Optimising your tax position for 2024
As we start what is likely to be an election year for the UK, it has been widely documented that there will be challenges ahead in 2024. The wider economic uncertainty is also set to remain.
Interestingly, just before Christmas the Chancellor announced that there will be a Budget statement on 6 March. A tad early perhaps, but not if you are looking to gain some traction with the electorate ahead of an upcoming election.
The tax landscape
An early Budget will allow the Government to assess the response of voters before deciding on the election date. There is already widespread speculation that the Government will be looking to reduce taxes to target voters – a strategy that has not always worked.
The recent UK Autumn Statement announced a 2% reduction in National Insurance and enacted the permanence of full expensing for qualifying capital expenditure for businesses. There has also been headline grabbing speculation on the abolition of inheritance tax (IHT), however this is only paid by a relatively small number of estates. The abolition of IHT would leave an estimated £7billion hole in the Government finances. This ultimately accounts for a far smaller slice of the Government’s income when compared to income tax or VAT.
The more ambitious target could be a reduction in income tax across England, Wales and Northern Ireland. If income tax changes are to be considered, every 1p cut in the basic rate will cost an estimated £7billion. This step would likely be off the table in Scotland, with higher earners now being in a new tax bracket as announced in December’s Scottish Budget. Further information on the Scottish income tax changes can be found here.
Since the Autumn Statement, which was described as a tax reducing statement, economists have suggested that falling interest rates on Government borrowing could give the Chancellor a further £15 billion windfall at the next Budget. This headroom could perhaps provide the Chancellor with the chance to cut taxes, and it’ll be interesting to see what he decides to do.
What steps could you take?
Whatever your circumstances, there are important considerations that can help to improve your financial situation.
If you are a high net worth individual
- File your tax return on time. If you have not yet filed your tax return, the 31 January deadline is fast approaching. If there is any tax due and this is paid late, interest at 7.75% will accrue from 1 February. In addition, if any tax is still unpaid 30 days later then a 5% penalty of the outstanding tax will be imposed.
- Plan for tax year-end. There is still time to take action before the end of the tax year on 5 April 2024. We have prepared a year-end planner which has some great tips and hints for tax mitigation strategies. A key focus could be tax efficient investments or ensuring that you have maximised your pension contributions. A specialist advisor should be consulted before taking any action.
- Focus on your personal balance sheet. Business owners are great at focusing on the business balance sheet, but sometimes that means less attention is paid to their own personal assets and liabilities. This is the key for long term financial success and ensuring that you have the right strategies in place to maximise wealth preservation for you and your loved ones into the future. If you have not done this, now is the time to start.
If you are a business owner
- Regularly review your structure. It is important to ensure that you have the right strategy to extract income in the most tax efficient manner. This is an increasingly complex area. With the recent reductions announced on National Insurance, this may well require a further review.
- Review tax free benefits for your staff. Talent retention remains in sharp focus and, although wage inflation is falling, there are still significant pressures on employers due to the overall shortage of the relevant skills available. To mitigate some of these challenges, it may be worth considering other benefits that you could offer your staff as a retention tool.
- How is your business property owned? Business owners can end up with inefficient property holding structures. Often this is because it is easier to raise debt finance in the same company as the underlying trading business. However, this structure does not provide protection if the trading business suffers or if there is a proposed sale of the trading business and the buyer does not want to acquire the property. Getting your business structure ready for your exit strategy is key and can save both time and money.
- Are you looking to sell your business? We are still seeing strong deal volumes in the SME/entrepreneurial market. In our experience, corporate buyers are looking to strategically grow their business through bolt-on acquisitions to provide either a step up in technology, diversification, or achieve economies of scale. Sellers who have rebuilt their businesses following Covid are now looking to reassess their personal objectives and secure robust valuations. This is likely to gain momentum in 2024, especially if there a change in Government, which may bring with it the risk of an alignment of capital gains tax rates with income tax rates.
If you are a finance director
- Cash is king. There has been a dramatic increase to the corporation tax rate over the past year which has been mitigated in part with the introduction of the full expensing of qualifying capital expenditure. However, it may be a worthwhile exercise to ensure that you have reviewed the interaction of losses and capital allowances within your tax computations. One approach could be to disclaim capital allowances and obtain tax relief at 25% rather than 19%.
- Use all tax reliefs. The research & development (R&D) tax relief has undergone various changes in the past year and HMRC’s attitude to company claims has been widely criticised, as their approach is now impacting businesses making genuine claims. Although, in our experience, we are still supporting many clients in making successful claims and this is still a very attractive tax relief. In addition to this, if you have not considered the Patent Box relief, then this should be top of the list, as this provides companies with a 10% corporate tax rate for relevant profits derived from qualifying intellectual property (IP).
- Review tax free benefits for your staff. As noted above, talent retention remains a consistent challenge and it is worthwhile considering additional benefits as a retention tool.
We are here to help
If you have any questions on your tax position or on any of the points raised in this article, please get in touch with a member of our specialist team or your usual Azets advisor.