is usually charged at 40% on assets, including money, that you leave to your beneficiaries. Keeping the nil rate band frozen, instead of increasing it with inflation, means an ever-increasing number of estates will likely rise in value and end up being worth more than the threshold, therefore making them potentially subject to IHT.
If you're married, or in a civil partnership, then you can in effect combine your allowances with the effect of potentially doubling your nil rate band to £650,000 depending on your circumstances.
Of note, there is also a separate and additional nil rate band known as the ‘residence nil rate band’ which is applicable when considering the family home. If you're passing this property to a lineal descendant, or a spouse/civil partner of a lineal descendant, then you potentially get a main residence band of £175,000. This works to then potentially raise your individual total IHT nil rate band to £500,000. For couples the band can rise to £1m where £350,000 of the value comes from their home.
As you will have noticed from the above, this tax is both subtle, and sophisticated. IHT contains various rules, and reliefs, that impact how much of your estate you hand over to the taxman. Some other common exemptions you could potentially make use of include:
Given the above, it would be wise to structure your affairs to make use of these reliefs and allowances. Start by asking yourself:
If you're looking to pass on a business or farm through the family, be sure to check out our section in this blog on Business Property Relief and Agricultural Property Relief.
Stamp Duty Land Tax (SDLT) is a payment to HMRC when you purchase a property, or land, in England and Northern Ireland. How much SDLT you owe, if at all, depends on the price paid and your individual circumstances as the buyer.
Changes that came into effect on 23 September 2022 mean if you're a first-time buyer, you won't need to pay SDLT on the first £425,000 of the property you purchase, provided the property is worth £625,000 or less. For existing homeowners, SDLT currently kicks in at £250,000.
| SDLT rates to 31 March 2025 | ||
SDLT rate |
Existing home owner
|
First time buyer
|
| 0% | Up to £250,000 | Up to £425,000 |
| 5% | £250,001 - £925,000 | £425,001 - £625,000 |
| 10% | £925,001 - £1.5m | |
| 12% | +£1.5m | |
This, however, comes to an end on 1 April 2025 when the bands change. The likelihood then is that if you're purchasing or even selling, you'll want to get the transaction over the line prior to that date to take advantage of the higher thresholds. This is because it's going to be more tax efficient for the purchaser not to have to pay the higher SDLT rates which could otherwise potentially make the deal unaffordable for them and thus jeopardise the transaction.
| SDLT rates from 1 April 2025 | ||
SDLT rate |
Existing home owner
|
First time buyer
|
| 0% | Up to £125,000 | Up to £300,000 |
| 2% | £125,001 - £250,000 | |
| 5% | £250,001 - £925,000 | £300,001 - £500,000 |
| 10% | £925,001 - £1.5m | |
| 12% | +£1.5m | |
If you have a buy-to-let property and you're a higher, or additional-rate taxpayer then you'll only be able to claim relief on the interest you've paid at the basic rate. It means your property income for tax purposes will no longer be fully reduced by any mortgage interest you pay.
You need to review this carefully, the implication being your taxable income could then exceed thresholds and that could then reduce your personal allowance (see the earlier section on income tax), thereby giving rise to a greater tax liability.
If you have a spouse, or civil partner, and one of you is paying tax at a lower rate, it may be advisable for the partner earning less income to be the recipient of taxable rents by transferring beneficial ownership (see previous section regarding Form 17 declarations). This will be particularly pertinent if there is a loan on the property given interest relief is restricted.
Strategies such as the above are applicable if you're purchasing a second property for the first time. However, if the higher earner owns the property, then options could include transferring up to 50% to the lower earner. This shouldn't trigger a capital gains charge, however, a SDLT charge could be incurred on the value of any borrowing taken on by the new owner if this is above the tax free threshold.
Be sure to take advice prior to any asset transfers because perceived tax efficiency could easily be reversed in the event other taxes are triggered by the transfer. This is why tax advice and strategy should be based on your whole circumstances and not just one single area of legislation.
In some circumstances if may be advantageous to hold your property portfolio in a limited company. So long as the loan interest doesn't exceed £2m per year then your company should be able to deduct interest in full as an expense when calculating profits from your lettings. Furthermore the company will pay up to 25% corporation tax on the rental profits.
