6th April 2024 is the start of a new tax year, and with it comes potential updates or changes to tax rates and allowances, national insurance payments, isa limits, minimum wages, pensions and more. It’s important to stay informed about any potential changes announced by the government that could affect your life and financial situation. This guide will help answer any questions you may have on the 2024/25 tax year, any anticipated changes we can expect, as well as how to prepare for the upcoming tax year. All information discussed in this article is correct at the time of publication, however, is subject to potential change in the future.
When does the new UK tax year start?
The 2023/24 tax year will conclude on 5th April 2024, and with it any isa allowances, tax rates and financial obligations for that period will end. For those wondering when does the new tax year start? The next UK tax year will begin on 6th April 2024 and end on 5th April 2025.
Which anticipated changes can we expect from the new tax year?
The new tax year may bring some changes that could impact your personal finances, therefore it’s crucial to stay informed about any potential updates to tax rates, allowances and regulations. Being proactive and understanding any changes brought by the government will help you make an informed decision when managing your personal finances in the new tax year.
Tax rates and allowances
In the 2024/25 tax year, people across the UK may face potential adjustments to tax rates and personal finances. Notably, in Scotland, a new tax band known as the ‘Scottish advanced rate’ is set to be introduced. From 6th April 2024, any Scottish taxpayer will be subject to a new 45% tax band if they earn between £75,000 and £125,140. In the 2023/24 tax year the higher rate of tax was 42% on earnings from £43,663 to £125,140. This highlights how crucial being aware of any tax rate adjustments is to your personal finances. As a 3% increase in tax could disrupt your financial planning.
Furthermore, dividend allowances are due to be cut from £1,000 to £500. This change could heavily impact investors and shareholders who rely on dividends as a source of tax-free income.
As taxpayers, we should remain vigilant when monitoring updates to tax rates and allowances, ensuring we adapt our financial plans accordingly. Seeking professional advice and using any resources provided by tax authorities can help you make informed decisions as the tax year changes.
National Insurance contributions
There will be changes to National Insurance contributions in the new tax year, and it’s crucial to check if you will be impacted by them. If you are under State Pension age and earning more than £242 a week from one job, you will be considered a Class 1 employee, and your employer will automatically deduct National Insurance contributions (NICs) from your wages. Class 1 employees experienced a reduction in NICs from 12% to 10% effective January 6th. This cut aims to alleviate financial burdens on employees and stimulate economic growth by increasing disposable income.
For self-employed workers, one notable change is the discontinuation of mandatory Class 2 NICs for self-employed individuals earning more than £12,570. Previously, self-employed workers were required to pay Class 2 NICs regardless of their level of profits. However, with the new tax year changes, those with profits above the £12,570 threshold will no longer be obligated to pay Class 2 NICs.
Whether you are employed or self-employed, it’s crucial to stay informed about any anticipated NIC changes and how they could impact your finances. Understanding any announced changes can help you plan for the future and adjust your spending and saving accordingly.
ISA limits
The current ISA allowance currently stands at £20,000 a year, while the Junior ISA allowance is £9,000. Moving forwards, for the 2024/25 tax year this ISA limit is expected to remain the same. Furthermore, changes may be made to allow the subscription of several ISAs of the same type, to provide investors more flexibility to invest.
Minimum wages
The cost of living in 2024 has caused a great deal of financial strain for many across the country. With soaring prices in living essentials such as housing, groceries, and utilities, many individuals and families are finding themselves struggling to make ends meet.
This pressure has resulted in calls to alleviate the financial burden and as a result the government is now increasing the National Living Wage from £10.42 to £11.44 per hour. Furthermore, the 21-22 age bracket has now been removed, so all employees aged 21 and over now legally must receive the National Living Wage of £11.44. This aims to provide some relief to workers, especially in the lower-paid sectors who have been disproportionately affected by the cost-of-living crisis.
Pensions
The government has announced plans to abolish the Pensions Lifetime Allowance, signalling a significant change in pension regulations. The removal of this limit would allow greater flexibility and potentially allow your pension to accumulate higher returns. This would incentivise retirees to invest over the long term and provide some financial security in the face of economic changes.
Student loan thresholds
In the 2024/25 tax year, there are anticipated changes for student loan thresholds. The amount you pay back each month is based on your annual income, not the amount you borrowed. If you’re on plan 1, the threshold will increase from £22,015 to £24,990, while if you’re on plan 4, the threshold will increase from £27,660 to £31,395. This change will allow graduates to save more following their graduation, giving them more financial freedom before they must make repayments. However, it’s important to note that changes to postgraduate loan thresholds have not been announced yet. Therefore, if you’re on a postgraduate payment plan, you should remain vigilant and stay updated with current news and government announcements to understand how these potential changes might affect you.
Statutory leave rates
Alongside the increase in minimum wage, statutory leave rates may also be subject to change in the 2024/25 tax year. This would include new rates for maternity, paternity and shared parental leave, as well as parental bereavement pay. Additionally, statutory sick pay rates may be subject to change, with a new weekly rate potentially being implemented. This would ensure that anyone taking time off work for parental or compassionate reasons, or time off sick, receives fair financial support during an increased cost of living.
These changes in statutory leave rates aim to give employees more security, as in addition, fathers can now take their 2-week paternity leave in separate blocks. Providing more flexibility in their work life balance and supporting their partners in the early stages of parenthood.
Holiday pay and entitlement
Flexibility and security have been a recurring theme for anticipated changes in the new tax year. The same can also be expected for changes to holiday pay and entitlement. One significant change is that rolled up holiday pay for zero hour employees is now lawful. Rolled-up holiday pay will allow employers to include holiday pay into their employees’ hourly wages instead of providing separate paid time off for holidays taken. This rolled up holiday pay would be an uplift of 12.07% of an employee’s wage, which would be paid in the pay period when the holiday takes place. This clear guidance would ensure that employees are paid a fair wage for the time they take off on annual leave. By enacting rolled up holiday pay, employers may find it easier to manage their payroll and budgeting, while ensuring their employees receive a consistent holiday pay.
Other legislative reforms
In addition to changes in statutory pay and holiday entitlements, there have been other legislative reforms that might have an impact on personal finances. For example, the introduction of additional free hours of childcare would allow parents to work longer hours, pursue new further educational or work opportunities, or simply have time to rest. Furthermore, updates to the flexible working legislation would give workers a greater work life balance by providing more flexibility when managing their work schedules or reducing their commuting or childcare costs.
How to prepare for the upcoming tax year
As the new tax year begins there are various steps that you can take to feel well prepared. Firstly, staying informed about any upcoming changes in tax laws and regulations is crucial. Educational resources such as the Gov.uk website or the Shepherds Friendly blog provide helpful information on tax policies, updates, and guidelines, helping you understand how any changes in the new tax year may affect your financial situation.
If you feel you need additional help , you can seek out professional advice from an accountant or tax advisor. As these professionals can offer personalised guidance and identify any potential tax-saving opportunities.
Finally, reviewing and updating your financial plans at the beginning of the new tax year is crucial. This includes managing your income, expenses, investments, and retirement plans and overall financial health. Being proactive in your financial future will help you feel more confident and well-prepared to navigate the upcoming tax year.
Summary
Overall, there are a variety of anticipated changes to expect in the new 2024/25 tax year. A recurring theme across these changes is that more is being done to encourage individuals saving and financial freedom, to help people manage the rising cost of living. Remember, staying up to date with any changes in 2024/25 is key and don’t hesitate to seek further information if needed.
