Worrying about exactly what taxes you owe, what reliefs you’re eligible for and how to apply for them, can feel like a distraction from the work of running a business, even when you have an accountant to help you. But understanding your responsibilities and how to make the most of thresholds and reliefs to offset rising costs is vital to economic success.
Here are some of the changes to be aware of and the steps that you can take to put yourself on the best footing ahead of the new financial year.
Navigating the tax maze
Tax rules can be notoriously tricky to follow. The upcoming changes – including the much-debated rise in Employer National Insurance Contributions (ENICs) – add another layer of complexity for small and medium businesses. For most small businesses, however there are ways to avoid the worst of the impact on your bottom line.
We’ve seen many retail businesses announce a cut to their headcounts in recent weeks. One of the main causes cited is a rise in the rate of ENICs, which will increase from 13.8 per cent to 15 per cent in April 2025. Combined with an increase to National Living Wage, this presents a big bill for businesses which rely on lower paid workers, such as those in retail and hospitality. It could also represent a significant cost for an SME businesses with limited cashflow. Whether it affects you depends on the size of you organisation and how many people you hire.
To help the smallest businesses with the ENIC rise, the government announced that the Employment Allowance (EA) will increase from £5,000 to £10,500. The application of this allowance is, however, not well understood by many SMEs. Some business owners are unaware that they qualify, especially now that the £100,000 cap has been removed, while others, such as GP surgeries, where the majority of the work done is wholly or mainly of a public nature, or sole director companies, might mistakenly claim the relief, despite not being eligible. You also have to actively claim EA, either through payroll software or HMRC. And the allowance is per business, not per individual or per payroll.
Your accountant will be able to help you establish your eligibility, how to claim, and the positive impact that this could have on your business.
Other changes to employment
Evolving employment regulations are likely to add further complications this year. The proposed Employment Rights Bill may introduce additional administrative costs and responsibilities for businesses that hire employees, requiring them to implement new processes for managing contracts and employee rights.
This may lead some businesses to turn to freelancers instead of permanent employees. Those that do need to be aware of the ‘off-payroll working’ rules, which govern the taxes paid by contractors. Formerly known as IR35, these make companies over a certain size responsible for determining a contractor’s employment status and ensuring the right tax payments are made. Understanding and complying with these rules can feel like yet another hurdle in an already overwhelming system, but it can be managed with the right advice.
Changes at HMRC
Aiming to better fund public services and close the ‘tax gap’, the government has announced that it is investing £855m in HMRC. If HMRC can use this money to simplify the tax administration burden for small businesses and improve its own customer service, then the benefits will be felt by both businesses and in the public purse. In the short term, though, it is likely to mean an increased focus on compliance and a more active pursuit of tax avoidance.
What small business owners can do to support themselves
We live in hope of a simpler and fairer tax system. In the meantime, small business owners can take the following proactive steps to navigate current challenges and protect their operations this year:
· Get to grips with the numbers: Financial skills are essential to thriving in today’s business climate. Whether for yourself or your staff, consider what training you could do to make you more comfortable with your balance sheet.
· Work with licensed tax practitioners: Many people don’t realise that tax advice is currently an unregulated market. Bad advice can lead to costly fines, tax liabilities and even potential prison time. Partnering with a trusted, qualified advisor is one of the most effective ways to ensure compliance and financial security.
· Think of your accountant as a strategic partner: Rather than simply crunching the numbers, accountants can help you understand how best to structure your business and access the support you need to help your business thrive.
· Stay updated: Small business owners and their accountants should regularly monitor changes to tax and employment regulations, such as the upcoming Employment Rights Bill and umbrella company reforms, to adapt their operations accordingly.
· Seek support: If you’re one of the many businesses owners who have launched a business in the last 12 months, there’s a wealth of advice available through websites like Informi.co.uk and organisations like the British Business Bank
· Leverage digital tools: Investing in MTD-compliant accounting software can simplify tax filing and reduce the risk of fines. Digital tools not only streamline processes but also provide real-time insights into cashflow and spending habits.
How you can stay ahead of tax changes
Navigating tax complexity starts with clarity in your own mind about what you want to achieve as a business, an understanding of your responsibilities, and the right support. Working with a licensed accountant can help cut through complexity, ensuring you not only comply with the government’s new requirements but also identify practical opportunities for growth in your business. If you’re not sure whether your accountant or tax advisor is licensed, just ask them.
For tailored tax advice and support for your small business, visit www.aat.org.uk/businesses-employers/find-accountant-bookkeeper or www.informi.co.uk.
Michael Steed is president of the Association of Accounting Technicians
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