The VAT registration threshold is to be increased to £90k per annum from 1st April 2024. The threshold has been at £85k since 2017 and during Autumn Statement 2022, it was suggested that this would be frozen until April 2026. As such, whilst the increase will be welcome for many small businesses, it had been hoped by some that the Chancellor may have increased this still further, perhaps even to £100k.
For further information on how the UK VAT system operates please click here.
The FHL regime is to be abolished. The current FHL rules state that a property must be available for rent for at least 210 days in a tax year and rented for at least 105 days, and in those circumstances provides extra tax relief for costs incurred on furnishing holiday lets which aren’t otherwise available to private rentals. During his budget statement, the Chancellor outlined that this had created a distortion meaning that there were not enough properties available for long-term lets by local people.
The removal of the regime will be doubt be a huge blow to holiday-let businesses, which are likely to still be recovering from the effects of the Covid pandemic.
Multiple Dwellings Relief is also to be abolished with effect from 1st June 2024.
MDR was intended to support private investment in the rental sector, but during his budget statement, the Chancellor outlined that this relief had not been used as intended and had been “abused” by many.
This statement is likely to be primarily targeted at those who purchased residential properties with annexes, who in the past may well have been able to claim MDR.
It is unsurprising in many ways that this relief has been abolished as the government had previously launched a consultation on MDR during late 2021. As a result of that consultation, there had been some suggestions that MDR would be restricted to purchases of 3 or more properties. Clearly, this is not now to be the case.
The higher rate of tax on disposal of property is to be reduced from 28% to 24%. The Chancellor outlined that having commissioned studies on this the results showed that this would be likely to increase the number of property transactions taking place and would free up the market.
We regularly work with property investors and developers and our initial thoughts is that this is not likely to make a substantial difference to many of them, but this remains to be seen.
The non-domicile regime is to be abolished and replaced with a new more modern, simpler and fairer residency-based system.
The current regime applies to those who are UK-resident for tax purposes but who are non-UK domiciled. (Note - domicile is a complex concept and one which requires proper analysis).
The changes, which will be introduced from April 2025, mean that those arriving in the UK will pay no tax on their foreign income and gains for the first 4 years of their UK residency, but that after those 4 years if those individuals continue to live in the UK they will pay the same tax as other UK residents.
The Chancellor outlined that these changes were designed to protect the attractiveness of the UK for international investment, but to introduce a system which is fairer and still remains competitive with other countries. Transitional arrangements will apply over 2 years during which those individuals affected will be encouraged to bring wealth earned overseas to the UK where it can be spent here.
It remains to be seen what the impact of these changes will be on those overseas individuals looking to make the UK their permanent home. Will other countries become a more attractive proposition?
As the system works currently, child benefit is withdrawn where one person earns over £50k p.a. The Chancellor acknowledged that the system requires significant reform but this will mean giving HMRC the ability to collect household-based income data which will not be a quick fix. A new fairer system is to be introduced by April 2026, but in the meantime, the single earnings threshold will be raised from £50k to £60k, and the higher taper will be increased to £80k.
This one requires no further explanation.
From April 6th 2024, employee NI will be cut from 10% to 8%, and self-employed NI contributions will be cut from 8% to 6%. The Chancellor told us that this would mean the average earner will pay the lowest effective tax rate since 1975, and will pay a lower amount of taxes than in any other G7 country.
Initial feedback seems to be one of disappointment. Many small business owners seem uninspired by the budget. With the dividend allowance having been slashed over recent years and dividend rates and corporation tax rates increasing, many will be wondering if it is really worth running a small business. Is the reward worth the risk?
British ISAs
There is to be a consultation on the implementation of a new ISA solely for investing in UK companies. This will have a separate £5,000 limit in addition to the existing £20,000 limit.
The Government has asked for comments on how tax advice can be better regulated. The provision of tax advice is unregulated and, whilst firms such as ours are regulated by the Chartered Institute of Taxation, there are a significant number of unregulated advisers who do not adhere to any professional standards, and indeed do not have to.
If you have any questions on any of the changes and how they may affect you or your clients, please do get in touch.
