Business Owner

Autumn Statement 2023: The Key Measures Affecting Unincorporated Businesses

In the Autumn Statement, the Chancellor announced some key measures that will particularly impact Unincorporated Businesses which we have summarised here. Particular attention should be given to Basis Period Reform which is a major change for unincorporated businesses.

Basis Period Reform – A Major Change

From 6th April 2024, unincorporated businesses who prepare their accounts to a date other than 31st March or 5th April must use the tax year as their basis period, regardless of their accounting period.

If you are the proprietor of an unincorporated business whose accounts are prepared to a date that isn’t 5th April or 31st March, you will need to decide whether you want to move your accounting period year end, or keep it the same.

Each decision will have ramifications on your tax due, cashflow and ongoing accounting processes.

Importantly for businesses affected, the transition will take effect in the tax year to 5th April 2024, starting on 6th April 2023.

Please note that basis period reform is different to Making Tax Digital for Income Tax and will affect all unincorporated businesses, even those not affected by MTD for Income Tax.

Rest assured that all our clients who will be affected by this change will be contacted separately.

If you’re not a client of ours but are concerned about whether these changes might affect you or how they might affect you, particularly with regards to your cashflow, please don’t hesitate to get in touch with our expert accounting team today and we would be happy to advise you.

For more information about Basis Period Reform and how it might affect your business, read this article written by our accounting experts.

Self-Employed National Insurance

The Chancellor announced major reforms to National Insurance for the self-employed.

Self-employed individuals with profits of more than £12,570 a year pay two types of NIC: Class 2 and Class 4.

From 6th April 2024 – not 6th JanuaryClass 2 National Insurance contributions will be abolished entirely – saving the average self-employed person £192 a year.

Importantly, Class 2 NICs currently provide self-employed people with access to a range of state benefits, including the State Pension.

From 6 April 2024, self-employed people with annual profits:

  • Above £12,570 – will continue to receive access to the benefits.
  • Between £6,725 and £12,570 – will continue to receive access to the benefits, via a National Insurance credit.
  • Under £6,725 (or with losses) – will be able to continue to pay Class 2 NICs on a voluntary basis in order to maintain their access to state benefits. Class 2 NICs had been due to increase in 2024/25 but it seems that these will be maintained at the current £3.45 weekly level for those in this bracket.

In another announcement, from 6th April 2024, Class 4 National Insurance for the self-employed will also be cut by 1%.

Self-employed people will pay 8% on their profits between £12,571 and £50,270, instead of the 9% they pay at the moment. National Insurance on income and profits above £50,270 will stay at 2%.

Taken together these changes will result in an average self-employed person with profits of £28,200 saving £336 in 2024/25. However, they won’t see the benefit until 2025!

What does this mean for Self-Employed Business Owners?

One question we’re regularly asked is “Whether I should trade as a sole trader, partnership or Limited Company?”

After these changes announced by the Chancellor, especially the changes to Class 2 NICs, it is now less expensive to be self-employed and to operate as a sole trader or partnership. So purely from a tax perspective, it is cheaper to remain unincorporated.

What’s more, for Limited company Directors, dividend income attracts a 0% dividend allowance of £500 in 2024/25, down from the £1,000 allowance seen in 2023/24 so it is now more expensive to extract profits from a Limited company.

However, there are many good commercial reasons to operate as a limited company, particularly the limited liability provisions.

How we can help

We work with many start-up businesses. Some of these are unincorporated and some are incorporated. If you’re planning to set up a business, before you make any decision to trade as a sole trader or limited company, we advise you to get in touch with us to discuss the different ramifications of each choice.

Using the ‘Cash Basis’ to Compute Business Profits

The ‘cash basis’ can be a simplified way of calculating taxable profits for income tax purposes.

It is based on simply declaring income received and expenses paid, without adjustments seen in more sophisticated accounts prepared in accordance with traditional ‘accruals based’ principles (e.g. to include adjustments for stock valuations and amounts owed by customers).

Importantly however, “cash basis” doesn’t provide the best business information to a business owner.

Currently, a sole trader or partnership can choose to use the cash basis if their annual business turnover is less than £150,000. Not the best business information.

In a major change, from 6th April 2024, the turnover threshold of £150k will be removed and any size of unincorporated business can use the cash basis.

Crucially, “cash basis” will become the default – unless a business owner chooses to opt out and to use the accruals basis.

If you are an owner of an unincorporated business, then we would advise you to speak with us about these changes.

You can ‘opt out’ of the cash basis and continue to prepare a balance sheet and use the ‘accruals basis’ if you wish after April 2024.

This will be an important choice, particularly in relation to the business intelligence and management reporting you get from each option, so please talk to us about the options if this affects you.

Upskilling the workforce

Increasing productivity and keeping skills relevant are particularly important issues for SME business owners, particularly with the rise of Artificial Intelligence and other technological advances.

The government announced that there are various initiatives on the cards for business leaders to acquire the vital skills and opportunities they need to stay relevant and to grow their businesses.

There will be a particular focus on sole traders and the self-employed where the tax deductibility of training costs is not always clear for business owners.

The Autumn Statement 2023 – Contact Leonherman’s Accounting and Tax Experts

For more information about the key announcements made in the Autumn Statement 2023, read this summary of the key points by Leonherman’s accounting and tax experts and download this guide to each of the announcements.

If you have a question about any of the measures announced by the Chancellor in The Autumn Statement around how they might affect you or your business, please get in touch with us and we would be happy to help.

Call us on 0161 249 5040 or email: partners@leonherman.co.uk

Important Disclaimer

This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.

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