HMRC have revealed that every year lots of simple errors are made in tax returns in relation to capital gains tax which result in the taxpayer suffering additional tax, interest and penalties. Here are some common mistakes, and how to avoid them.

1. Using the correct annual exempt amount

When calculating how much capital gains tax you need to pay, it is important to make sure that you use the annual exempt amount for the correct tax year. This is the capital gains tax equivalent of the personal allowance, and is the amount of gains that you are allowed tax-free for a tax year. The annual exempt amount is applied to net gains (gains for the year less losses for the year), and before using losses brought forward from earlier years. Spouses and civil partners each have their own annual exempt amount.

The annual exempt amount is £3,000 for 2024/25, reduced from £6,000 for 2023/24. It is lost if not used in the tax year to which it relates.

• Disposals of UK residential property

Earlier payment and reporting deadlines apply to gains on UK residential property. UK residents who make a chargeable gain on the disposal of a UK residential property must report the gain to HMRC within 60 days of completion and pay the capital gains due on the gain within the same time frame.

If no capital gains tax is due, for example, on the disposal of property which has been the taxpayer’s only or main residence throughout the period of ownership, the reporting requirements do not apply.

If the taxpayer has also made other gains or losses in the year, the capital gains tax for the year is finalised in the Self Assessment tax return.

• Private residence relief – final period exemption

Where a property has for some time been the taxpayer’s only or main residence, the gain relating to the final nine months is covered by private residence relief, even if the taxpayer no longer lives in the property. This is increased to the final 36 months where the taxpayer leaves their home to go into care.

Prior to 6 April 2020, the final period exemption was 18 months.

In calculating the amount of private residence relief, it is important that the correct final period exemption is used, and that it is only applied once.

• Lettings relief

The scope of lettings relief was drastically reduced from 6 April 2020 and now only applies where the taxpayer lets out part of their home and lives in part of it as their main residence and is eligible for private residence relief on part of the gain. It does not apply if the whole house has been let out, even if this was prior to 6 April 2020 when the old lettings relief rules applied. Now lettings relief is only available to live-in landlords. It is equal to the lower of:

• the amount of private residence relief;
• £40,000; and
• the gain relating to the let part.

It is important that lettings relief is only claimed where due and the relief is calculated correctly.

• Business asset disposal relief

Business asset disposal relief (formerly entrepreneurs’ relief) is subject to a lifetime limit of £1 million. The limit includes amounts of entrepreneurs’ relief – the clock did not restart with the name change.

Taxpayers have also mistaken the limit for an annual limit.

Up to certain limits, it is possible to enjoy some savings income tax-free. The extent to which this is possible depends on the rate at which you pay tax; not all routes are open to all.

Personal allowance

If you do not fully use your personal allowance elsewhere, any balance not otherwise used can be set against your savings income, allowing it to be received tax-free.

Savings allowance

Basic and higher rate taxpayers are entitled to a savings allowance. This is in addition to their personal allowance.

For 2024/25, the savings allowance is set at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers. The allowance is available in addition to the personal allowance and also the dividend allowance.

Rising interest rates in recent years may mean that basic and higher rate taxpayers now receive interest in excess of their savings allowance on which tax is payable and which must be notified to HMRC on their Self Assessment tax return. This may mean that they need to file a tax return where previously they were not required to. Where this is the case, it is important to register for Self Assessment.

Taxpayers who pay tax at the additional rate (which applies to taxable income in excess of £125,140) do not benefit from a personal savings allowance and must pay tax on any savings income unless it is otherwise exempt. They will also not receive a personal allowance, as the personal allowance is fully abated at this level.

Savings starting rate

Savings income which falls within the savings starting rate band is taxed at the savings starting rate of 0%. Depending on the individual’s personal circumstances, they may be able to enjoy up to a further £5,000 of savings income tax-free.

