Tax change chaos: everything you need to know for 2024

Today’s tumultuous economy, and government efforts to trigger growth, have led to SMEs becoming bogged down by bewildering tax information.

Research from Startups.co.uk has found that UK businesses are being buried beneath a mountain of legislation updates. As a result, they are finding it difficult to access clear and accurate information on business tax rules and regulation.

In a survey of 564 businesses, 15% named tax as the most difficult topic to access information on, over cybersecurity (10%) and gaining funding (13%).

The findings come ahead of a series of changes that will impact tax returns and employee payroll in 2024. We outline what businesses and sole traders need to know, as well as the key decisions they should make to ready your business for the new rules.

January 2024

1. Side Hustle Tax

Digital platforms are now able to share user information directly with HMRC as of January 1 2024, in an effort to cut down on tax evasion being dubbed the ‘Side Hustle Tax’

Anyone using recognised digital platforms such as Etsy or Amazon to generate a side income will find that HMRC now has instant access to your bank account and bank details. HMRC will use this information to monitor if you are paying the correct amount of tax.

What do I need to do? The threshold for action is set at earning more than £1,000 in your side hustle. If you are earning more than this amount per year, you must register as self-employed and file a self-assessment tax return at the end of the financial year.

2. National Insurance Contributions (NIC) for employees

The National Insurance rate is being reduced from 12% to 10% for employees on 6 January 2024. It will stay at this level in the 2023/2024 tax year.

What do I need to do? Employers do not need to do anything to prepare – NIC will be automatically deducted by accounting software.

April 2024

1. National Insurance Contributions (NIC) for self-employed

Self-employed Class 2 National Insurance contributions (currently £3.45 a week for those earning over £12,570 per year) will be scrapped in April 2024, saving sole traders around £179.40 a year.

What do I need to do? Self-employed workers need to pay NIC for at least ten years to claim the full state pension. You may wish to make voluntary contributions to ensure you can still qualify.

2. Income Tax

In November’s Autumn Statement, the government announced that the tax-free personal allowance on income will remain frozen at £12,570 until 2028. However, inflation means the nominal value of profits from a side gig could rise, even if the real value stays the same.

As a result, more side hustlers will likely have to start paying tax and pay higher rates of tax, increasing their overall tax bill.

What do I need to do? Sole traders should create a cash flow forecast to determine what their personal income will be in 2024. If it is over £12,570, you will need to begin factoring in the impact of income tax payments to overall profits.

3. National Minimum Wage increase

In April, the national minimum wage (NMW) will be raised to £11.44 per hour for workers aged 21 and over. Younger employees, and those on an apprenticeship wage, will also see their pay boosted as a result of the changes.

Based on the new rates, a full-time 23 year-old employee contracted to work 37.5 hours per week will be paid around £22,308 per year, pre-tax. That’s compared to an apprentice, who would receive an annual salary of £12,480, pre-tax.

What do I need to do? Conduct a cash flow forecast to calculate how the increased labour costs will impact your overheads. With the NMW adjusting, now is a good time to analyse your company payroll and check if you are offering a competitive wage to staff.

4. Capital Gains Tax

Capital Gains Tax (CGT) is a tax on the profit you make when you dispose of a business asset. In April 2024, the CGT allowance will be slashed to a yearly total of £3,000.

Businesses only pay CGT if they make a profit. That means, come April 2024, if you sell your asset for a profit of under £3,000, you’ll pay no tax on the sale.

What do I need to do? consider the sale of business assets in 2024. It could be a good time to make some extra cash on the side if your company is struggling financially. For complicated sales, don’t hesitate to consult a financial advisor or accountant.