Tips for businesses for the end of the 2023/24 tax year

As we approach the end of the 2023/24 tax year, Catherine Heinen FCCA of TaxAssist Accountants discusses business tax planning. This guide highlights what businesses should be aware of ahead of the new tax year and provides some business tax tips.

Year-end business tax tips

For businesses striving to manage their tax liabilities, expand their operations and survive the volatile UK business scene, there are some steps they can take before the end of the UK tax year on 5 April 2024.

Basis period reform

The basis period reform applies to unincorporated businesses with an accounting year end that does not coincide with the tax year (31 March or 5 April). For accounting periods starting after 1 April 2024, the basis period reform will be in effect and therefore applicable businesses will report and pay their tax on a tax year basis rather than accounting year as they previously would have. Businesses will need to include the transitional adjustment (spread over five years) on their taxable assessment.

Company year end

Companies with an accounting year end different to the tax year will need to consider their reporting requirements and deadline based on that date, the tax year can be irrelevant to incorporated businesses. Companies are also not affected by the formerly mentioned basis period reform.

Cash basis

From 6 April 2024, the cash basis thresholds and restrictions have changed. Previously, the cash basis was available to businesses with a turnover of less than £150,000. From 6 April 2024 this will no longer be the case and all businesses will be able to use the cash basis for accounting.

This method of accounting means that businesses factor in their income and expenses based on payment date rather than invoice date (accrual accounting). The cash basis will become the default accounting method, with businesses having to state if they are not using the cash basis.

Changes from Companies House

Whilst no timetable has been announced, companies should be aware that accounts reporting changes may be on their way. The changes imposed by Companies House could mean the end of abridged and filleted accounts for small and micro businesses, as well as changes to registered office rules and more requirements on the confirmation statement.

Companies House will be clarifying timescales once the changes have received secondary legislation which is dependent on parliamentary timetables. The changes will not be implemented earlier than 4 March 2024.

National Minimum Wage

The National Living Wage will increase from 1 April 2024 by 9.8% and will also be applicable to eligible UK workers aged 21 and over. Rates for 18-20- and 16–17-year-olds and apprentices will also increase. Businesses need to plan for this rise as, depending on their employees, the financial impact could be high. It is important that businesses look at budgeting for this change and it may be useful to prepare a cashflow statement to see how the businesses would be affected.

Capital allowances

Capital allowances allow tax savings on the purchase of qualifying plant and machinery. Businesses can use various capital allowances, including:

Annual Investment Allowance which remains at a limit of £1 million and can be used against most plant and machinery excluding business cars, items given to you or your business and items you owned for another reason before you started using them in your business.
First Year Allowance allows businesses to claim 100% of the purchase amount of certain assets including electric cars and zero-emission goods vehicles.
Temporary First Year Allowances are only available to companies. The super-deduction ceased on 31 March 2023 and has been replaced with a new allowance called ‘Full Expensing’ which is available to companies until 31 March 2026. Under full expensing, companies can claim 100% capital allowances on qualifying plant and machinery investments. The special rate allowance gives companies 50% tax relief from profits before tax on new items that would fall in the special rate pool.

Capital Gains Tax (CGT)

The Capital Gains Tax annual exempt amount (AEA) is the tax-free allowance for the tax year. For the 2023/24 tax year the AEA is £6,000 for unincorporated business and £3,000 for trusts. For the 2024/25 tax year, the AEA is £3,000 and £1,500 respectively. CGT is not payable by incorporated businesses, but unincorporated businesses should plan effectively should they be selling assets that are applicable to CGT.

Employers National Insurance (NI)

The Autumn Statement 2023 introduced changes to the main rate of class 1 National Insurance Contributions (NIC) from 6 January 2024. This means a reduction in the percentage of NI paid by employees to 8% and businesses should already have ensured that their payroll systems have been updated for this change. However, the employer Class 1 NIC rate remain the same at 13.8%, so employers will not see any financial savings from these changes.

Employment allowance

The employment allowance means that employers may be able to reduce their annual national insurance liability by up to £5,000 if they are eligible. Companies employing one person who is also a director cannot claim the allowance. The businesses Class 1 NIC liability for the previous tax year must also be below £100,000.

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA)

Making Tax Digital requires businesses to keep digital records in compatible software and submit quarterly updates to HM Revenue and Customs (HMRC). Businesses need to be aware of when they will need to conform with rules. Sole traders and landlords with business or property income above £50,000 will need to confirm by April 2026, and those with income above £30,000 will need to conform by April 2027.

Businesses with income below £30,000, general partnerships and Making Tax Digital for Corporation Tax do not have a planned inception date.

R&D relief

The Autumm Statement 2023 announced the merger of the existing Research and Development Expenditure Credit (RDEC) and Small and Medium Enterprise (SME) schemes. Expenditure incurred on or after 1 April 2024 will be claimed in the new merged scheme and businesses need to be aware of the changes in requirements to ensure they meet the scheme rules.

Expenses

Businesses will pay tax on taxable profits, so a vital element of tax planning is to claim all deductible expenses, many of which will be included in your accounting records. These can include items such as:

uniforms
travel and motoring expenses
tools and equipment
some household expenses if you work from home

Business structure

Businesses should continue to assess the advantages and disadvantages of becoming a limited company. Whilst the tax advantages of incorporation are not as lucrative as they were in years gone by, there can still be savings to be had for businesses. It may be worth a conversation with your accountant.

Political changes

With 2024 also being the year of the UK General Election there is potential for some surprising changes being introduced. Some suggestions include changes to the VAT threshold and the abolition of stamp duty land tax or inheritance tax.

Corporation tax rates

The main and small profits rate of 25% and 19% will remain in force for accounting periods starting from 1 April 2024. Therefore, there is no advantage in the timing of company profits.

About the author

Catherine Heinen FCCA is Technical Content Writer at TaxAssist Accountants and is a qualified Certified Chartered Accountant (FCCA). She has worked at two accountancy practices in the UK top 50 accountancy firms according to Accountancy Age, Catherine has extensive experience in accounts, tax returns and advising clients.

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Publication date

13 February 2024

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.