As an owner-manager, managing tax obligations can be a significant challenge. Recent changes in tax legislation have introduced new complexities that require your attention to ensure compliance and optimise your financial strategies.
Understanding the new reporting requirements
From April 2025, HMRC will implement new reporting requirements to increase transparency and reduce tax avoidance. These changes will affect how you report various aspects of your business operations.
For instance, directors receiving dividends must now provide detailed information about their shareholdings and dividend income in their self-assessment tax returns. Additionally, businesses with employees must report the hours worked by all employees through real-time information (RTI) payroll submissions. Self-employed individuals must also declare both their self-employment’s start and end dates.
Impact of increased National Insurance contributions
In the Autumn Budget 2024, the Government announced a rise in employers’ National Insurance contributions (NICs) from 13.8% to 15%, effective April 2025. The NICs Secondary Threshold at which employers start paying NICs has also been reduced from £9,100 to £5,000 annually.
While the employment allowance has increased from £5,000 to £10,500, this change still significantly increases costs for many businesses. It’s crucial to assess how this will affect payroll expenses and consider strategies to mitigate the impact.
Reviewing your remuneration strategy: Balancing salary and dividends
The rise in National Insurance contributions and the abolition of non-domicile status may prompt many owner-managers to reconsider how they pay themselves. Historically, taking a combination of salary and dividends has been a common strategy. However, with the upcoming legislative changes, the advantages of one approach over the other could shift. Here are a few points to keep in mind:
- Assess the new NICs landscape: With employers’ NICs increasing to 15% and thresholds changing, your total payroll costs may rise if you rely heavily on salaries. Conducting a thorough cost analysis can help determine whether this increase might outweigh dividend-related tax advantages.
- Re-evaluate dividend tax rates: If you’ve traditionally drawn most of your income as dividends, remember that ongoing changes to dividend allowances and tax rates can affect your overall tax bill. Keeping up with the latest rules ensures you don’t end up with unexpected liabilities.
- Forecast long-term implications: Tax changes are rarely isolated events. The shift away from non-domicile status, for example, could expose more of your international income to UK tax, potentially influencing whether a higher salary, dividends, or another form of remuneration is best for your circumstances.
- Seek tailored advice: Every business has unique financial and personal goals. Working with a tax professional or accountant can provide clarity on how to optimise your remuneration structure, especially amid legislative changes.
By proactively reviewing your salary and dividend strategy, you can adapt to the shifting landscape while maintaining compliance and protecting your bottom line.
Abolition of non-domicile status
The abolition of non-domicile (non-dom) status from April 2025 means that individuals previously benefiting from this status will now be taxed on their worldwide income and gains, regardless of whether the money is brought into the UK.
This change could have significant implications for owner-managers with international interests. Reviewing your position and considering restructuring assets or income streams could help you remain tax-efficient under the new rules.
Preparing for Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA)
The MTD initiative extends to ITSA from April 2026. This will require you to maintain digital records and submit quarterly updates to HMRC using compatible software.
Transitioning to digital record-keeping can streamline your processes and reduce the risk of errors. To ensure a smooth transition, start exploring suitable software solutions or seek professional advice.
Strategies for effective tax management
Given these developments, adopting proactive tax management strategies can help you stay ahead:
- Stay informed: Regularly update yourself on changes in tax legislation to ensure compliance and identify opportunities for efficiency.
- Maintain accurate records: Implement robust accounting systems to keep precise records, facilitating accurate reporting and reducing the risk of HMRC inquiries.
- Seek professional advice: Engage with tax professionals who can provide tailored advice and help you manage the evolving tax system.
- Plan: Consider the long-term implications of tax changes on your business and develop strategies to manage potential impacts effectively.
By staying informed and proactive, you can manage your financial obligations effectively, ensure compliance, and optimise your financial outcomes.
At Nicholas Peters, we support owner-managed businesses through these challenges. Our team of experienced professionals provides personalised tax advice and solutions tailored to your specific needs.
If you need expert guidance, we’re here to help you stay compliant and take advantage of available tax opportunities.