Category: Blog

As the UK government advances its initiative to digitise the tax system, it’s essential for self-employed individuals and landlords to understand the upcoming changes under Making Tax Digital for Income Tax (MTD for IT).

This guide outlines what MTD for IT entails, the implementation timelines, necessary preparations for clients, and why Xero stands out as an optimal solution for compliance.

Understanding Making Tax Digital for Income Tax

MTD for IT requires certain taxpayers to keep digital records of their income and expenses and submit updates to HMRC using MTD-compatible software. Instead of an annual tax return, taxpayers will need to send quarterly updates throughout the year, providing a snapshot of their earnings and expenses. At the end of the tax year, they will submit a final declaration, confirming their income and tax owed.

MTD for IT is a government initiative aimed at modernising the UK tax system by requiring taxpayers to maintain digital records and submit updates to HMRC using compatible software. The goal is to make tax administration more effective, efficient, and easier for taxpayers to get their tax right.

Implementation Timelines

The rollout of MTD for IT will occur in phases:

• April 2026: Sole traders and landlords with an annual gross income exceeding £50,000 will be mandated to comply.
• April 2027: The threshold lowers, requiring Sole traders and landlords with an annual gross income of £30,000 to join.
• April 2028: The threshold lowers further, requiring Sole traders and landlords with an annual gross income £20,000 to join.

Please note that the above thresholds cover total income combined, so if you earn £30,000 from your self-employment and £30,000 from property then you will be required to comply with MTD from April 2026 because your total income is above £50,000.

Steps Taxpayers Need to Take

From the date they are required to comply with MTD for IT, taxpayers must submit quarterly updates to HMRC using compatible software. We highly recommend that individuals implement the software well in advance of their first required submission. This will allow them to familiarise themselves with the system, resolve any initial challenges, and ensure they are fully confident in using the software when the time comes.

Why Choose Xero for MTD Compliance?

Xero offers a comprehensive solution tailored to meet the needs of self-employed individuals and landlords preparing for MTD for IT:

• HMRC-Recognised Software: Xero’s platform is compatible with MTD requirements, ensuring seamless submission of quarterly updates and final declarations.
• User-Friendly Interface: Designed with simplicity in mind, Xero makes it easy to track income, expenses, and manage tax obligations.
• Scalable Solutions: Whether managing a single property or multiple income streams, Xero adapts to varying business needs.
• Expert Support: As certified Xero partners, we are well-equipped to assist you in implementing the software and providing ongoing guidance to ensure you make the most of its features.

How the Orenda Collective Can Help

At The Orenda Collective, we are staying up to date with the latest MTD rules and guidance to help our clients navigate this significant transition as smoothly as possible.

After preparing clients’ 2024/25 tax returns, we will notify those that fall under MTD for IT and when they will need to comply.

We will be offering a quarterly reporting and final declaration service in place of an annual Self Assessment return, ensuring client’s obligations are fully managed. Further details will be provided to affected clients in due course.

Conclusion

The transition to Making Tax Digital for Income Tax represents a significant shift in how self-employed individuals and landlords manage their tax affairs. By understanding the requirements, preparing in advance, and leveraging software solutions like Xero, you can ensure compliance and benefit from a more streamlined, efficient tax process.

Frequently Asked Questions: MTD for Income Tax

1. Do I still need to file a Self Assessment tax return under MTD?

Not in the traditional sense. Instead of a single annual tax return, you’ll submit:

• Quarterly updates of income and expenses
• A Final Declaration that replaces the current Self Assessment return

2. How do I know if I need to comply with MTD for Income Tax?

You must comply if:

• You are self-employed and/or a landlord
• Your total gross income from these sources is over £50,000 (from April 2026), or over £30,000 (from April 2027), or over £20,000 (from April 2028)
  Gross income means before expenses, and the total is combined across all qualifying income sources.

3. What if I have more than one property or business?

You will need to:

• Keep separate digital records for each source of income
• Submit separate quarterly updates for each
  However, you’ll only send one Final Declaration to HMRC each tax year.

4. What happens if I don’t comply?

HMRC has confirmed that penalties will apply for failure to comply with MTD requirements once you’re mandated. There will be a points-based system for late submissions, with financial penalties triggered after reaching certain thresholds.

5. Will I need to pay tax more frequently under MTD?

No. MTD changes how you report your income, but not when tax is paid. Payment deadlines remain the same—usually 31 January and 31 July for payments on account.

