If you’re self‑employed, run a small renovation business, or rent out property in the UK, HMRC’s latest tax policy changes for 2024/25 will likely affect your cash flow, deadlines and record‑keeping. This guide breaks down what’s changed, who’s impacted, and the practical steps to take now so you’re compliant and tax‑efficient going into the new tax year.
Key takeaways at a glance
– National Insurance cuts: Employees and the self‑employed see main rate reductions from April 2024. Most self‑employed no longer pay Class 2 NIC automatically (but check voluntary credits).
– VAT threshold rises: The VAT registration threshold has increased to £90,000 from 1 April 2024.
– Cash basis simplification: The cash basis becomes the default for many sole traders and unincorporated property businesses from 6 April 2024, with prior restrictions eased.
– Capital Gains Tax on property: The higher CGT rate on residential property gains drops from 28% to 24% from April 2024, but the annual CGT allowance is much smaller than it used to be.
– Dividend allowance cut: The dividend allowance falls to £500 in 2024/25, increasing tax for many owner‑managers and investors.
– Making Tax Digital (MTD) timetable: MTD for Income Tax starts from April 2026 for those with income over £50,000, and from April 2027 for £30,000–£50,000, so preparation in 2024/25 is smart.
– Furnished Holiday Lettings (FHL): The government plans to abolish the FHL regime from April 2025 (subject to legislation). Landlords should scenario‑plan now.
Who’s most affected
– Self‑employed trades and contractors (builders, electricians, plumbers, decorators, and other renovation pros)
– Sole traders and small limited companies working in home improvements
– Landlords (including short‑term holiday lets and long‑term rentals)
– Anyone approaching or surpassing the new £90,000 VAT threshold
– Owner‑managers who pay themselves via salary and dividends
The big changes explained
1) National Insurance changes for 2024/25
– Employees: The main Class 1 NIC rate for employees has been cut again from April 2024, improving take‑home pay.
– Self‑employed: The main Class 4 NIC rate reduces from April 2024, and most self‑employed no longer pay Class 2 NIC as a weekly charge. However, check whether you need to make voluntary Class 2 payments to protect your State Pension if your profits are low or irregular. HMRC will generally treat those with qualifying profits as having paid Class 2 for benefits purposes, but gaps can occur for some; review your National Insurance record via your Government Gateway.
Action point: Update payroll (if you run one) and your cash‑flow forecast to reflect lower NICs. Sole traders should check their NI record for gaps and consider affordable voluntary contributions if needed.
2) VAT registration threshold rises to £90,000
From 1 April 2024, the compulsory VAT registration threshold rose from £85,000 to £90,000. The deregistration threshold also increased.
Why it matters:
– Renovation and trades businesses often hover near the threshold during busy periods. Crossing it—even temporarily—triggers registration within 30 days of knowing you’ll exceed it. Late registration means back‑dated VAT, penalties and interest.
– Voluntary registration can still be worthwhile if you buy a lot of materials and tools with input VAT to reclaim, or if most of your customers are VAT‑registered contractors or developers.
Action point: Monitor your rolling 12‑month turnover monthly (not just your year‑end revenue). If you are near £90,000, either plan for registration or manage pipeline and invoicing dates carefully. Discuss Flat Rate Scheme pros and cons with your accountant if your input VAT is minimal.
3) Cash basis becomes the default for many
From 6 April 2024, the cash basis is the default accounting method for many sole traders and unincorporated property businesses, with previous restrictions significantly relaxed. In broad terms, you’ll be taxed on money actually received and spent, rather than invoices raised and bills owed (accruals basis), unless you opt out.
What’s improved:
– Previous turnover limits have been removed, making it accessible to more businesses.
– Interest and financing cost deductions under the cash basis are more flexible than before.
– You can still choose accruals if it better reflects your business (for example, if you carry large stock, issue long‑dated invoices, or want more precise matching of income and costs).
For landlords: The cash basis now being the default simplifies property accounts for many smaller portfolios. You can elect to use accruals if it suits your circumstances (e.g., complex service charge reconciliations or shared ownership structures).
Action point: Confirm which method you’ll use for 2024/25 before you raise your first invoices in the new tax year. If you switch methods, be careful with transition adjustments so income and expenses aren’t double‑counted or missed.
