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How will Labour’s budget in October affect me?
Paula Veysey-Smith • 30 September 2024
On the 30th October 2024 the Government will deliver the first Labour budget for over a decade. More than that, it will be the first budget ever to be delivered by a woman, Chancellor Rachel Reeves.
So, what can we, the tax payer, expect? Especially after she has already told the BBC that it would involve some “difficult decisions” on tax, spending and benefits aimed at addressing the significant public finance shortfall of £22 billion.
No financial crystal balls currently exist but if they did, we can be fairly certain they would foretell the following!
- Pension Tax Relief Changes: One of the more contentious proposals is to introduce a flat 30% pension tax relief rate. This change would primarily affect higher earners, increasing their effective tax burden while providing a boost for basic-rate taxpayers. It's estimated that this could raise around £3 billion annually.
- Inheritance Tax Reforms: Labour has already indicated its intentions to close loopholes in the inheritance tax system, potentially making reliefs less generous. Ending certain exemptions, like those for offshore trusts and agricultural properties, would also generate significant much needed additional revenue.
- Council Tax Revisions: There is a call for council tax reform, addressing its outdated valuation system from 1991. This could lead to more equitable taxation based on current property values but would almost certainly see larger properties attracting higher council tax bills.
- Changes to Capital Gains Tax: Although Labour has committed to not increasing income tax or national insurance rates, it has left the door open regarding capital gains tax. There's speculation about raising rates or changing how gains are taxed upon death and this is almost certainly an area of tax that will feature in the budget.
- VAT on Private Schools: Labour plans to end the VAT exemption for private schools, which could begin to be implemented in the 2025-26 school year. This policy has already been announced causing much criticism and it is still unclear how much impact this will have on the budget black hole.
- Increased Business Taxes: With the recent increase in Corporation Tax to 25% it is unlikely that any major changes will be made this time around. However, there will likely be a roadmap for business taxes, with an emphasis on reducing tax avoidance and increasing compliance efforts.
- Windfall Tax on Energy Companies: A long anticipated measure, Labour is expected to extend the current windfall tax on oil and gas profits, increasing the levy by three percentage points.
Conclusions
With the already announced focus on Wealth Taxes the above measures would certainly be in line with this policy. It also falls in line with Keir Starmer’s stance that those with the broadest shoulders should bear the heavier burden.
Labour's approach is framed around repairing what they characterise as financial mismanagement by the previous administration. As they prepare for this budget, both Rachel Reeves and Keir Starmer have indicated that the measures could be “painful” but necessary for long-term fiscal health.
There will be many more developments and updated analysis before the budget day which, at M:Power, we will be keeping a close eye on. We will also publish the major headlines from the budget, with a focus on what it means for small businesses in the UK, so please look out for that.
Most of you will probably think the latter. If you are an employee, you’ll probably be pleased that you’re going to have the same take home pay as you did before the budget so why worry about the rest? Well, you should because your hard-earned money is not going to be worth as much going forward due to this budget. So rather than the usual budget round up lets dig deeper into the impact on us all of the increase in Employers National Insurance rate . Although all businesses will be impacted by this measure it is the smaller ones that will feel the greatest effect. Small businesses are heralded as the backbone of our economy. Small and Medium Enterprises (SME’S) make up 99% of all UK businesses, employ 61% of total employees and produce a combined turnover of £2.4 trillion. I work with owners of such enterprises and they are the hardest working people I know. Running a small business can be very rewarding personally but often not financially. It is simply a myth that owners of SME’s sit back and enjoy the profits of others labours; most are working long hours every day just to make ends meet. The rise in National Insurance Contributions, arguable the biggest measure in the budget, will have a devastating effect on this the backbone of our economy. An increase in the rate to 15% coupled with the lowering of the threshold when it is paid to £5, 000 is forecast to generate £20 billion in tax revenue. Yes, the allowance every business receives before contributions are payable has increased to £10, 500 but really this is just a small drop in the growing ocean