Small Business VAT Registration Threshold Explained
Everything you need to know about the VAT registration threshold after April 2024.
Editor’s Note
We celebrate the appointment of the first-ever female Chancellor of the Exchequer — a significant milestone in gender equality. Regardless of political perspectives, it’s an extraordinary achievement to see a woman leading one of the highest institutions of economic policy-making after 800 years of its establishment.
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The Chancellor presented the first budget from the Labour government in 14 years to Parliament on Wednesday, 30 October 2024. The Autumn Budget aims to advance critical commitments for the UK’s long-term economic growth, emphasising strategic investments in transport, housing, R&D and capital funding. The budget also focuses on sustainable development by strengthening tax compliance, safeguarding working people across the UK, and maximising value for money in public spending.
The Office for Budget Responsibility (OBR) gave a balanced view of Chancellor Rachel Reeves’s Autumn Budget, taking a cautious stance on its impact on the UK economy. The OBR highlighted that increased government spending might offer a short-term boost to economic output, potentially lifting business activity in the immediate years following the budget announcement. However, the OBR also projected that, despite this short-term uplift, the budget will not lead to higher average growth over the next five years. While economic growth could outperform expectations over the next two years, the OBR foresees a slowdown in the later years of the parliamentary term, implying a more modest trajectory.
What are the latest updates on corporation tax for 2024?
According to the budget, the 2024 corporate tax roadmap focuses on maintaining a competitive and sustainable primary company tax rate capped at 25% while preserving the UK’s generous R&D tax reliefs and capital allowance provisions.
Key Points on Corporation Tax Rates and Allowances:
- The government will continue the Corporation Tax Small Profits Rate and marginal relief at current levels, ensuring that 90% of actively trading companies, particularly SMEs, pay a Corporation Tax rate below 25%.
- The £1 million Annual Investment Allowance (AIA), which allows businesses to deduct the total cost of qualifying capital expenditure on plant and machinery from their taxable profits, will also remain in place.
Updates to Capital Allowances:
- Green First Year Allowances: The 100% First Year Allowances for zero-emission cars and electric vehicle charge point machinery will be extended to March 31, 2026, for corporation tax purposes and April 5, 2026, for income tax purposes.
- Full Expensing Exploration: The UK government is considering extending full expensing to assets acquired for leasing or hiring, contingent on favourable fiscal conditions.
- Enhanced Clarity on Capital Allowances: HMRC will collaborate with stakeholders to clarify areas of uncertainty in capital allowances guidance.
- Consultation on Predevelopment Costs: A consultation on the tax treatment of predevelopment costs is scheduled for 2025, aiming to address existing ambiguities.
Insight
Full Expensing was introduced by the previous government in the 2023 Spring Budget, allowing businesses to claim 100% of the cost of qualifying capital investments in the same year they are made. This measure currently applies only to assets purchased and owned by the qualifying company, excluding those acquired for leasing or hiring, which are not eligible for immediate deduction.
Measures to tackle tax avoidance:
- The government intends to boost collaboration between HMRC, Companies House, and the Insolvency Service to enhance oversight and accountability in tackling “phoenixism,” where directors misuse corporate insolvency to evade tax by closing one business and using its assets to start a new one.
- Strengthening regulation and enforcement in the tax advice market. The government aims to improve the regulatory framework for tax advisors and is exploring ways to enhance HMRC’s powers and sanctions, enabling quicker and more effective action against non-compliant tax advisers.
- Change tax measures on Limited Liability Partnerships (LLPs) liquidations by revising the capital gains tax treatment, specifically when assets are transferred to a contributing member or a connected person, to close a tax avoidance loophole. These changes will be effective from 30 October 2024 and included in the Finance Bill 2024-25.
- Additional measures to expand HMRC powers to curb tax avoidance or fraud and provide sufficient incentives for rewarding informants.
- Stricter tax avoidance measures for close company shareholders to prevent untaxed fund withdrawals, effective 30 October 2024.
- Increase HMRC interest charges on unpaid tax liabilities by 1.5 percentage points effective 6 April 2025.
Insight
The Autumn statement also outlines plans for numerous consultations in 2025 on various tax policy issues. These include developing a new process to provide investors in major projects with increased tax certainty, assessing the tax treatment of predevelopment costs, and reviewing the UK’s rules on transfer pricing and permanent establishments.
What changes have been made to employment allowance?
The current budget raised the Employment Allowance from £5,000 to £10,500 and removed the £100,000 threshold, making it available to all eligible employers. As a result, 865,000 employers will not pay National Insurance Contributions in the next financial year.
What new tax relief measures are available for the film, TV, theatre, orchestra, and museum sectors starting in 2025?
From April 2025, new tax relief measures will benefit the UK’s film, TV, theatre, orchestra, and museum sectors. These updates offer increased credits and relief rates for qualifying productions, helping to support creative industries and incentivise local spending on UK-based projects as follows:
- Audio-Visual Expenditure Credit: From 1 April 2025, film and high-end TV productions can claim a higher 39% credit on UK visual effects costs. Unlike other expenses, visual effects costs will not be subject to the 80% cap on qualifying expenditures, and costs from 1 January 2025 are eligible.
- Independent Film Tax Credit: From 1 April 2025, UK films with budgets under £15 million and a UK lead writer or director can claim an increased 53% Audio-Visual Expenditure Credit. Eligible expenses include those from 1 April 2024, provided filming began on or after this date.
- Theatre, Orchestra, and Museums & Galleries Tax Relief: Starting 1 April 2025, relief rates for these sectors will be set at 40% for non-touring and 45% for touring or orchestra productions across the UK.