6. How will The Orenda Collective support me?

We will:

• Identify if and when you need to comply with MTD
• Offer quarterly reporting and Final Declaration services
• Help set up and manage Xero
• Keep you informed about any changes in MTD legislation

7. What period of income determines whether I need to comply with MTD for the 2025/26 tax year?

HMRC will use your income reported on the 2024/25 tax return to determine if you need to comply with MTD for Income Tax from 6 April 2026.

If your total gross income from self-employment and/or property is over £50,000 in that tax year (before expenses), you’ll be mandated into MTD from April 2026.

💡 Example:
If your tax return for 2024/25 shows £30,000 from self-employment and £25,000 from rental income, your combined total is £55,000. This means you’ll fall within scope for MTD from April 2026.

Introduction

One of the most common bookkeeping mistakes business owners make is misclassifying expenses, which can lead to inaccurate tax reporting and financial confusion. Understanding the correct way to allocate expenses in Xero can save time, prevent errors, and ensure compliance with HMRC.

Accurate bookkeeping is essential for any business, helping you maintain financial clarity, streamline tax returns, and ensure compliance with HMRC. One of the most common bookkeeping challenges is correctly categorising expenses in Xero. Misallocations can lead to incorrect financial reporting and potential tax inefficiencies.

In this guide, we’ll walk you through how to categorise your business expenses in Xero, helping you make informed financial decisions with confidence.

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Why Proper Expense Categorisation Matters

Getting your expense categories right is crucial for several reasons:

• Accurate Financial Reports – Proper categorisation ensures your profit and loss statement reflects the true performance of your business.
• Tax Efficiency – Allocating expenses correctly can help ensure you claim allowable deductions and avoid potential compliance issues.
• Better Business Decisions – Categorised expenses allow you to see where money is being spent, making it easier to budget and forecast.
• Seamless VAT Returns – If you’re VAT-registered, incorrect categorisation can result in under- or over-claimed VAT.

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Common Expense Categories in Xero

Below is a table outlining some of the most common business expenses and the relevant Xero account codes. Use this as a reference to ensure your transactions are recorded correctly.

Relevant Account	Example Expenses
200 – Sales	Revenue from selling products or services
260 – Other Revenue	Other business income received that is not related to sales such as grants, cashback, referral fee income, commissions etc
270 – Interest Income	Bank interest earned on business savings accounts or fixed deposits
310 – Cost of Goods Sold	Goods bought for resale or making your products to sell and costs directly related to the services you provide to clients
320 – Direct Wages (or Subcontractors if you have this code)	Payments to freelancers or subcontractors
400 – Advertising	Advertising costs, including social media campaigns, Google Ads, printed brochures, or photography sessions for branding
401 – Audit and Accountancy Fees	The Orenda Collective fees and any other accounting or bookkeeping fees
404 – Bank Fees	Bank charges, Stripe fees or other payment systems fees
408 – Cleaning	Cleaning services or products used specifically for business premises
412 – Consulting	Coaching fee and consultancy fees
424 – Entertainment- 0% Business	Meals, drinks and gifts for clients, suppliers, subcontractors or business associates
429 – General Expenses	Any business cost that does not fit in any other code
441 – Legal Expenses	Solicitors, ICO fees, trade mark applications etc
445 – Light, Heat and Power	Electricity and gas bills for a business premises (not home)
450 – Professional Fees	Payments to consultants, or other professional advisors for business services
461 – Printing  & Stationery	Stationery, business cards, flyers etc
463 – IT Software and Consumables	Software subscription fees for tools like Adobe Creative Cloud, Xero, or Microsoft Office, small IT costs such as cables or keyboards/mice etc.
465 – Rates	Business rates, council tax, water (for business premises, not home)
469 – Rent	Rent for office spaces, coworking memberships, or studio hire
473 – Repairs & Maintenance	Costs of repairing (not improving) business premises or equipment
480 – Staff Training	CPD courses (online or in person), First Aid courses, supervision required by your professional body, business related books and resources
485 – Subscriptions	Professional memberships related to your trade
489 – Telephone & Internet	Mobile phones or telephone and internet at business premises
493 – Travel – National	Business travel expenses, such as train tickets, flights, accommodation and meals only when travelling for business and only when the costs are for employees (otherwise it becomes Entertainment). Mileage claims.
710 – Office Equipment 720 – Computer Equipment 764 – Plant and Machinery	Larger equipment purchases such as laptops, furniture, equipment (costing £150+ or will last you more than 1 year). Please choose the code that is most relevant for the item in question.
760 – Motor Vehicles	Business vehicles purchased
820 – VAT	Payments to HMRC for your VAT liabilities
980 – Owner A Drawings	Personal expenses, such as groceries or personal shopping, mistakenly paid for using the business bank account. Transfers to and from your personal account. Payments to HMRC for your personal tax liabilities.
900 – Loan	Receipt of a business loan and the related repayments towards the loan
910 – Hire Purchase Loan	Repayments of a hire purchase loan for business assets
Equipment Expensed (the number may vary for this code as it is not a standard account code in Xero. If you do not have this code please contact us to set it up).	Small items of equipment used for business such as IT equipment, camera equipment for photographers, fitness equipment for yoga instructors etc.

