Key points following fridays mini budget

Following the recent mini budget announcement, there’s been plenty of reaction from business owners, employees and investors across the UK. At Severn Accounting, we’ve been fielding questions from our clients in Worcester and beyond, asking what these changes actually mean for their tax position and finances. In this post, we’ll run through the key points that matter most to you, and highlight where you might need to take action.

Income Tax Thresholds and National Insurance Changes

One of the most significant announcements concerns the freezing of income tax thresholds and National Insurance contributions. The personal allowance will remain at £12,570 for the 2024/25 tax year, and the higher rate threshold stays at £50,270. This freeze, which has been in place since 2021/22, means more individuals will be dragged into higher tax bands as their salaries rise with inflation—a process known as “fiscal drag.”

For employers, this is particularly relevant when considering salary reviews and bonus structures. If you’re planning pay rises for your team, remember that the employer National Insurance threshold is now £9,100 per employee annually. This is worth factoring into your payroll planning, especially if you’re considering whether to award salary increases or bonuses instead.

If you’re self-employed or operate through a limited company, keep a close eye on your profit levels. As your income grows, you may cross into the higher rate tax band (40%) or even the additional rate band (45%) at £125,140. Strategic planning around dividends versus salary remains important for directors and business owners.

Corporation Tax and Investment Relief

The corporation tax rate remains at 19% for profits up to £50,000 (the small profits rate), with marginal relief applying to profits between £50,000 and £250,000. If you operate a limited company, this is still a competitive rate compared to historical levels, though it’s worth reviewing your business structure with your accountant to ensure you’re optimising your tax position.

Investment relief schemes continue to be valuable tools for entrepreneurs. The Annual Investment Allowance (AIA) remains at £1,000,000, allowing you to claim capital allowances on qualifying plant and machinery purchases without restriction up to this threshold. If you’re planning significant equipment purchases before the end of the tax year, this is worth considering as part of your tax planning strategy.

Research and Development (R&D) Relief also remains available, though claims must be substantiated carefully. If your company invests in developing new products, processes or services, you may be eligible for relief that can reduce your corporation tax bill or generate a payable credit if you’re loss-making. Documentation is crucial here—HMRC scrutinises these claims closely.

Dividend Allowance and Savings Rate

The dividend allowance remains at £500 per tax year. This means the first £500 of dividend income you receive is tax-free. Above this, dividends are taxed at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. If you’re a director taking dividends from your company, coordinating dividend payments with salary to maximise your use of the personal allowance and dividend allowance can yield genuine tax savings.

The savings allowance has been reformed in recent years, but it remains relevant if you have interest income from savings accounts. The Personal Savings Allowance means basic rate taxpayers can receive £1,000 of interest tax-free, though savings interest rates remain relatively modest for most accounts.

Pension Contributions and Planning

Pensions remain one of the most tax-efficient ways to save for retirement. Contributions attract relief at your marginal rate of tax, and the funds grow tax-free within the pension wrapper. The Annual Allowance remains at £60,000, and the Lifetime Allowance was abolished from April 2023, removing previous restrictions on the total value of your pension pot.

If you’re self-employed, a Self-Invested Personal Pension (SIPP) offers flexibility and control. For company directors, a Small Self-Administered Scheme (SSAS) or a standard workplace pension scheme can be effective planning tools.

What You Should Do Now

With the tax year well underway, it’s an ideal time to review your tax position. Whether you’re employed, self-employed or running a limited company, understanding these thresholds and allowances helps you plan more effectively and avoid unnecessary tax bills.

Keep detailed records of your income, expenses and any capital purchases. If you’ve made significant changes to your business or personal circumstances—such as expansion, redundancy or inheritance—these need careful consideration from a tax perspective.

For tailored advice, contact Severn Accounting — we’re here to help.