The savings starting rate band is set at £5,000, but is reduced by any taxable non-savings income. This is other taxable income in excess of the personal allowance (but excluding any dividends which are treated as the top slice of income). Consequently, the full £5,000 savings starting rate band is available where other taxable income is less than the individual’s personal allowance. The standard personal allowance is £12,570 for 2024/25. The savings starting rate is eroded once taxable income in excess of the personal allowance reaches £5,000.

The savings starting rate is applied before the personal savings allowance.

Tax-free savings accounts

If savings are held within a tax-free wrapper such as an Individual Savings Account (ISA), the associated savings income is tax-free. A taxpayer can invest up to £20,000 in an ISA in 2024/25.

Maximum tax-free savings income

Where a person has the personal allowance available in full to set against their savings income, they can enjoy tax-free interest in 2024/25 of £18,570 (personal allowance of £12,570 plus savings starting rate band of £5,000 plus savings allowance of £1,000), plus that from tax-free savings accounts.

The deadline for filing your 2023/24 Self Assessment tax return online is 31 January 2025. An earlier deadline of 30 December 2024 applies if you owe £3,000 or less and wish to pay the tax that you owe through an adjustment to your PAYE code. While these dates are some way off, there can be advantages of filing your 2023/24 tax return early.

Self-employed taxpayers

If you are self-employed and you prepare your accounts other than to 31 March, 5 April or a date in between, there will be more work involved in calculating your taxable profit for 2023/24. This is because the 2023/24 tax year is the transition year between the current year basis which applied for 2022/23 and earlier tax years and the tax year basis applying from 2024/25. The profit for 2023/24 will comprise that for the year to the accounting date ending in 2023/24 (the standard part) and also the profits for the period from the end of that period to 5 April 2024 (the transition part). For example, if you prepare accounts to 30 June, the standard part is the year to 30 June 2023 and the transition part is the period from 1 July 2023 to 5 April 2024. This is found by apportioning the profits for the year to 30 June 2024. The 2023/24 tax year is the last year in which relief can be given for any unrelieved overlap profits that arose on commencement or a change of accounting date.

Where the accounting period does not correspond to the tax year, there will be more than 12 months’ profit to assess in 2023/24. Accounting periods ending on 31 March, 5 April or a date in between are treated as corresponding to the tax year. However, the transition part of the profits less any overlap relief is automatically spread over five years (2023/24 to 2027/28 inclusive) unless you elect for these to be assessed earlier (for example, where your personal allowance is available or they would be taxed at a higher rate). Consequently, your tax bills may be higher than normal for the next five years.

Filing your tax return early will give you more time to ensure that you have the funds available to pay the higher bills, and to make arrangements to pay in instalments where payment might otherwise be difficult.

Employed taxpayers

If you are employed you may need to file a tax return if you have other sources of income, such as rental income or investment income. If you owe less than £3,000, you can elect for the tax to be collected through your PAYE code if you file your return by 30 December 2024. This saves you paying the tax in a lump sum, providing an interest-free instalment option.

Filing the return now the 2023/24 tax year has ended ensures the 30 December 2024 deadline is not missed.

Earlier repayments

If you have overpaid tax for 2023/24, the sooner you file your tax return, the sooner you are able to receive a repayment. The money is arguably better in your bank account that in HMRC’s.

Certainty as to tax bills

Once you have filed your return, you will know what you need to pay by 31 January 2025 and, where you need to make a payment on account for 2024/25, what you need to pay by 31 July 2025. This provides certainty as to future tax bills and allows you to organise your finances to ensure that you have the necessary funds available.

If you know you will struggle to meet your tax bills, you can set up a Time to Pay arrangement to allow you to pay your bill in manageable instalments. You may be able to do this online.

Peace of mind

Filing your tax return ahead of the deadline provides peace of mind that the job has been done and that it has been ticked off the ‘to do’ list.

If you are registered for VAT, you will need to keep normal business records. The records must be complete, up to date and sufficient to enable you to calculate the VAT due to or due from HMRC. You will also need to maintain a VAT account and keep copies of your VAT invoices.

