These reforms, detailed in the Spring 2025 update, are set to impact small businesses across various sectors. Below, we outline the most pertinent changes that may affect your operations.
Changes to UK tax – expansion of the cash basis for income tax
What’s Changing?
Starting from the 2024–25 tax year, the cash basis will become the default method for calculating trading profits for self-employed individuals and unlimited partnerships (not LLPs). Previously, businesses had to opt into this scheme, and it was limited to those with turnovers below £150,000. The new rules remove these restrictions, allowing more businesses to benefit.
Implications for Your Business:
- Simplified Accounting: Under the cash basis, you’ll report income and expenses when they are actually received or paid, rather than when they are invoiced or incurred.
- Interest Deductions: The previous £500 cap on interest deductions has been removed, allowing full deductions for interest expenses incurred wholly and exclusively for the business.
- Loss Relief: Restrictions on loss relief have been lifted, enabling losses to be set against other income or carried back, similar to the accruals basis.
Action Required: Review your current accounting method and assess whether the cash basis is more suitable for your business operations.
Changes to UK tax – increase in trading income reporting threshold
What’s Changing?
The threshold for reporting trading income under the Income Tax Self-Assessment (ITSA) has increased from £1,000 to £3,000. Please note, trading income is sales not profit.
Implications for Your Business:
- Reduced Administrative Burden: If your annual trading income is below £3,000, you may no longer be required to file a Self-Assessment tax return but your trading income will still need to be reported to HMRC if your earn more than £1,000
- Focus on Core Activities: This change allows small-scale traders to concentrate more on their business activities rather than tax compliance.
Action Required:
Determine if your trading income falls below the new threshold and adjust your tax reporting obligations accordingly.
Changes to UK tax – changes to off-payroll working rules
What’s Changing?
From 6 April 2025, the criteria for determining whether a company is classified as ‘small’ for off-payroll working purposes will change to align with the new audit thresholds. The new thresholds are Turnover: Not more than £15 million (up from £10.2 million)
- Balance Sheet Total: Not more than £7.5 million (up from £5.1 million)
- Employees: No more than 50 (unchanged)
Implications for Your Business:
Reclassification: Some businesses previously considered ‘medium’ may now fall under the ‘small’ category, affecting their responsibilities under the off-payroll working rules.
IR35 Obligations: Small companies are exempt from certain IR35 obligations, potentially reducing compliance requirements.
Personal service companies: Conversely if you were previously working for a company that was medium-sized but is now reclassified as small the responsibility will fall back on you to self-assess under the IR35 rules.
Action Required: Evaluate your company’s size against the new thresholds to understand your obligations under the off-payroll working rules.
Changes to UK Tax – mandating payrolling of benefits in kind
What’s Changing?
The government has announced that it will be mandatory for employers to report and pay Income Tax and Class 1A National Insurance contributions on benefits in kind through payroll software. This has been delayed a year so will cvome into effect from 6 April 2027
Implications for Your Business:
- Streamlined Reporting: Integrating benefits in kind into payroll simplifies the reporting process and ensures real-time tax deductions.
- System Updates: Businesses will need to ensure their payroll systems are capable of managing these changes by the implementation date.
Action Required: Begin assessing your current payroll systems and processes to accommodate this future requirement.
Changes to UK Tax – simplification of the capital goods scheme
What’s Changing?
The Capital Goods Scheme (CGS) will be simplified by:
- Removing Computers: Computers will no longer be considered capital items under the CGS.
- Increasing Thresholds: The capital expenditure value for land, buildings, and civil engineering work will increase to £600,000 (exclusive of VAT).
Implications for Your Business:
- Reduced Complexity: Fewer assets will fall under the CGS, simplifying VAT adjustments and record-keeping.
- Administrative Efficiency: These changes aim to lessen the compliance burden on small businesses.
Action Required: Review your capital asset purchases to understand how these changes may affect your VAT reporting.
Changes to UK Tax – reversal of detailed employee hours reporting requirement
What’s Changing?
The government has decided not to proceed with the draft Income Tax (Pay As You Earn) (Amendment) Regulations 2025, which would have required employers to report more detailed employee hours data to HMRC from 6 April 2026.
Implications for Your Business:
- Maintained Status Quo: Employers will continue with the current reporting requirements, avoiding additional administrative tasks.
Action Required: No immediate action is needed but stay informed about any future changes to PAYE reporting requirements.
If you would like to find details on UK income tax rates and allowances you can find them here on the HMRC website.
Changes to UK Tax – conclusion
These updates reflect HMRC’s ongoing efforts to simplify tax processes and reduce the administrative burden on small businesses. It’s crucial to stay informed and adapt your business practices accordingly to remain compliant and take advantage of any benefits these changes may offer.
At RPGCC our team are waiting to assist you with the forthcoming changes to UK tax. We firmly believe that it is our job to understand the changes and the impact they have on you and your business and partnering with us leaves you free to concentrate your efforts on your business whilst we worry about your tax!
Should you have any questions or need assistance in connection to the changes to UK tax or need help understanding how these changes affect your specific circumstances, please do not hesitate to contact us on 020 7870 9050.
