Five Changes SMEs Need to Know for the 2024/25 Tax Year

As we approach the new 2024/25 tax year, there are several critical changes that small and medium-sized enterprises (SMEs) need to be aware of. These modifications could significantly impact how you manage your finances and your strategies for innovation funding. Staying informed and prepared will help ensure that your business can continue to thrive in a changing economic environment. Here’s a breakdown of the six essential changes affecting SMEs in the upcoming tax year:

1. Reduction in Dividend Allowance

For SMEs that rely on dividend income, the new tax year further tightens allowances. The tax-free dividend allowance has been halved from £1,000 to £500. This change means that individuals receiving dividends will have to plan carefully, as tax liabilities on dividend incomes could increase, potentially affecting the cash flow for personal and business investments.

2. Capital Gains Tax Exemption Decreased

The Capital Gains Tax (CGT) annual exempt amount has been significantly reduced, now permanently set at £3,000 from its previous £6,000 in the last tax year. This reduction will impact SMEs and entrepreneurs who dispose of assets and must manage their capital gains efficiently to fund new investments or innovation projects. Understanding this change is crucial for effective tax planning and the strategic selling of assets.

3. Increase in VAT Registration Threshold

To alleviate the administrative strain on SMEs, the VAT registration threshold has been raised from £85,000 to £90,000. This increase means that more small businesses will be exempt from registering for VAT, which could help reduce administrative duties and free up resources that could be better used for innovation funding and business growth.

4. National Minimum Wage Increase

Starting from 1st April 2024, the National Minimum Wage rates, including the National Living Wage for individuals aged 21 and over, will increase to £11.44 per hour. This change will affect SMEs in terms of payroll planning and financial management. While it ensures fair pay for workers, SMEs will need to account for the increased labour costs in their budgeting and financial forecasts.

5. Business Rates Relief Extension for Retail, Hospitality, and Leisure

The 2024/25 tax year will continue to substantially support SMEs in the retail, hospitality, and leisure sectors. The government has extended the Business Rates Relief scheme, providing eligible businesses 75% relief on their business rates up to a cash cap of £110,000 per business. This extension is a crucial support measure for SMEs in these industries, helping to cushion them against the financial pressures of high overheads while promoting sustained business operations and opportunities for innovation.

How do I check if my business qualifies for the extended Business Rates Relief scheme?

To determine if your business qualifies for the extended Business Rates Relief scheme for the 2024/25 tax year, you’ll need to follow a few steps and consider specific criteria:

1. Check Your Sector

The relief is specifically aimed at businesses operating within the retail, hospitality, and leisure sectors. This includes shops, restaurants, cafes, bars, pubs, cinemas, live music venues, and hotels, among others.

2. Property Use

Your business premises must be wholly or mainly used as a shop, restaurant, cafe, or for assembly and leisure. It’s important to verify that the primary use of your property aligns with these categories.

3. Occupation Status

The property must be occupied. Properties that are empty or not in use will not qualify for the relief.

4. Cash Cap Limit

There is a cash cap limit of £110,000 per business for the relief. Ensure your claim does not exceed this amount across all your business properties.

5. Application Process:

• Contact Your Local Council
  Business rates are handled by your local council. To apply for the relief, you should contact your local council’s business rates department. They can provide the specific forms and guidance needed to apply for the relief.
• Provide Necessary Documentation
  You may need to provide details about your property and its use, along with proof that it qualifies under the defined sectors of retail, hospitality, or leisure.

6. Consult Updated Guidelines

Since policies can vary slightly by location and additional criteria may apply, it’s advisable to consult the latest government or local council guidelines on business rates relief. This ensures you have the most current information and understand any updates that might affect your eligibility.

Positioning for Success

The 2024/25 tax year presents both challenges and opportunities for SMEs. Understanding these key changes is essential for strategic planning and maintaining competitive advantage. As SMEs navigate these new regulations, effective use of innovation funding and careful financial management will be more important than ever. By adapting to these changes, SMEs can position themselves for growth and continue to drive forward the UK’s entrepreneurial and economic spirit.

As always, it’s advisable for SMEs to consult with financial advisors to ensure that all tax planning and financial strategies align with the latest regulations and effectively support business goals. If your SME is involved in driving innovation don’t hesitate to get in touch with us at SPRK Capital.