Business records

HMRC take a wide view of what constitutes ‘business records’ and their list includes:

• annual accounts, including a profit and loss account;
• bank statements and paying-in slips;
• cash books and other account books;
• purchase invoices;
• copy sales invoices;
• credit or debit notes issued or received;
• orders and delivery notes;
• purchase and sales books;
• records of daily takings, such as till rolls;
• import and export documents;
• relevant business correspondence; and
• any documents or certificates supporting special VAT treatment.

The precise records that need to be kept will depend on the type of business. However, all businesses will need to maintain a VAT account and keep copies of invoices.

If your business is registered in Northern Ireland, you must also keep any documentation relating to dispatches and acquisitions of goods to or from the UK or an EU member state.

VAT account

The VAT account forms the link between the business records and the VAT return and all VAT-registered businesses must keep a VAT account. To comply with MTD, it must be kept digitally; either within a software package or on a spreadsheet.

To show the link between the output tax in your records and the output tax shown on your VAT return, you must keep a record of:

• the output tax owed on sales;
• if your business is registered in Northern Ireland, the output tax owed on acquisitions from EU member states;
• the tax required to be paid on behalf of a supplier under a reverse charge procedure;
• tax that must be paid following a correction or adjustment for an error; and
• any other adjustments required by the VAT rules.

You must also keep a record of the following in order to show the link between the input tax in your records and the input tax shown on your VAT return:

• the input tax claimed on business purchases;
• if your business is registered in Northern Ireland, the input tax allowable on acquisitions from EU member states;
• any tax that can be recovered following a correction or an adjustment for an error; and
• any other necessary adjustments.

Need to keep digital records

To comply with the requirements of MTD for VAT, VAT-registered businesses must maintain certain records digitally and keep their accounts within ‘functional compatible software’. This is a software program or set of software programs, a product or set of products or an application or set of applications which are able to:

• record and preserve digital records;
• provide HMRC with information and returns from data held in those digital records via an API (application programming interface) platform; and
• receive information from HMRC using the API platform.

Where data is transferred between software, applications or products (for example, from a spreadsheet to the VAT return software), this must be via a digital link.

VAT invoices

VAT invoices issued are an important part of the business records, while VAT invoices received are the primary evidence for recovering VAT. Copies must be kept of all VAT invoices issued and received.

Maintaining records

The general rule is that business records for VAT purposes should be kept for at least six years.

A taxable benefit arises where an employee has the private use of a company car. Unless the car is an electric car, a further benefit arises if the employer meets the cost of fuel for private travel.

Car benefit charge

The amount that is charged to tax depends predominantly on the list price of the car and the car’s CO₂ emissions. The charge is an ‘appropriate percentage’ of the list price, as adjusted for employee contributions and periods of unavailability.

The list price of the car is the manufacturer’s registered price when the car was new – it is not the price actually paid by the employer. Consequently, the price on which the tax charge is based may be considerably higher than the price paid by the employer, particularly if the car was purchased second-hand. The list price is increased by the list price of any optional accessories, and reduced by any capital contributions made by the employee up to a maximum of £5,000.

The appropriate percentage depends on the car’s CO₂ emissions and is unchanged from 2023/24. It ranges from 2% for electric cars to 37% for cars with CO₂ emissions of 160g/km and above. Where a car’s emissions fall in the 1 to 50g/km band, the appropriate percentage also depends on the car’s electric range, as shown in the table below.

CO2 emissions	Electric range	Appropriate percentage 2024/25
1 to 50g/km	More than 130 miles	2%
1 to 50g/km	70 to 129 miles	5%
1 to 50g/km	40 to 69 miles	8%
1 to 50g/km	30 to 39 miles	12%
1 to 50g/km	Less than 30 miles	14%

Cars with CO₂ emissions of 51 to 54g/km have an appropriate percentage of 15%. The appropriate percentage increases by 1% for every 5g/km increase in CO₂ emissions until the maximum charge of 37% is reached. A supplement of 4% applies to diesel cars which do not meet the RDE2 standard, subject to a maximum charge of 37%.