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Common Mistakes to Avoid

1. Posting VAT payments as an expense – VAT should be recorded as a tax liability, not an expense. For example, recording a £5,000 VAT settlement under ‘Expenses’ instead of ‘VAT’ (820) can lead to an inflated expense report.
2. Incorrectly categorising travel and entertainment – Business travel should be separated from entertainment costs. Example: A train ticket for a business trip should be recorded under ‘Travel – National’ (493), but a dinner with a client should be ‘Entertainment – 0% Business’ (424).
3. Recording dividends as wages – Dividends (980) should not be posted under salaries (477). For instance, taking a £5,000 dividend and mistakenly categorising it as ‘Salaries’ can cause payroll discrepancies.

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Final Tips for Maintaining Accurate Records

• Use Bank Feeds in Xero – Automating transactions reduces errors and saves time.
• Regularly Reconcile Accounts – Set aside time each week or month to review transactions and ensure they are categorised correctly.
• Consult us– If you would prefer to outsource your bookkeeping to us so you can focus on running the business, please get in touch!

By following these guidelines and referring to the expense grid above, you can ensure that your accounts remain accurate and compliant, allowing you to focus on growing your business with confidence.

For more bookkeeping tips or personalised support with Xero, contact us.

Introduction

One of the most common bookkeeping mistakes business owners make is misclassifying expenses, which can lead to inaccurate tax reporting and financial confusion. Understanding the correct way to allocate expenses in Xero can save time, prevent errors, and ensure compliance with HMRC.

Accurate bookkeeping is essential for any business, helping you maintain financial clarity, streamline tax returns, and ensure compliance with HMRC. One of the most common bookkeeping challenges is correctly categorising expenses in Xero. Misallocations can lead to incorrect financial reporting and potential tax inefficiencies.

In this guide, we’ll walk you through how to categorise your business expenses in Xero, helping you make informed financial decisions with confidence.

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Why Proper Expense Categorisation Matters

Getting your expense categories right is crucial for several reasons:

• Accurate Financial Reports – Proper categorisation ensures your profit and loss statement reflects the true performance of your business.
• Tax Efficiency – Allocating expenses correctly can help ensure you claim allowable deductions and avoid potential compliance issues.
• Better Business Decisions – Categorised expenses allow you to see where money is being spent, making it easier to budget and forecast.
• Seamless VAT Returns – If you’re VAT-registered, incorrect categorisation can result in under- or over-claimed VAT.

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Common Expense Categories in Xero

Below is a table outlining some of the most common business expenses and the relevant Xero account codes. Use this as a reference to ensure your transactions are recorded correctly.