of the tax burden. The additional cost to a small business of this measure alone will be enough to push some owners to call it a day and close their doors. That will be a hard blow for some of those 61% employed workers affected by company closures; it won’t matter what was on their payslip as they no longer will receive one. Business closure is just one impact from this increase. This measure is a tax on jobs, on working people, absolutely guaranteeing lower wages and higher prices. Tax and employee national insurance contributions may not have increased on the payslip but the amount of money any worker receives will be worth less going forward. The Office for Budget Responsibility (OBR) have already forecasted that 76% of the increase in Employers National Insurance will be passed on to everyday people through lower real wages, a combination of pay freezes/cuts and increased prices. So, the definition of who the working person is has once again been dangerously misunderstood. No wonder that we are already hearing of owners who have decided they can no longer continue. The Labour government claims that this is a budget for growth but already the OBR has downgraded the UK’s forecast for growth. How can there be growth without our small businesses, the backbone of the British economy. It is not a green light for our economy, the future is not even orange. Like the colour of the party that is responsible for delivering on the budget promises, the future could very easily be red. It is without doubt that we are all going to pay the price for Labour’s extensive spending plans so I hope that they invest our money wisely. We are experts in small business and have analysed all the budget announcements and how they may affect SME’s. We can assist you with understanding how the increase in both National Insurance contributions and also minimum wage will affect your business and help you develop strategies to minimise the impact of this additional cost burden. Get in touch with us today to discuss how we can support your business through these changes and ensure you’re well-prepared for the future.
With the electric car market opening up significantly in the past few years, offering e-cars to your employees through a salary sacrifice scheme can be a highly attractive proposition. With the tax incentives available and purchasing and leasing options, it is important to fully understand how to navigate these to ensure that the promised benefits are enjoyed by both the employer and employee.
Xero is rolling out new subscription plans in the UK starting from September 12, 2024. These changes will simplify the current offerings by replacing the existing Starter, Standard and Premium with three new plans: Ignite , Grow , and Comprehensive . Additionally, the Ultimate plan will remain in place but be enhanced to offer more features. New Plans Overview Ignite is aimed at small businesses just starting out and includes essential accounting tools. Grow is designed for businesses looking to expand, offering more comprehensive tools, including payroll and expense management. Comprehensive provides full accounting and payroll capabilities, suitable for businesses with employees. Key points to note These new plans will bundle features that were previously add-ons, such as Xero Payroll, Xero Expenses, and Analytics Plus, into the base subscription. This change aims to reduce complexity and provide more value for the same or slightly adjusted pricing. The new plans are available from 12 September 2024 and you can move to a new plan when you like. However, Xero recommend waiting until they email you with your new proposed plan before migrating. This will happen late September 2024. Existing users will be gradually migrated to these new plans, with those benefiting from more features at the same or lower cost being transitioned first in February 2025. For users who may face a price increase, the migration will be delayed until September 2025 to allow for a smoother transition. Current plans price increases In addition to the new plans and their subscription fees the current plans as they stand are going to subject to a price increase from the 12th September 2024. Starter will increase to £16 per month, an increase of £1 per month. Standard will increase to £33 per month, an increase of £3 per month. Premium will increase to £47 per month, an increase of £5 per month. Ultimate will increase to £59 per month, an increase of £4 per month. Conclusion The change in pricing for existing plans combined with the upgraded new subscription plans has caused some confusion for Xero users. It is important to be aware of what change is going to impact you and when. Regarding the new plans Xero customers also need to know exactly what their new subscription is going to give them and what additional add ons may need to be purchased. MPower Accounting is a certified Xero advisor and we are on hand to assist you with the successful migration of your subscription to ensure you have the right Xero product at the best price point for your business. Please get in touch .