Once the appropriate percentage has been applied to the list price (as adjusted for accessories and capital contributions), it is adjusted to take account of any period at the start of the tax year before the car was made available to the employee, any period in the tax year after the car ceased to be available to the employee and any periods of at least 30 days when the car was not available to the employee. Finally, the charge is reduced for any contribution that the employee is required to make (and actually does make) as a condition of the car being available for his or her private use.

Example

Billy is given a company car on 1 May 2024. It is a petrol car with CO₂ emissions of 60g/km. The car has a list price of £35,000.

For 2024/25, the appropriate percentage for a car with CO₂ emissions of 60g/km is 17%. Applying this to the list price of £35,000 gives an amount of £5,950. However, as the car was not made available to Billy until 1 May, it is reduced by £408 (25/365 x £5,950) to reflect the period of unavailability.

Consequently, the cash equivalent of the benefit is £5,542 (£5,950 – £408). If Billy is a basic rate taxpayer, he will pay tax of £1,108.40 on the benefit of the car in 2024/25. For a higher rate taxpayer, the tax bill is £2,216.80 and for an additional rate taxpayer, it is £2,493.90. Billy’s employer will pay Class 1A National Insurance of £764.80 (£5,542 @ 13.8%).

Fuel benefit

Unless the car is an electric car, a separate tax charge will arise if the employer also provides fuel for private use. The charge is found by multiplying the appropriate percentage used to calculate the car benefit charge by the multiplier for the year, which for 2024/25 is set at £27,800. The charge can be eliminated if the employee is required to ‘make good’ the full cost of fuel for private travel and actually does so before 1 June after the end of the tax year where the benefit is payrolled and by 6 July after the end of the tax year where the benefit is reported on the P11D. The advisory fuel rates can be used to determine the amount that the employee must pay in order to ‘make good’ the cost of the fuel.

Where a tax charge arises in respect of the provision of free fuel, the employer must pay Class 1A National Insurance on the taxable amount.

No tax charge arises if the employer provides or meets the cost of electricity for private travel in an electric company car.

Many people earn small amounts of money from self-employment, often as a side hustle. For example, this may be from craft or baking activities, tuition or the provision of services, such as babysitting. If you earn money in this way, it is important to understand the associated tax and National Insurance implications.

Tax consequences

A separate trading allowance of £1,000 allows you to earn up to £1,000 of self-employed profits tax-free. If your profits from all self-employments in a tax year are £1,000 or less, you do not need to report the income to HMRC and there is no tax to pay. However, it is important to remember that you need to take account of your total profits from all self-employments – the trading allowance applies across all self-employments rather than on a business-by-business basis.

If your profits from self-employment are more than £1,000, you will need to complete a tax return. If you are not registered for Self Assessment, you will need to register by 5 October after the end of the tax year for which you first need to report your income. You can do this online (see www.gov.uk/register-for-self-assessment). You will need to complete your tax return and file it online by 31 January after the end of the tax year, so by 31 January 2026 for your 2024/25 tax return. You must also pay any tax and National Insurance that you owe by this date too.

You can still benefit from the trading allowance if your profits from self-employment are more than £1,000 by deducting the £1,000 trading allowance rather than your actual expenses where it is beneficial to do so. This will be the case if your actual expenses are less than £1,000.

If you make a loss, even though there is no tax to pay, you may want to complete a return so that the loss is available to use against any future profits.

National Insurance

For 2024/25, the self-employed only pay Class 4 contributions where their profits exceed the lower profits limit, set at £12,570. The liability to Class 2 contributions has been abolished for 2024/25 and later tax years. If your profits from self-employment are less than £12,570, there will be no National Insurance for you to pay.

However, if your profits are between the small profits threshold, set at £6,725 for 2024/25, and the Class 4 lower profits limit of £12,570, you will receive a National Insurance credit which will provide you with a qualifying year for state pension and contributory benefit purposes for zero cost.

If your profits from self-employment are below the small profits level of £6,725, you will not be able to benefit from the National Insurance credit. However, you will have the option of paying voluntary contributions at the Class 2 rate of £3.45 per week. If you do not already have the 35 qualifying years needed for the full state pension and will not otherwise secure this by the time that you reach state pension age, this can be a cheap option — paying voluntary Class 2 contributions of £3.45 per week is much cheaper than paying voluntary Class 3 contributions of £17.45 per week.