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How should businesses prepare for the UK carbon border adjustment mechanism (CBAM)?
To prepare for the UK’s new Carbon Border Adjustment Mechanism (CBAM) launching on January 1, 2027, businesses in affected sectors like aluminium, cement, fertiliser, hydrogen, and iron and steel should consider these key steps:
- Assess supply chains and emissions: Understand carbon emissions across your supply chains, especially for goods imported into the UK. Consider strategies to reduce emissions or shift to suppliers with lower carbon footprints to minimise the impact of the new carbon pricing on imports.
- Compliance planning: Ensure compliance with the increased minimum registration threshold for CBAM. If your business imports more than £50,000 of goods in affected sectors over a 12-month period, you’ll need to prepare for CBAM requirements. Those importing under this threshold will be exempt, but maintaining detailed import records may still be wise to track and manage thresholds effectively.
- Evaluate cost implications: The added carbon price could increase operational costs for businesses reliant on imported goods from affected sectors. Review your pricing strategies and consider possible adjustments to accommodate these new expenses.
- Prepare financially for compliance and reporting: Invest in tracking systems to report on imported goods’ carbon content. The government aims for this measure to reduce carbon displacement rather than emissions overall, so establishing clear reporting standards will be vital to staying compliant.
By proactively assessing emissions, compliance requirements, and potential cost impacts, businesses can position themselves well ahead of the 2027 launch.
How do the income tax and national insurance threshold adjustments affect employers?
Starting April 6, 2025, the employer NIC rate will increase from 13.8% to 15%, and the secondary threshold will be lowered to £5,000 from 6 April 2025 until 6 April 2028. This means employers will begin paying NICs at a lower income level per employee.
What are the income tax changes in the 2024 budget?
Per the Labour’s commitment to supporting working people, the Autumn Budget 2024 has frozen personal tax thresholds and rates until 2028. However, starting in April 2028, these thresholds will be adjusted in line with inflation to reflect changes in the cost of living.
Find out more: 2024/2025 Tax Brackets UK: Income Tax Rates and Allowances
How does the Autumn Budget 2024 address capital gains tax (CGT) adjustments?
The budget also raises the basic CGT rate from 10% to 18% and the higher rate from 20% to 24%. For Business Asset Disposal Relief and Investors’ Relief, rates will gradually increase to 14% from April 6, 2025, and align with the primary CGT rate of 18% by April 6, 2026, providing business owners time to adapt to these changes.
Are there new developments for inheritance tax rules in 2024?
The government will revise the inheritance tax system on 6 April 2026 to increase fairness. These changes include applying inheritance tax to unspent pension funds and limiting agricultural and business property relief for the wealthiest estates.
Is fuel duty expected to change, and how will this affect businesses?
The government plans to freeze fuel duty and extend the temporary 5p cut for another year, supporting families and businesses. Although this will cost £3 billion next year, it will save the average driver £59 in 2025-26.
Are there new tax policies around private school fees?
To secure additional funding for education, the government will introduce a 20% VAT on education and boarding services provided by private schools, effective January 1, 2025. In addition, business rates and charitable rate relief will be removed from private schools in England from April 2025. This is expected to generate £1.8 billion annually by 2029-30.
The broader impact on the state education system is projected to be minimal. However, for pupils with special educational needs met in private schools, local authorities will be compensated for the VAT incurred. Private schools primarily serving pupils with education, health, and care plans will still qualify for charitable rate relief.
How should businesses prepare for the tax and policy changes after the autumn budget statement?
Businesses should plan strategically to take full advantage of the new allowances and tax policy measures introduced in the Autumn Budget. By exploring how new allowances and reliefs can enhance prodeuctivity, companies can improve cash flow, reduce expenses, and align operations for growth.
For instance, a business can –
- Maximise employment allowances: Businesses can maximise increased NIC savings by reinvesting in human resources. Consider expanding your team, extending current employees’ hours, or investing in staff training to drive productivity. These allowances can help reduce wage-related expenses and support workforce growth.
- Utilise specific sectoral tax reliefs: Businesses in film, high-end TV production, and cultural industries can leverage enhanced audio-visual expenditure credits and tax reliefs for theatre, orchestra, and museum exhibitions. Review eligible costs under these credits and plan upcoming projects to maximise the benefits, such as higher credit rates and allowances for UK visual effects, under these new provisions.
- Strategise for energy and environmental credits: If your business is involved in renewable energy or eco-friendly initiatives, explore the updated credits and grants aimed at energy transition and sustainability. These initiatives could lower operational costs and reduce tax burden, aligning with long-term environmental goals while benefiting from government support.
- Prepare for tax compliance measures: With new efforts focused on tax compliance and anti-avoidance, businesses should review current compliance practices, especially in light of HMRC’s proposed increased powers. Strengthen your internal tax reporting, record-keeping, and compliance policies to avoid penalties, and consider consulting a tax advisor to ensure adherence to evolving regulations.
- Stay engaged in policy consultations: the budget outlines upcoming consultations for policies affecting tax compliance, tax credits, and other business regulations. Participating in these discussions through trade associations or advocacy groups can help ensure your interests are represented. Consider assigning a team member to track consultation dates and prepare position statements or responses.
By taking these proactive steps, businesses can better leverage the new budget provisions, prepare for potential challenges, and position themselves for sustainable growth.
See also: HM Treasury: Spring Budget 2024
Labour Autumn BudgetDisclaimer: This blog is for informational purposes only and reflects our understanding of the topics discussed. It should not be considered tax advice. Please consult a qualified tax advisor for personalised guidance.
This was an insightful read. Thanks for highlighting the impact of Autumn budget 2024 on businesses.