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Relevant Account	Example Expenses
200 – Sales	Revenue from selling products or services
260 – Other Revenue	Other business income received that is not related to sales such as grants, cashback, referral fee income, commissions etc
270 – Interest Income	Bank interest earned on business savings accounts or fixed deposits
310 – Cost of Goods Sold	Goods bought for resale or making your products to sell and costs directly related to the services you provide to clients
320 – Direct Wages (or Subcontractors if you have this code)	Payments to freelancers or subcontractors
400 – Advertising	Advertising costs, including social media campaigns, Google Ads, printed brochures, or photography sessions for branding
401 – Audit and Accountancy Fees	The Orenda Collective fees and any other accounting or bookkeeping fees
404 – Bank Fees	Bank charges, Stripe fees or other payment systems fees
408 – Cleaning	Cleaning services or products used specifically for business premises
412 – Consulting	Coaching fee and consultancy fees
420 – Entertainment- 100% Business	Meals, drinks and gifts for employees on the payroll (including yourself as a director up to certain limits. More details here https://orendacollective.co.uk/christmas-tax-savings-you-dont-want-to-miss/)
424 – Entertainment- 0% Business	Meals, drinks and gifts for anyone else such as clients, suppliers, subcontractors or business associates
429 – General Expenses	Any business cost that does not fit in any other code
441 – Legal Expenses	Solicitors, ICO fees, trademark applications etc
445 – Light, Heat and Power	Electricity and gas bills for a business premises (not home)
450 – Professional Fees	Payments to consultants, or other professional advisors for business services
461 – Printing  & Stationery	Stationery, business cards, flyers etc
463 – IT Software and Consumables	Software subscription fees for tools like Adobe Creative Cloud, Xero, or Microsoft Office, small IT costs such as cables or keyboards/mice etc.
465 – Rates	Business rates, council tax, water (for business premises, not home)
469 – Rent	Rent for office spaces, coworking memberships, or studio hire
473 – Repairs & Maintenance	Costs of repairing (not improving) business premises or equipment
477 – Salaries	Salary payments – this should be the exact amount on your monthly payslip
479 – Employers National Insurance	PAYE payments to HMRC for employee income tax and National Insurance deductions
480 – Staff Training	CPD courses (online or in person), First Aid courses, supervision required by your professional body, business related books and resources
482 – Pension Costs	Employer pension contributions made by the company to your private pension (more details here https://orendacollective.co.uk/making-pension-contributions-via-your-limited-company/)
485 – Subscriptions	Professional memberships related to your trade
489 – Telephone & Internet	Mobile phones in the company’s name or telephone and internet at business premises
493 – Travel – National	Business travel expenses, such as train tickets, flights, accommodation and meals only when travelling for business and only when the costs are for employees (otherwise it becomes Entertainment). Mileage claims.
710 – Office Equipment 720 – Computer Equipment 764 – Plant and Machinery	Larger equipment purchases such as laptops, furniture, equipment (costing £150+ or will last you more than 1 year). Please choose the code that is most relevant for the item in question.
760 – Motor Vehicles	Business vehicles purchased
820 – VAT	Payments to HMRC for your VAT liabilities
830 – Provision for Corporation Tax	Corporation tax payments made to HMRC
835 – Directors’ Loan Account	Personal expenses, such as groceries or personal shopping, mistakenly paid for using the company bank account. Transfers to your personal account which you don’t want to account for as dividends such as drawing on the loan balances owed to you. Money loaned from you to the business.
858 – Pensions Payable	Payments to your pension provider for pension owed on employees wages
900 – Loan	Receipt of a business loan and the related repayments towards the loan
910 – Hire Purchase Loan	Repayments of a hire purchase loan for business assets
980 – Owner A Drawings/Dividends	Dividends declared and paid to shareholders from company profits
Equipment Expensed (the number may vary for this code as it is not a standard account code in Xero. If you do not have this code please contact us to set it up).	Small items of equipment used for business such as IT equipment, camera equipment for photographers, fitness equipment for yoga instructors etc.

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Common Mistakes to Avoid

1. Posting VAT payments as an expense – VAT should be recorded as a tax liability, not an expense. For example, recording a £5,000 VAT settlement under ‘Expenses’ instead of ‘VAT’ (820) can lead to an inflated expense report.
2. Incorrectly categorising travel and entertainment – Business travel should be separated from entertainment costs. Example: A train ticket for a business trip should be recorded under ‘Travel – National’ (493), but a dinner with a client should be ‘Entertainment – 0% Business’ (424).
3. Recording dividends as wages – Dividends (980) should not be posted under salaries (477). For instance, taking a £5,000 dividend and mistakenly categorising it as ‘Salaries’ can cause payroll discrepancies.

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Final Tips for Maintaining Accurate Records

• Use Bank Feeds in Xero – Automating transactions reduces errors and saves time.
• Regularly Reconcile Accounts – Set aside time each week or month to review transactions and ensure they are categorised correctly.
• Consult us– If you would prefer to outsource your bookkeeping to us so you can focus on running the business, please get in touch!

By following these guidelines and referring to the expense grid above, you can ensure that your accounts remain accurate and compliant, allowing you to focus on growing your business with confidence.

For more bookkeeping tips or personalised support with Xero, contact us.

As a limited company owner, contributing to a pension through your company is one of the most tax-efficient ways to save for your retirement while reducing your corporation tax bill. Understanding the rules, limits, and processes ensures you maximise these benefits while keeping your business on track. Below, we’ll explain how this works and the key considerations to bear in mind.

Why Employer Pension Contributions?

When contributing to a pension as a limited company owner, employer pension contributions are particularly tax-efficient because:

• Tax Deductibility: Employer pension contributions are treated as an allowable business expense, meaning they reduce your company’s taxable profits and, therefore, your corporation tax bill. This makes it a cost-effective way to save for your retirement.
• No National Insurance Contributions (NICs): Unlike salary payments or bonuses, employer pension contributions are not subject to employer or employee NICs, providing further savings.
• Reduced Personal Tax: By making pension contributions directly from your limited company, you avoid the need to first pay yourself dividends, which would incur dividend tax. This allows you to save more efficiently, as the company contributes pre-tax funds directly to your pension, bypassing additional personal tax liabilities.