The VAT registration threshold rose from £85,000 to £90,000 from 1 April 2024. The deregistration threshold increased from £83,000 to £88,000 from the same date. The changes in the thresholds change the trigger points for compulsory registration and optional deregistration.

When must you register?

You must register for VAT if your taxable turnover in the last 12 months was more than the VAT registration threshold of £90,000 or if you expect your turnover to go over £90,000 in the next 30 days.

You must also register if you and your business are based outside the UK and you supply goods and / or services to the UK, or expect to do so in the next 30 days.

Taxable turnover

The key metric here is ‘taxable turnover’ which may be different to your actual turnover. Taxable turnover includes only those supplies that are within the scope of VAT, i.e. supplies that would be liable to VAT at the standard, reduced or zero rate if the business were registered for VAT. There is no need to take account of exempt supplies in determining whether the VAT registration trigger has been reached.

Registration deadline

If your turnover exceeded £90,000 in the last 12 months, you must register within 30 days of the end of the month in which your turnover for the preceding 12 months reached £90,000. Your effective date of registration is the first day of the second month in which your turnover for the previous 12 months exceeded the VAT registration threshold.

Example

In the 12 months to 18 May 2024 your turnover was £92,430. This is the first time in a 12-month period that your turnover has exceeded the VAT registration threshold. You must register for VAT by 30 June 2024. Your effective date of registration will be 1 July 2024.

Where you expect your turnover in the next 30 days to exceed the VAT registration threshold of £90,000, you must register by the end of that 30-day period. Your registration takes effect from the date that you realised that the threshold would be exceeded.

Example

On 2 July 2024 you sign a contract to deliver standard rated goods with a value of £120,000 by 15 July 2024. You will be paid on delivery. You must register by 31 July 2024. Your effective date of registration is 2 July 2024.

Voluntary registration

If your taxable turnover is below the VAT registration threshold, you can opt to register voluntarily. This can be beneficial if you make mostly zero-rated supplies but incur VAT on goods and services that you buy as it will enable you to recover the VAT that you incur.

If you register for VAT and you supply goods and services that are liable to VAT at the standard or reduced rate, you will need to charge VAT to your customers. If your customers are not VAT-registered, they will not be able to recover the associated VAT, and this may make you less competitive than other suppliers who are not VAT-registered. Registering for VAT will also mean that you will need to comply with MTD for VAT, and this will add additional costs.

It is important to assess the pros and cons before opting to register voluntarily.

Deregistration

At £88,000, the deregistration threshold is now more than the VAT registration prior to 1 April 2024. Businesses whose turnover was just over the old £85,000 registration limit but below £88,000 now have the option to deregister. This may be beneficial to make them more competitive against businesses who are not VAT-registered. It will also relieve them of the need to file VAT returns and comply with MTD for VAT. However, if you deregister, you will no longer be able to recover any input VAT suffered.

If your turnover is likely to increase beyond the new VAT registration threshold of £90,000 in the near future, arguably, it is not worth deregistering as you will need to re-register once the registration threshold is reached.

If you run your business as a personal or family company, you will need to extract your profits in order to use them personally outside your company, for example, to meet your living expenses. There are various ways of doing this, some more tax efficient than others. Although there is no ‘one size fits all’ and your optimal profit extraction strategy will depend on your personal circumstances, a popular approach is to pay a small salary and to extract further profits as dividends.

Salary

There are benefits in paying yourself a salary. Your company will be able to deduct the salary plus any associated employer’s National Insurance in calculating its taxable profits. If the salary does not exceed your personal allowance, you will not have to pay any tax on it. Likewise, as long as it is not more than the Class 1 primary threshold, there is no employee’s National Insurance to pay either.

