For most workers, the start of a new tax year means that their annual leave balances are reset and they have one last chance to make the most of their ISA contributions before the deadline. Still, for some people, the new tax system changes could make things very hard.
This includes the end of a workplace allowance that many employees can get from HMRC starting in April. We talked to Rowan Harding DipFPS, a financial planner at Path Financial, about the changes that are being made and who they are most likely to affect.
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The tax rate on dividends
Harding says, “A lot of the changes that are coming in really are more about business owners and businesses as a whole.”So, for someone who makes money from running their own business, the dividend rate (the payments companies make to shareholders) will go up by 2% starting in April.The basic rate will rise to 10.75%, and the higher rate will rise to 35.75%. The dividend allowance stays at £500, which is less than it was in previous tax years. So we’ll see what happens there.
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She warns that “the effects will definitely be felt by smaller business owners, unfortunately,” who already have to pay a lot of taxes. “Harding says, “They may not be able to afford to run their businesses with a higher cost.”There might be more small businesses that fail. We hope that the UK still has this great business culture.
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Raising the National Minimum Wage
This is good news for people who work for the national minimum wage. The National Minimum Wage will go up from £7.55 to £8 per hour for people under 18 and apprentices. For people aged 18 to 20, it will go up from £10 to £10.81. For people aged 21 and up, it will go up from £12.21 to £12.71. “It’s really important that you get that raise,” Harding says, “because in the end, even with that raise, that amount of money is really hard for most people to live on.”
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This could be “probably one of the biggest costs for” business owners, especially those who run small businesses with employees. It will also affect National Insurance contributions.
Relief for Business Property and Agricultural Property
The government wants to put limits on reliefs, which means that anyone who owns business or agricultural property worth more than £2.5 million will have to pay a 20% inheritance tax. Harding suggests that those affected “might want to review wills or structure assets to take that into account.”People would probably say, “If you have £2.5 million in agricultural or business property, you’re probably doing pretty well for yourself.” Harding goes on to say that this will probably only affect a small number of people, but that people who work in farming will be very upset and uncomfortable. The changes are “aimed at people with more assets,” but the problem is that a lot of assets in agriculture are land-related, and you need land to farm.
Business Asset Disposal Relief (BADR)
Harding says, “There will still be a million-pound limit, but [the Government] will raise the Capital Gains Tax for qualifying proposals to 18% (up from 14%) for leaving a business.” “When you’re talking about big amounts of money, that’s going to be a lot of tax.”
She goes on to say, “It’s really people with a lot of money who will be affected; the average person probably doesn’t have a million pounds in business assets.”The inheritance tax on Qualifying Alternative Investment Market Shares is related to this. The current 100% relief “is going to decrease by 50%, so it’ll be a permanent 20% inheritance tax liability, and they’re often used as vehicles to help mitigate inheritance tax for individuals who have a high amount of assets.”
Money for working from home
This benefit is going away completely. Harding says that right now, you can “claim (tax relief on) £6 for costs associated with working from home” every week. This may not seem like much, but “over a year that can add up.”
Digital Tax Making
Harding says with a hint of sarcasm that “Making Tax Digital means more life admin for people and a bit less for HMRC.” Basically, it’s a new system that requires sole traders and landlords with gross income profits of £50,000 or more to file their income tax returns. This amount will go down to £30,000 in April 2027. People who meet the requirements must file their submissions online every three months. See if you need to sign up at Gov.uk.
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