Self-assessment is the system used by HM Revenue and Customs (HMRC) to collect Income Tax from individuals. Tax is usually deducted automatically from wages, pensions, and savings, but people who run businesses, rent property or have multiple income streams must report it in a self-assessment tax return. Who Needs to File a Self-Assessment Tax Return? You must send a tax return if, in the last tax year (6th April to 5th April), you were: Self-employed as a ‘sole trader’ and earned more than £1,000 (before deducting anything you can claim tax relief on). A partner in a business partnership. Receiving income from renting out property. Earning tips and commission. Receiving income from savings, investments, and dividends. Having a total income over £100,000. Claiming Child Benefit and your income (or your partner’s) was over £50,000. Make a profit (capital gain) on the sale of any assets, such as a house you don’t live in. Key Deadlines Registering for Self-Assessment: by 5th October following the end of the tax year you need to file for. Paper Tax Returns: by the 31st October. Online Tax Returns: by 31st January following the end of the tax year. Paying Tax Owed: by 31st January following the end of the tax year. Payments on Accounts: by the 31st July the year following the end of the tax year. If you’ve never filed a tax return before, you will need to register for Self-Assessment online. This involves setting up an account with HMRC. After registering you will receive your 10 digit Unique Taxpayer Reference (UTR). Completing and submitting the tax return can be a complex task. You will need details of business income and expenses, other income, pensions and dividends and other tax-deductible items such as allowances and donations. Using a professional will ensure that everything is reported correctly and that you declare and pay the correct amount of tax. Accounting professionals will have use of bespoke software through which they can file directly to HMRC saving you valuable time while also giving you peace of mind. Tax due needs to be paid by the 31st January the following and if a payment on account is due this will need to be paid by the 31st July. So what are Payments on Account? Payments on Account are advance payments towards your tax bill. They are made twice a year by taxpayers who file a self-assessment tax return, with the goal of spreading the cost of the tax liability more evenly across the year. Who Needs to Make Payments on Account? You must make Payments on Account if your last self-assessment tax bill was more than £1,000. You do not have to make Payments on Account if more than 80% of your tax was collected at source (e.g., through PAYE). How Payments on Account Are Calculated? Each payment is half of your previous year's actual tax bill. For example, if your tax bill for the 2022-23 tax year was £4,000, you will make two Payments on Account of £2,000 each for the 2023-24 tax year. When are Payments Due? The first payment is due by 31st January during the tax year which it applies to. It is paid at the same time as the tax that is due from the previous year. The second payment is due by 31st July following the end of the tax year on the 5th April. The Balancing Payment If your actual tax bill for the current year is higher than the Payments on Account made, you will need to pay the additional amount by 31st January following the end of the tax year. If your actual tax bill is lower, you will receive a refund or you can offset it against future tax bills. Adjusting Payments on Account If you expect your income to decrease and believe your tax bill will be lower than the previous year, you can request to reduce your Payments on Account. However, if you do reduce the payment and the amount due is more than you paid you will be liable for interest payments on the unpaid amount. It is always best to complete and file the return before the end of July to be certain of the amount that is due. Tips for Managing Self-Assessment Keep Accurate Records: Maintain detailed records of all your income and expenses. Use Software: Consider using accounting software to help manage your finances and make filing easier. Plan for Payments: Set aside money throughout the year to cover your tax bill to avoid a financial crunch. And remember that if you need to make payments on account you will need to save more than just the current tax bill. Seek Professional Help: By engaging the services of an accounting professional you will have the assurance that your tax return has been completed correctly and all relevant information has been used. Even with simple returns it is easy to make errors which could lead to costly penalties and fines… and even worse, paying more tax than you should. M:Power Accounting are specialists in self-assessment tax and can lift the burden of compliance from you. We will ensure that your tax return is correct and filed on time. The earlier a return is filed the more accurate any reduction of payments on account will be. We don’t want you to pay a penny more to the tax man than you should. Please contact us to see how much we can help you. Let us deal with your tax return so that you can spend more time enjoying the things you like to do. Image credit: Photo by Nataliya Vaitkevich
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