It is also beneficial to pay a small salary to secure a qualifying year for state pension and benefit purposes. This is advantageous if you do not already have the 35 qualifying years needed for the full state pension. For 2024/25, you need to pay a salary of at least £6,396 (equal to the lower earnings limit for the year). If you pay a salary of between £6,396 and the primary threshold of £12,570, you are deemed to have paid National Insurance contributions at a notional zero rate, which means you get a qualifying year for free.

For 2024/25, assuming that your personal allowance is £12,570 and it is not used elsewhere, the optimal salary is £12,570. This can be paid free of both tax and employee’s National Insurance. However, there will be some employer’s National Insurance to pay if you are not eligible for the Employment Allowance, which will be the case if you operate your business through a personal company and you are the sole employee and a director. For 2024/25, employer’s National Insurance is payable at 13.8% to the extent earnings exceed £9,100 (unless a higher secondary threshold applies, for example, because you are under 21 or an armed forces veteran in the first year of your first civilian employment since leaving the armed forces). On a salary of £12,570, the employer’s National Insurance hit is £478.86. However, like the salary, it is deductible in computing your company’s taxable profits.

If the Employment Allowance is available, as may be the case if you operate a family company or have other employees, there will be no employer National Insurance to pay on a salary of £12,570.

Once a salary of £12,570 has been paid, it is not tax efficient to pay a higher salary or a bonus as the combined tax and National Insurance hit will outweigh the corporation tax savings.

Dividends

Dividends are taxed at a lower rate than salary and bonus payments and also benefit from their own tax-free allowance. Once a salary of £12,570 has been paid, it is more tax efficient to extract further profits as dividends if you have sufficient retained profits to be able to do so. There are some watch points here. Dividends are paid from retained profits and can only be paid if your retained profits are at least equal to the proposed dividend. Further, if there is more than one shareholder for a class of shares, dividends must be paid in proportion to shareholdings. However, this can be overcome by using an alphabet share structure whereby each shareholder has their own class of share, allowing the flexibility to tailor dividends to the shareholder’s personal circumstances.

As dividends are paid from post-tax profits, corporation tax has already been paid at between 19% and 25% depending on the level of the company’s profits. If the dividend allowance is still available, dividends up to the allowance (set at £500 for 2024/25) can be enjoyed tax-free. Once the dividend allowance (and any remaining personal allowance) has been used up, dividends are treated as the top slice of income and taxed at the dividend tax rates, set for 2024/25 at 8.75% where dividends fall in the basic rate band, at 33.75% where they fall in the higher rate band and at 39.35% where they fall in the additional rate band.

Other options

Profits can also be extracted in the form of benefits in kind, or rent if the company is run from a home office. It can also be tax efficient for the company to make pension contributions on your behalf.

Rising interest rates mean that individuals may now be paying tax on their savings income which previously they received it tax free. Where this is the case, it is prudent to consider the options available to earn savings income tax free. ISAs feature on this list.

Savings allowance for basic and higher rate taxpayers

Individuals who pay tax at the basic or higher rate are entitled to a savings allowance. For 2024/25, the savings allowance is set at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers.

When interest rates were low, many taxpayers did not need to think about tax-free savings accounts as the savings allowance was sufficient to cover any interest that they earned. With higher interest rates, this may no longer be the case. For example, a higher rate taxpayer with savings of £20,000 would only receive interest of £400 a year at an interest rate of 2% which would be covered by their savings allowance of £500. However, if the taxpayer was now receiving interest of 5% on their savings of £20,000, the interest would be £1,000 a year of which only £500 would be covered by the allowance, leaving the remaining £500 taxable.

Additional rate taxpayers do not receive a savings allowance.

ISAs

Individual Savings Accounts (ISAs) are tax-free savings accounts. There are four different types of ISAs:

1. cash ISA;
2. stocks and shares ISA;
3. innovative finance ISA; and
4. lifetime ISA.

Individuals have an annual ISA allowance which they can invest in one or more of the different ISAs.

