Each year, HMRC introduces updates to tax and accounting regulations, accompanied by budget announcements and annual reforms. However, deciphering these changes amidst complex headlines and jargon can be daunting. In this blog, I’ll break down the key updates for the 2024/25 tax year, making them easy to understand and relevant for your business. (although they will not apply to your 2023/24 books that are ready for filing now).

1. Cash Basis Accounting: More Accessible Than Ever

HMRC has eliminated turnover and bank charge limits for cash basis accounting. Previously, these limits restricted who could use this accounting method and access bank loans. With these restrictions lifted, cash basis accounting is now available to everyone, except for limited companies. Additionally, borrowing and loans are more accessible to all.

2. Offsetting Losses: A Game-Changer

A significant and positive change is the ability to offset losses across multiple streams of income or trades. Unlike previous tax years, where losses had to remain within the trade, you can now offset tax from one stream of income against another if you incur losses. This change applies specifically to the 2024/25 tax year onwards, allowing you to review losses and consider potential offsets.

3. National Insurance Updates: Good News for Sole Traders

• Class 4 National Insurance: For profits over £12,570, Class 4 NI is currently set at 9%. However, for the 2024/25 tax year, this rate will decrease to 8%. If your profits fall below £12,570, you won’t be required to pay Class 4 NI. More good news; if you are making over £6,725 in profit you will start to get National Insurance credits, even though you won’t need to pay Class 4 National Insurance.
• Class 2 National Insurance: This fixed weekly/monthly payment, previously compulsory for profits over £12,570, has been abolished. While you can choose to pay it, if you’re already paying Class 4 NI, you’ll receive NI credits anyway. However, if your profits are below £6,725, paying Class 2 NI could help you accrue credits for benefits and pensions.

 Maximising National Insurance Credits: Check Your Status

Ensure you’re maximising your National Insurance credits by checking your contributions through Government Gateway. If necessary, consider topping up your contributions to optimise your benefits and pension entitlement.

Stay Informed and Stay Ahead

While these changes are for the future (applicable to tax returns from April 2024 to April 2025), staying informed is essential for proactive financial management. Join our membership, Handmade Accounts Ability, for just £22 per month, where you can stay updated on changes, receive training, engage in co-working sessions, and more. Alternatively, book a free call to discuss these changes and their implications for your business.

Understanding these cash basis reforms is crucial for navigating the evolving landscape of taxation. With clear explanations and accessible guidance, you can confidently adapt to these changes and optimise your financial strategy.