Making use of a limited company should be considered carefully because distribution of the profits via dividends will probably give rise to taxation, and whilst transferring the properties shouldn't result in a CGT liability (subject to satisfying certain criteria), you will likely incur a SDLT charge based on their market value.
If you have a high level of income from other sources then it's worth taking advice on the long term benefits of running your property portfolio through a limited company, albeit this will come with an administrative burden of running it.
A property letting company can't typically qualify typically for BADR from CGT unless the lettings in question are furnished holiday lets. However, the furnished holiday lets regime is being abolished from 6 April 2025, so after this date, any sales will fall within the normal residential property capital gains disposals rules. If you have properties that may qualify for the favourable furnished holiday let disposal rates that you are in the process of selling, it may be worth trying to get contacts exchanged prior to the end of the tax year if possible.
Rent a room relief provides an allowance to cover rents of up to £7,500 a year. This means you can rent out a room in your main residence for up to £144 a week and not be subject to income tax. The allowance is split between couples and if your income exceeds £7,500 then normal income tax rates apply. If you claim the allowance, then deducting expenses is not applicable.
Furnished holiday lets provide various tax benefits including:
The conditions are that the property must be available for let for 210 days in the tax year (or relevant 12 month period). It must also be actually let for 105 days and each let period has to be less than 31 days.
As mentioned above, the furnished holiday lets regime is being abolished from 6 April 2025, so the 2024/25 tax year is the last tax year that the favourable income treatment will apply. From 2025/26 onwards, furnished holiday lets will be treated for tax purposes in the same way as other standard rental properties.
You can shelter savings interest from the taxman in banks, building societies, unit trusts, and trust funds, through the savings allowance. Whether this applies to you will depend on your income tax band, as you can see in the table below.
| Income tax band 2024/25 |
Savings allowance |
|
Basic-rate Income of £12,570 - £50,270 |
£1,000 |
|
Higher-rate £50,271 - £125,140 |
£500 |
|
Additional-rate > £125,140 |
£0 |
You also have an allowance to invest up to £20,000 in an Individual Savings Account (ISA) in any given tax year. This is often referred to as a tax wrapper for investments. Anyone over the age of 18 can open an ISA in the UK. Lifetime ISAs only apply to the under 40 age group, while junior ISAs are for children under the age of 18.
If you don't use the allowance in that year then it is lost. If you, and a spouse, each make use of the annual ISA limit, then you're able to save, or invest, £40,000 between you. Of note, there are different types of ISA for you to consider for your individual circumstances and what you're trying to achieve. These are detailed below.
| Type of ISA | Annual limit for 2024/25 |
| Cash ISA | £20,000 |
| Stocks and shares ISA | £20,000 |
| Flexible ISA | £20,000 |
| Innovative finance ISA | £20,000 |
| Lifetime ISA | £4,000 |
| Junior ISA | £9,000 |
It is also very important to consider the implications of saving into various types of ISAs. We recommended you seek advice from an Independent Financial Advisor, or Financial Planner, prior to making any investment decisions.
If you purchase shares in a business that qualify as an EIS investment, then your tax liability can be reduced, for either the year of investment, or the prior tax year under a carry back claim, by up to 30% of the amount you invested.
If you have capital gains from other disposals in the last 36 months, or in the next 12 months, these can be re-invested in EIS shares resulting in the availability of CGT deferral relief. This defers the CGT until the new investments are subsequently disposed of. The annual cap on EIS investments is £1m. There is a £2m yearly limit for 'knowledge-intensive' companies.
An SEIS investment provides income tax relief of up to 50% of the amount you invested in either that tax year of investment, or the previous tax year under a carry back claim. The annual investment limit for SEIS is £200,000.
Any gain under EIS, or SEIS, is usually CGT free if the investment is held for at least 3 years. If your shares are sold at a loss, you can set that loss against income tax for that year, or the previous year.
Of note, prior to making an investment of this nature, it's wise for the company that you're investing in to go through advanced assurance with HMRC to understand whether the company in question, and the investment, meet the conditions of the schemes.
If advanced assurance isn't sought and HMRC subsequently decide the investment doesn't qualify, this would prevent you from accessing the reliefs, leading to a greater than originally anticipated tax liability, and effective cost of the investment.