The limit applies to the amount invested across all four ISAs in the tax year. For 2024/25, the limit is £20,000. The individual can choose how to allocate this. For example, an individual could invest £10,000 in a cash ISA and £10,000 in a stocks and shares ISA in 2024/25. However, investments in a lifetime ISA are capped at £4,000 a year but this counts towards the annual £20,000 ISA allowance.

There is no tax to pay on interest on cash in an ISA or income (such as a dividends) or capital gains on investments held within an ISA.

Cash ISA

Banks and building societies offer cash ISAs which, as the name suggests, are accounts that hold cash only. National Savings and Investments also offer cash ISA products. Interest on cash in an ISA is tax-free.

Where interest from savings accounts exceeds the personal savings allowance, consideration could be given to moving some of the cash to an ISA to allow the interest to remain tax-free.

Stocks and shares ISA

Investments in a stocks and shares ISA can include shares in companies, unit trusts and investment funds, corporate bonds and government bonds. However, it is not possible to transfer stocks and shares already owned outside an ISA into a stocks and shares ISA with the exception of those awarded under an employee share plan.

Innovative finance ISA

An innovative finance ISA is one that contains peer-to-peer loans rather than cash or stocks and shares.

Lifetime ISA

A Lifetime ISA can only be opened by someone aged 18 and over but under 40. A person can invest up to £4,000 a year in a Lifetime ISA until they reach the age of 50. The first payment must be made before they reach the age of 40. The Government add a bonus of 25% (capped at £1,000 a year).

Money can only be withdrawn to buy a first home or on reaching age 60, or if the saver is terminally ill with less than 12 months to live. If withdrawals are made in other circumstances, a withdrawal charge of 25% applies, clawing back the Government bonus.

New UK ISA

At the Spring Budget, the Chancellor announced that the Government would be launching a new UK ISA which would provide savers with the opportunity to earn tax-free savings income while investing in UK companies. The UK ISA will have its own £5,000 allowance which would be available in addition to the existing £20,000 ISA allowance.

The Government are consulting on what this may look like.

Financial advice

It is important to take financial advice from a qualified professional before making investments.

As widely predicted, in his 2024 Spring Budget, the Chancellor announced a 2% cut in the main rates of Class 1 and Class 4 National Insurance contributions. We explain what employees and the self-employed will now pay in 2024/25.

Employees

The main rate of primary Class 1 National Insurance contributions, which are payable by employed earners on earnings between the primary threshold and the upper earnings limit, fell from 12% to 10% with effect from 6 January 2024. The rate was due to remain at 10% for 2024/25 but has now been reduced by a further 2% to 8%. This latest cut will save employees up to £754 in Class 1 National Insurance contributions in 2024/25

As a result of the latest cut, employees will now pay primary Class 1 contributions at a rate of 8% on earnings between the primary threshold, set at £242 per week (£1,048 per month; £12,570 per year), and the upper earnings limit, set at £967 per week (£4,189 per month; £50,270 per year) and at a rate of 2% on earnings in excess of the upper earnings limit.

Employed earners whose earnings are between the lower earnings limit of £123 per week (£533 per month; £6,396 per year) and the primary threshold are treated as paying notional contributions at a zero rate which gives them a qualifying year for state pension purposes.

Employers

Employers did not benefit from a rate cut and the secondary rate remains at 13.8% for 2024/25.

Self-employed

At the time of the 2023 Autumn Statement, the Chancellor announced that the main rate of Class 4 National Insurance contributions would fall by 1%, from 9% to 8%, with effect from 6 April 2024. A further 2% cut was announced in the Spring Budget, reducing the main rate to 6%.

As a result, for 2024/25, self-employed earners will pay Class 4 National Insurance contributions at 6% on profits between £12,570 and £50,270 and at 2% on profits in excess of £50,270. Self-employed earners with profits between the small profits threshold, set at £6,725, and the lower profits limit of £12,570 are awarded a National Insurance credit to provide them with a qualifying year for state pension purposes.

Class 2 contributions have been abolished for 2024/25 onwards. However, self-employed earners with earnings below £6,725 can make voluntary contributions at the 2023/24 rate of £3.45 per week to preserve their state pension entitlement.