4) Capital Gains Tax (CGT) on property
– Rate change: From April 2024, the higher CGT rate for residential property disposals falls from 28% to 24%. The basic rate remains at 18%.
– Lower annual allowance: The CGT annual exempt amount is now £3,000 for individuals in 2024/25 (and £1,500 for most trusts), down from £12,300 two years ago.
– 60‑day reporting: If you sell a UK residential property on which CGT is due, you generally must submit a UK Property Return and pay the CGT within 60 days of completion.
What this means:
– The rate cut helps higher‑rate taxpayers, but the much smaller allowance means more disposals trigger tax—and admin.
– Timing matters. Staggering disposals across tax years, using spouses’ allowances and basic rate bands, and offsetting capital losses can reduce CGT.
Action point: If you’re selling a buy‑to‑let or a renovation project, run the numbers ahead of exchange and completion to estimate the 60‑day bill. Keep detailed improvement cost records (invoices, bank statements, photos where appropriate) to support capital deductions.
5) Dividend allowance reduced to £500
From 6 April 2024, the dividend allowance falls to £500. Many owner‑managers who pay themselves via a small salary and dividends will see a higher dividend tax bill.
Planning ideas:
– Rebalance salary vs. dividend (taking into account NIC thresholds, corporation tax rates, and any employment allowance eligibility if you have staff).
– Consider timing of dividends, pension contributions (which can reduce total taxable income), and using both spouses’ dividend allowances and basic rate bands where possible.
6) Making Tax Digital (MTD) for Income Tax—get ready in 2024/25
– MTD for Income Tax Self Assessment (ITSA) starts from April 2026 for those with total qualifying income over £50,000, and from April 2027 for those with £30,000–£50,000.
– Quarterly updates and digital records will be mandatory for those in scope. Landlords and tradespeople should use 2024/25 to trial MTD‑compatible software and tidy record‑keeping habits.
Action point: Choose bookkeeping software that connects to your business bank, captures receipts, and can handle property schedules if you’re a landlord. The earlier you switch, the smoother MTD will be when it becomes compulsory.
7) Furnished Holiday Lettings (FHL) regime—planned abolition from April 2025
The government has announced plans to abolish the FHL tax regime from April 2025 (subject to legislation). FHL status currently offers benefits such as more generous finance cost relief, capital allowances on furniture, and potential Business Asset Disposal Relief (BADR) treatment in some exit scenarios.
If abolished:
– Tax treatment for short‑term holiday lets would align more closely with standard residential lettings.
– Financing and exit strategies could be affected.
Action point: Holiday‑let owners should scenario‑plan 2024/25 and beyond—review borrowing costs, potential refurbishments, and whether to pivot to longer‑term tenancies. Track the legislation as it progresses and take advice before major decisions.
8) Basis period reform—now baked in
From 2023/24, sole traders and partnerships moved to a tax‑year basis. Many had a transitional calculation in 2023/24. For 2024/25 onward, profits taxed should align with the 6 April–5 April tax year. If you keep non‑tax‑year accounts (e.g., 31 December), make sure you’re correctly time‑apportioning and carrying forward any transitional relief.
9) Capital allowances and kit for companies
– Full expensing for companies investing in qualifying new plant and machinery continues, allowing a 100% deduction in the year of purchase for main‑rate assets. The Annual Investment Allowance (AIA) at £1 million remains available to most businesses, including many unincorporated businesses, for qualifying expenditure.
Action point: If you’re upgrading vans, tools, or site equipment, plan purchases with cash flow and allowances in mind. For mixed‑use or second‑hand items, check which rules apply.
Practical tips you can use this week
For self‑employed trades and renovation pros
– Pick your accounting method now: Decide whether to stick with the new default cash basis or opt for accruals. If you quote long jobs with staged invoices, accruals may better match profit to work performed.
– Tighten invoicing discipline: Send invoices promptly, offer card payments, and chase late payers. On the cash basis, late receipts directly delay your tax relief on expenses and recognition of income.
– Separate business banking: Use a dedicated account and link it to software. It reduces errors and speeds up VAT and year‑end work.
– Mileage and subsistence: Use HMRC‑approved mileage rates or keep robust fuel/vehicle logs. Snap receipts for materials, site parking, and small tools.
