Big changes are here for the self-employed! From 2024-25, profits must align with the tax year, replacing the old “current year basis.” Overlap relief is ending, and transition profits will be spread over five years. Here’s how the new system affects your tax bill.

The reform to the self-employed tax basis period has introduced significant changes in how trading income is allocated to tax years. Previously, the tax basis period operated on a “current year basis,” but the reform has now shifted to a “tax year basis.” As a result, all sole traders and partnership businesses are required to report their profits based on the tax year, commencing with the self-assessment return that was due by 31 January 2025. This return covered the tax year 2023-24.

Under the previous system, overlapping basis periods could occur, which resulted in certain profits being taxed twice. To counter this, businesses could claim ‘overlap relief,’ typically at the time of business cessation. The introduction of the “tax year basis” eliminates the possibility of overlapping basis periods, thereby preventing the generation of further overlap relief.

It is important to note that businesses which already prepare annual accounts to a date between 31 March and 5 April are not affected by these changes. These businesses continue to file their tax returns as they did under the old system, without any alteration.

The full implementation of the new rules takes effect in the current 2024-25 tax year, which ends on 5 April 2025. The 2023-24 tax year is considered a “transition year.” During this transitional period, the basis periods for all businesses will be aligned with the tax year, and any outstanding overlap relief can be utilised against profits for that period.

In cases where profits exceed the period covered by the overlap relief-specifically profits that span more than 12 months-these are referred to as “transition profit.” This transition profit will, by default, be spread across five tax years, from 2023-24 to 2027-28, to help ensure a smooth adjustment to the new rules.

1 February 2025 – Due date for Corporation Tax payable for the year ended 30 April 2024.

19 February 2025 – PAYE and NIC deductions due for month ended 5 February 2025. (If you pay your tax electronically the due date is 22 February 2025)

19 February 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2025.

19 February 2025 – CIS tax deducted for the month ended 5 February 2025 is payable by today.

1 March 2025 – Due date for Corporation Tax due for the year ended 31 May 2024.

2 March 2025 – Self-Assessment tax for 2023-24 paid after this date will incur a 5% surcharge unless liabilities are cleared by 1 April 2025, or an agreement has been reached with HMRC under their time to pay facility by the same date.

19 March 2025 – PAYE and NIC deductions due for month ended 5 March 2025 (If you pay your tax electronically the due date is 22 March 2025).

19 March 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2025.

19 March 2025 – CIS tax deducted for the month ended 5 March 2025 is payable by today.

Are you a landlord? Maximise your rental income by knowing which expenses you can claim to reduce your tax bill. From maintenance costs to Replacement of Domestic Item Relief, understanding allowable deductions is key to smart property management.

If you are a landlord, it is important to be aware of the expenses that can and cannot be claimed from rental income. As a general rule, allowable expenses must be wholly and exclusively for the purpose of renting out the property. In some cases, a proportion of expenses can be claimed if part of the expense relates to the property business.

Common types of deductible revenue expenditure include:

• General maintenance and repairs to the property (but not improvements)
• Water rates, council tax, gas, and electricity
• Insurance costs
• Letting agent and management fees
• Qualifying legal and accountancy fees
• Direct costs such as phone calls, stationery, and advertising for new tenants
• Vehicle running costs (only the proportion used for the rental business), including mileage rate deductions for business-related motoring costs

Additionally, the Replacement of Domestic Item Relief allows landlords to claim tax relief when replacing furniture, furnishings, appliances, and kitchenware in a rented property, provided certain conditions are met.

Landlords should also keep a record of any capital expenditure incurred on investment properties. These expenses cannot be claimed as revenue expenditure against rental income but can usually be offset against Capital Gains Tax when selling a property.

The UK government is shaking things up with some significant pension reforms aimed at boosting economic growth and enhancing pension pots for working folks. Let’s dive into what’s happening.

Unlocking Pension Surpluses

Traditionally, occupational defined benefit (DB) pension schemes have been somewhat restricted in how they can use surplus funds. These surpluses often sit idle, benefiting neither the businesses that contribute to them nor the broader economy. The latest reforms aim to change this by allowing well-funded DB schemes to more flexibility invest their surplus funds into the wider economy. This move is expected to unlock billions of pounds, providing businesses with additional capital to invest in growth initiatives, which, in turn, could lead to higher wages and improved pension benefits for employees. 

Reducing the Pension Protection Fund Levy

In tandem with these changes, the government is considering proposals to grant the Pension Protection Fund (PPF) greater flexibility in reducing the levy it collects from pension schemes. Given the PPF’s strong financial position, relaxing these restrictions could free up millions of pounds for pension schemes. Employers could then redirect these funds into their businesses, fostering further economic growth. 

Creating Pension Megafunds

Another bold step involves consolidating various pension schemes into larger “megafunds.” By merging assets from multiple Local Government Pension Scheme authorities and defined contribution schemes, these megafunds can leverage economies of scale to invest in high-growth areas like infrastructure and innovative businesses. This approach draws inspiration from successful models in countries like Canada and Australia, where larger pension funds have achieved higher returns through diversified investments. 

Balancing Growth with Member Protection

While these reforms are geared towards stimulating economic growth, the government emphasizes that the security of pension scheme members remains a top priority. Any changes will be implemented with safeguards to ensure that members’ benefits are protected. The goal is to create a more dynamic pension system that not only secures retirement incomes but also contributes actively to the nation’s economic prosperity.

Looking Ahead

These reforms represent a significant shift in the UK’s approach to pensions, aiming to transform dormant funds into active investments that benefit both individuals and the broader economy. As these changes roll out, it will be crucial to monitor their impact on economic growth and the financial well-being of pension scheme members.