Venture Capital Trusts (VCTs) are specialist investments that offer generous tax breaks so that you can put money in small, high risk organisations and securities. Investment in VCTs offer:
Of note, gains from other assets can't be rolled into purchasing VCT shares. Similar to the points in relation to EIS and SEIS, it would be wise to seek advanced assurance from HMRC if it is available, prior to any investment decision.
Investing in an accredited Community Development Finance Institution (CDFI) through share purchase, or lending, can make you eligible for community investment tax relief. CDFIs are established with the purpose of providing financial support to both profit-making, and non-profit, organisations in underprivileged areas.
Under this relief, you can receive 5% of your investment as tax relief in the year of investment and for the following 4 years, amounting to a total relief of 25%. Certain conditions need to be met, with the most crucial one being that you must hold the investment for a minimum of 5 years. If you incur losses, you can offset them against your other income in the year they occur.
Your personal car, or motor vehicle, is exempt from CGT. This means you can invest in classic cars and if they rise in value then any gains made from a sale mean you aren't subject to taxation. Of note however, if you incur losses from the sale of these assets, they can't be offset against gains made elsewhere.
For the 2024/25 tax year the lifetime allowance, that previously stood at £1,073,100, has been scrapped. So, there is no limit to the total amount you can save. There is, however, an annual allowance for pension contributions of £60,000, or 100% of your qualifying earnings depending on which is lower.
The total for personal and employer contributions reduces by £1 for every £2 of an individual’s ‘adjusted income’ over £240,000 and can impact if your ‘threshold income’ from all sources is over £200,000.
The concept of carry forward allows you to make use of any annual allowance that you haven't used in the 3 prior tax years. This only applies if you were a member of a registered pension scheme during that time frame.
If you have unused allowances from 2021/22, 2022/23, and/or 2023/24 tax years then these can be applied potentially in the 2024/25 tax year. Breaching the rules by paying in too much, on the other hand, results in an annual allowance charge, at your marginal rate of tax.
You should also note that inherited private pensions are scheduled to be subject to Inheritance Tax from April 2027. Dependent on your circumstances, this could potentially result in an increase in the taxable value of your estate, so it may impact on how much you look to put aside in your pension between now and then.
After the age of 55, you can access your entire pension pot. This is for you to do with it as you please. Be warned though as withdrawals have income tax implications and could result in you moving into a higher tax band and incurring a bigger tax bill.
As announced by the Chancellor in the Autumn Budget 2024, Employers' National Insurance (NI) rates are set to rise from 13.8% to 15% effective from April 2025. Concurrently, the threshold at which businesses commence NI contributions on employees' earnings will be reduced from £9,100 to £5,000.
The increase in rates, coupled with the lowered threshold, implies that the cost of employing an individual with an annual salary of £40,000 will rise by nearly £1,000 per year. Make sure you plan and account for this rise in employing staff in your business budget.
It is important to note that the lower earnings limit pertinent to pension record purposes remains unchanged, which may lead to an increase in Employers' NI for business owners who implement a low salary profit extraction strategy.
The Employment Allowance (EA) however, will increase from £5,000 per year to £10,500 from 6 April 2025. If you're eligible, this means you can offset the EA against your NICs liability. You will no longer to have to have had an employer secondary Class 1 NICs liability of £100,000 or less from the previous tax year to make a claim, meaning access to the EA will be widened.
Of note, the EA isn't available to you if you're a single director company where you as the director are also the only employee paid above the secondary threshold.
If you run a family business or a farm, you may have been planning to pass these down to the next generation in your family by making use of either Business Property Relief (BPR), or Agricultural Property Relief (APR). You now have a narrow window in which to do this as the regulations currently stand.
As it stands, BPR allows for a reduction in the value of qualifying business property by 100% for Inheritance Tax (IHT) purposes. This relief is applicable to both lifetime gifts and transfers upon death. Businesses must be limited companies, partnerships, sole traders, and limited liability partnerships to qualify. There are specific rules as to the assets BPR covers.
APR functions in a comparable way, offering relief of 50% or 100% against the agricultural value of the property in question. Again, there is legislation that has to be adhered to as to ownership and nature of the property. As with BPR, be sure to consult a tax advisor to ensure compliance prior to pursuing any transfer or sale.
