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Business Companion News – April 2024
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Welcome to our Business Companion Newsletter for April 2024.

As we start the new tax year, please get in touch if you would us like to prepare an early 2023/24 tax return for you.

This can be useful if your income has reduced and you want to lower the Payments On Account due in July.  It is also nice just to get it out of the way!

April 2024

• Optimum Salaries and Dividends for Directors

• Student Loans and Basis Period  Reform

• Making Tax Digital for Income Tax (ITSA): an update

• Companies House Registration Changes
Optimum Salaries and Dividends for Directors
All taxpayers have personal allowances within which they can earn income tax free. As soon as these allowances are used up tax rates are applied. When income exceeds £12,570 pa, both NI and income taxes are applied and together they are higher than the dividend tax rate. Even when accounting for the corporation tax reduction on the salaries, paying extra dividends is still more tax efficient than a high salary.

The optimum directors’ salary for 2024/25 is therefore £12,570 pa (£1,047 pm) for most directors. After this Directors should pay themselves further amounts as dividends. You should also make use of allowable expenses and employer pension contributions.

National Insurance (NI) Rates in 2024/25
The Lower Earnings Limit for NI is £6,396 pa (same as last year). If you earn over this amount it will count as a qualifying year for your future state pension.

The personal allowance and primary NI threshold (employees’ NI) are aligned at £12,570. If your annual salary exceeds this amount, then you, the employee, will need to pay 10% NI contributions and you will pay tax on your earnings.

The secondary NI earnings limit (employers’ NI) is £9,100 pa. If your annual salary exceeds this amount the employer (your business) will need to pay 13.8% NI contributions on the excess unless these are covered by the Employment Allowance (EA). The EA remains at £5,000 per annum (but sole director firms are not eligible).  

The Optimum Salary
The optimum directors’ salary for most directors in 2023/24 is £12,570 per annum. However this depends on whether the Director receives other income such as pension income, another salary, self-employment or rental income (see below).

Sole Directors
This year we also recommend a salary of £12,570 for most sole directors. This saves corporation tax of at least £750, which increases to £1,046 (depending on the corporation tax rate applied). The corporation tax rates from April 2024 remain at 19%, 25% and 26.5%.

In previous years we had advised a salary at the Employers NI threshold (£9,100 pa) for sole directors because a sole director/employee company cannot claim the EA.  But this year the saving on Corporation tax by taking the higher salary (£12,570 pa) is greater.
 
When should you pay Directors a Lower Salary?
Some businesses want to avoid the extra burden of making additional tax/NI payments to HMRC and will forgo some tax saving to achieve this. To avoid making any payments, the salary needs to be reduced to £9,100 pa (or £758pm) so that no Employers NI is due.

The optimum directors salary should be £12,570 pa only if the director has tax allowances available. In situations where the director has other income such as another salary or rental income or is already at pension age pension , it may be advisable to pay a lower salary of £9,100pa or even a nil salary. Under these circumstances, it is important to seek tax advice, which we can offer.  

Dividends
The dividend tax-free allowance reduced from £1,000 to £500 from April 2024. Pay this £500 as your next priority.
Student Loans and Basis Period Reform
Making Tax Digital for Income Tax (ITSA): an update
New guidance from HMRC confirms that profits used to assess student loan repayments and entitlement to student finance will include transitional profits from basis period reform.

Student loan repayments for self-employed taxpayers are based on the profits reported in each tax year. For the tax years 2023-24 to 2027-28 this will be your normal profit plus the portion of the transitional profits you decide to bring into that year. The additional profit could cause a dramatic increase in your student loan repayments in one or all of the five years.

Transitional profits are spread evenly over the five years by default, but you can choose to bring more than the minimum additional profit into any of the years. It might be possible to manipulate the spreading of your transitional profits so that your income remains under the threshold for one or more of those years.

If you are self-employed and you are applying for student finance such as a maintenance loan for your child, your income will be taken into account. Normally the assessment is based on the tax year two years before the application but you can opt to use the current year figure if you can show that your income has fallen by at least 15%.

If because of basis period reform the income that you report in 2023-24 is 15% or more lower than in 2021-22, it would be better to use the current year amount for the student finance application.
There are many factors to consider when determining the most efficient way to spread the transitional profits over the five-year period. We can help you calculate the most beneficial allocation for you.
HMRC has confirmed the mandation dates for making tax digital for income tax self assessment (MTD SA) as announced in the Autumn Statement 2023.

From April 2026, taxpayers subject to income tax on their trade, profession, property income or business and who have income above £50,000 will be required to keep their accounting records electronically (either using suitable software or on a spreadsheet) and file quarterly update returns to HMRC with details of their income and expenditure together with any other information that HMRC specifies.

The mandation date for self-employed taxpayers and landlords with income between £30,000 and £50,000 is April 2027. There are currently no plans for MTD SA to be implemented for taxpayers with income below £30,000.

HMRC has also published an update notice announcing that quarterly updates will be cumulative. This will allow errors in one quarter’s reporting to be updated in the following quarter, removing the need to resubmit previous quarters.

The requirement to submit an end of period statement in addition to quarterly returns has been removed as planned.

Taxpayers who file self assessment tax returns with income above £50,000 need to prepare for MTD SA now. We have been preparing for MTD and can advise you on the best options for your business.
 
Companies House Registration Changes
Companies House have announced a series of changes for company registrations from 4th March 2024.

New requirement for a registered email address
All companies are now required to provide a registered email address which Companies House will use to communicate with the company.  It must be an “appropriate” address meaning that correspondence will reach an appropriate person as quickly as possible.  This address will not be visible on the Companies House Register.

Companies are required to provide this information when they complete their next Confirmation Statement. Similarly a registered email address will need to be provided for all new incorporations from 4 March 2024.

We propose that for our Business Companion clients we will use our email address: admin@simpleaccounting.co.uk as we generally deal with Company Secretarial matters on your behalf.  However if you with to use your own email address please let us know.  

New rules for registered office address
The new rules stipulate that PO Box addresses can no longer be used as a company’s registered office address.   The requirements state that any documents sent to the address by Companies House must be capable of being recorded by an acknowledgement of delivery; and that they should be expected to come to the attention of a person acting on behalf of the company.  This takes effect immediately which means that Companies House need to be advised of the change of any PO Box office addresses as a matter of urgency.
 
The use of third party registered office addresses is still allowed, such as using Simple Accounting Limited as your registered office address.

New rules for declaring profits.
Simple Accounting generally includes profit details in a Companies House Accounts submission, unless you tell us not to.  A new law was passed last year that will shortly compel all companies to declare a profit and or loss at Companies House.  Companies House are consulting on an implementation date for this change.  

 
Need Help?
New Clients Welcome
Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.

See details of our Business Companion Service.
About Us
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Solar Accounts, Quickbooks or Xero.

‘All clients using these software packages can benefit from our support. Visit our website www.simpleaccounting.co.uk for a look at the resources on offer.’
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