– NI record check: Log in to your Government Gateway, review your National Insurance record, and consider voluntary Class 2/3 if you have gaps.
For landlords
– Choose cash vs. accruals consciously: The default is cash basis, but accruals may suit portfolios with service charge reconciliations or agent statements spanning periods.
– 60‑day CGT readiness: If you might sell in 2024/25, assemble improvement cost evidence now and diarise the 60‑day reporting window.
– Mortgage interest: For standard residential lets, interest remains given as a basic‑rate tax credit (not as a deduction). Model cash flow under different interest rate scenarios.
– Joint ownership planning: Allocate beneficial ownership (e.g., via Form 17 for married couples/civil partners where appropriate) to use lower tax bands and allowances. Take legal/tax advice before changing ownership.
– Holiday lets: If you operate FHLs, model scenarios for April 2025 onward, including changes to capital allowances and potential BADR eligibility on exit.
For limited company owner‑managers
– Rethink salary/dividend mix: With the dividend allowance at £500, revisit how you pay yourself. Consider pension contributions, director’s loan account planning, and timing of dividends.
– Capital investment: Map out kit purchases to make best use of full expensing (companies) or AIA (most businesses). Keep detailed asset records.
– Payroll accuracy: Ensure payroll software reflects the new NIC rates from April 2024.
For anyone near the VAT threshold
– Track rolling turnover monthly: Use a simple spreadsheet or software dashboard. Add a buffer (e.g., alert at £85k) so you see it coming.
– Plan pricing and cash flow: If registration is imminent, decide whether to increase prices, absorb some VAT, or target more B2B clients who can reclaim VAT.
– Consider schemes: The Flat Rate Scheme and Cash Accounting Scheme can simplify VAT, but do the maths—they don’t suit everyone.
MTD and record‑keeping best practices
– Go digital early: Choose MTD‑compatible software that handles bank feeds, receipt capture, and property schedules. Integrate with your accountant’s tools.
– Keep it real‑time: Reconcile weekly. Small, frequent updates beat frantic year‑end catch‑ups.
– Store documents smartly: Keep digital copies of invoices, tenancy agreements, completion statements, and tool receipts. Organise by tax year and property/project.
– Set calendar alerts: Key dates—31 January Self Assessment, 31 July payments on account, 60‑day CGT deadlines, VAT quarter ends.
Common questions, answered
– Do I still need to pay Class 2 NIC? Most self‑employed with sufficient profits won’t pay a weekly Class 2 charge from 2024/25, but you may choose to pay voluntarily to protect State Pension rights if your profits are below thresholds or irregular. Check your NI record.
– Should I use the cash basis? If your income and expenses are straightforward and you want tax to follow cash flow, the cash basis typically helps. If you carry significant stock, issue long‑term invoices, or want more precise matching, accruals may be better. Ask your accountant to model both.
– What if I sell a rental? If CGT is due, file and pay within 60 days of completion via the UK Property Account. Keep all enhancement cost evidence and legal fees. Consider timing within the tax year and using spouses’ allowances.
– How do these changes affect a side hustle? Even small side hustles benefit from clean, digital records. Track the VAT threshold, and remember that MTD will eventually require quarterly updates if your total income crosses the relevant limits.
A stronger conclusion: act now, not later
HMRC’s 2024/25 policy shifts create both savings and snags. NIC cuts and simplified cash accounting can boost take‑home pay and reduce admin for many. But tighter allowances (CGT and dividends), the rising VAT threshold, and the coming MTD obligations mean you’ll want clean records, timely planning, and deliberate choices on accounting methods.
Your next‑90‑days checklist
– Confirm your accounting method (cash vs. accruals) and document any transition adjustments.
– Update payroll and forecasts for the new NIC rates.
– Review dividend strategy and consider pension contributions and spouse allowances.
– Monitor your rolling 12‑month turnover against the £90,000 VAT threshold.
– Trial an MTD‑compatible bookkeeping app and connect your bank feed.
– Landlords: prepare for 60‑day CGT reporting and keep enhancement cost evidence handy.
– FHL owners: model 2025 scenarios and watch for legislation.
Finally, schedule a short call with your accountant to sanity‑check your plan. A quick review now can save hours—and £££—later. Tax rules can change and individual circumstances differ, so treat this guide as general information, not personal advice.