From 6 April 2026, only the initial £1 million of business and/or agricultural assets will qualify for up to 100% relief from IHT. Any amount exceeding this threshold will receive a 50% reduction on the standard IHT rate, resulting in an effective tax rate of 20%.
The main rate of Corporation Tax is 25% if your company's taxable profits are greater than £250,000. Companies with taxable profits less than £50,000 will be taxed at the current 19%.
If your profits are between £50,000 and £250,000 then a tapered rate is applied. The tax rate increases from 19% to 25% depending on the amount of taxable profit, with the main rate reduced by marginal relief. You can find out more about this, and how much marginal relief you're entitled to by using HMRC's marginal relief for Corporation Tax calculator.
Be sure to therefore to maximise any potential deductions, where feasible, which may help where your taxable profits are between the thresholds and marginal relief is being applied.
Of note, if these thresholds are shared between associated companies, then they could be lower dependent on how many associated companies you have. The reason being the limits are potentially shared between them.
If your company is accounting for deferred tax, you may need to factor in the increased rate in your deferred tax calculations for your year-end accounts.
Research & development tax relief encourages companies to invest in innovation by rewarding those that undertake qualifying R&D projects with either:
For the 2024/25 tax year, the previous SME and RDEC were merged `into one single scheme for all claimant companies in the name of simplification of the rules. This impacts on your business if your accounting period began on, or after, 1 April 2024.
The R&D intensity threshold for enhanced relief will be lowered to 30% of total qualifying expenditure. SMEs that meet this new threshold can still benefit from the 14.5% payable tax credit, calculated using enhanced R&D losses.
SMEs that do not meet the R&D-intensive support criteria can still obtain significant tax relief under the unified R&D tax relief scheme. These businesses qualify for a 20% R&D expenditure credit on their eligible R&D costs, which is treated as taxable income and subject to Corporation Tax.
Obtaining professional advice in relation to R&D tax relief is likely to be essential. As the above demonstrates the benefits from this tax regime are generous but be minded that HMRC are targeting false and erroneous claims through their investigations so it's vital any claim is accurate and handled in the right manner.
If you have the means of financing purchases, and acquiring capital assets, then this could reduce your tax liability by making use of the Annual Investment Allowance (AIA). The AIA ensures up to £1m of investment can be deducted in the year of expenditure from your profits before Corporation Tax or income tax is applied, so long as the investment is in qualifying assets.
The AIA applies to most companies, sole traders, and partnerships that invest in plant and machinery. Specifically this can include:
Full expensing is available to companies subject to Corporation Tax. If your capital expenditure in your company is greater than £1m, then an allowance can be applied whereby you can deduct from your taxable profits 100% of the qualifying expenditure in the year that expenditure took place.
Are you intending to purchase commercial property? If these contain fixtures, then capital allowances could be claimed. Remember that when a property is purchased, the value attributable to the fixtures has to be agreed through a joint election by the purchaser and the vendor.
It may be worth exploring the Structures & Buildings Allowance (SBA). The SBA provides tax relief on:
It is worth seeking professional advice to ensure any capital allowances are maximised.
If you take on apprentices then this has various tax benefits. There isn't any Employer's NICs applicable to the pay of an apprentice under the age of 25. This is so long as you pay them at, or below, the Lower Earnings Limit (£123 per week in 2024/25).
If you employ staff under the age of 21 then there's effectively no Employer's NIC to pay and this is regardless of whether it's through an apprenticeship contract, or not.
If your annual payroll bill is less than £3m then the Apprenticeship Levy doesn't apply. This means you can apply for co-investment Government funding towards the cost of training your apprentices. It works whereby you pay 5% and the government pays the remaining 95% of the cost.
To reserve the funding you'll need to set up an Apprenticeship Service account. Of note, if you have more than 50 employees on the payroll then you will be eligible for 95% funding for apprentices aged 16+. If you have fewer than 50 employees on the payroll then you will be eligible for 100% funding for apprentices aged 16-18, and for apprentices aged 19+ you will receive 95% of the funding.
Think about if you have provided your employees with cash, gifts, and/or benefits that aren't included in their wages. If you exceed certain limits there could be a tax liability. For tax efficient gifts to staff you need to refer to Benefit-In-Kind (BIK) rules.
If you have held staff entertainment events such as Summer or Christmas parties, or both, then you should refer to the rules around the annual function exemption. Up to £150 of expenditure per employee (including VAT), can be allocated to an annual event and these costs can be treated as a tax deductible expense.
There are also specific rules and guidance you need to adhere to. If you exceed these limits then you'll face income tax liabilities for your staff and your firm will face National Insurance implications. To avoid an added tax bill for your employees, you can as an alternative enter into a PAYE Settlement Agreement with HMRC whereby you settle the tax and NI due.
You could look at managing your income whereby some of it falls into the following tax year. This is particularly useful if you're in a bumper year say, but projections for the following one aren't as good. From a tax planning perspective delaying the completion of sales of goods, or services, out of the bumper year can help potentially reduce your overall tax exposure.
If you don't need to withdraw them from your company, then retaining profits could be more tax efficient. The reason being corporate tax rates are lower than those for income tax. Also by retaining money in the business, this can then be used to potentially fund future investment which is likely to be less expensive than financing it through borrowing.
A word of warning, if the funds retained in the business amount to more than 20% of its value then this will impact on the availability of BADR in the event of a sale and could also have implications for BPR for inheritance tax purposes.
If you do need to take money out of the business then changes in recent years mean simple, historic advice such as, take a basic salary and the rest as dividends, is likely to be a thing of the past. Advice and planning are likely to be a prerequisite to ensure extraction is done in the most efficient and tax effective means as possible (see dividends and timing section above).
For companies, generally, salary and employer NICs are classified as deductible business expenses from Corporation Tax. Often, owner managers are advised to set their salary at a level that preserves their State Pension entitlement while minimising any NICs liability.
Whilst bonuses are subject to Income Tax and NICs for the director/shareholder in question, as well as employer NICs for the company, this is also a deductible expense for Corporation Tax purposes. This means a bonus could be used potentially to reduce taxable profits, or even generate a loss.
Bonuses may be used where there's insufficient retained profits to distribute dividends and there can be a timing advantage to them as well. When a bonus is declared it can help determine if tax is to be deferred to a later tax year, or included in the current one.
It's also possible to achieve tax efficiencies through the extraction of profits in the form of employer contributions to your personal pension as a director. Firstly, the company gets tax relief and saves on NICs. Secondly the director/shareholder, who is also an employee, receives a benefit that's tax-free with no NICs. There are though specific regulations around this that need to be adhered to.
Consider the below carefully, have you incurred:
If so, loss relief may be applicable whereby it can be used to potentially either reduce your overall tax liability or even generate a cash refund. Losses can be offset against other profits in an accounting period and even carried back to the previous 12 months too. Losses may also be carried forward albeit subject to certain specific conditions.
What you choose to do in relation to claiming loss relief is likely to depend on the potential tax relief available, and how it impacts on your cashflow. With this in mind it's wise to obtain professional advice specific to your business circumstances.
If your company cars have high CO2 emissions then this leads to a greater percentage of each car list price being used to calculate the employers class 1A NIC Benefit in Kind (BIK). This applies unless private use is proven to have not taken place, which is very difficult to ascertain. Consequently it may be wise to review your existing stock and only offer employees low emission models which incur a lower BIK charge.
Also, enhanced capital allowances of 100% are available if you purchase new electric cars with no CO2 emissions. If the cars you purchase don't emit any more CO2 than 50g/km, then they are classified as plant and machinery, meaning you benefit from a writing down allowance of 18%.
Cars that emit more than 50g/km have a writing down allowance of 16%. If you reimburse your employees for the cost of charging the company electric car from their home then that isn't subject to taxation.
If as your business scales you achieve cash surpluses, you may look to invest through your company in things such as land, property, and other assets. These investments could generate a decent return over time. If you're doing this however, you need to review the value of these assets and their contribution to your company's overall value.
If they make up 20% or more of your company's overall value then HMRC deem this as having a 'significant' impact. This means you're likely to then no longer qualify for:
Finally, remember that the P60 forms, that summarise your employees’ salaries and deductions for the prior tax year, must be issued to staff by 31 May. They have to be distributed to everyone that worked for you on 5 April.
The content of this post was created on 07/03/2022 and updated on 21/02/2025.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.
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