Important: Ensure your contributions are set up as employer contributions with your pension provider, not personal (employee) contributions. The tax treatment differs, so confirm this with your pension provider or financial adviser if you’re unsure.

Using Bookkeeping Software to Track and Plan:

If you use bookkeeping software, it can be a powerful tool to:

1. Track Profits: Monitor your company’s financial health and determine how much profit you’re generating. This is crucial when deciding the optimum amount to contribute to your pension.
2. Avoid Over-Contributing: Keep an eye on your cash flow and profit levels to ensure pension contributions remain sustainable and don’t negatively impact your business operations.
3. Stay Organised: Bookkeeping software makes it easy to categorise pension contributions and keep your records compliant for accounting and tax purposes.

Limits to be aware of:

While employer pension contributions are tax-efficient, there are limits and rules to follow:

1. Annual Allowance:

The total contributions to your pension—both employer and personal—cannot exceed £60,000 per tax year without triggering a tax charge (the limit was £40,000 before 2023/24).

If you’re making personal pension contributions, the maximum you can contribute and still receive tax relief is restricted to the lower of £60,000 or 100% of your relevant earnings. Relevant earnings include employment or self-employment income but do not include dividends, which are often a director’s primary income source.

However, this restriction does not apply to employer pension contributions made by your limited company. Employer contributions are treated as business expenses and are not tied to your personal income.

Why this matters: If you draw a low salary (e.g., £12,570) and take most of your income as dividends, your personal contributions would be restricted. In contrast, your company could contribute significantly more—up to the £60,000 annual allowance or higher if you use unused allowances from the previous three years—as long as the payments pass HMRC’s “wholly and exclusively” test.

2. Wholly and Exclusively Rule:

To qualify as a tax-deductible expense, the contributions must pass HMRC’s “wholly and exclusively” test. This means the contributions must be made for the purpose of the company’s trade (e.g., as part of your remuneration package).

3. Carry Forward Unused Allowances:

If you haven’t used your full annual allowance in the past three tax years, you may be able to carry forward unused amounts, provided you had a pension scheme in place during those years.

4. Lifetime Allowance (LTA):

Although the LTA has been removed as of April 2024, tax charges may still apply when taking large lump sums or drawing income from substantial pensions. If you anticipate significant growth in your pension pot, seeking professional advice remains essential to avoid unexpected tax implications.

Choosing a Pension Provider

Choosing the right pension provider or investment strategy can significantly impact your long-term savings and retirement goals.

Important: As accountants, we are not authorised to provide advice on which pension provider to choose or which investment options to select. This is because choosing a pension provider or making investment decisions is regulated financial advice.

If you need assistance selecting a provider or understanding your investment options, we can recommend a trusted Independent Financial Adviser (IFA). They will guide you in choosing the best pension plan for your needs and ensuring it aligns with your retirement goals.

How We Can Help

At The Orenda Collective, we’re here to help you make the most of pension contributions through your limited company. Here’s how we can support you:

• Tax Planning: We can help you understand how pension contributions impact your company’s tax position and ensure you’re operating within HMRC’s rules.
• Bookkeeping Assistance: If you’re unsure how to track pension contributions in your bookkeeping software, we can provide guidance.
• Referral to an IFA: If you need personalised advice on pension providers or investments, we’d be happy to connect you with a trusted IFA.

Get in touch today to take the next step towards tax-efficient savings and a secure future.

Frequently Asked Questions (FAQs)

1. How much can my limited company contribute to my pension?
Your limited company can contribute up to the annual allowance of £60,000 per year. If you have unused allowances from the previous three tax years, you may be able to carry them forward, increasing the amount you can contribute.

2. Do employer pension contributions count as a business expense?
Yes, employer pension contributions are treated as an allowable business expense, meaning they reduce your company’s taxable profits and corporation tax liability.

3. Can I make personal contributions as well as employer contributions?
Yes, but personal contributions are subject to the relevant earnings rule, meaning you can only contribute up to 100% of your earnings (excluding dividends). Employer contributions are not limited by this rule.

4. Are there any restrictions on employer contributions for directors on a low salary?
No, employer pension contributions are not tied to your personal income. Even if you draw a low salary and high dividends, your company can still contribute up to the annual allowance, provided the payments pass the “wholly and exclusively” test.

5. How do I track and record pension contributions in my accounts?
Pension contributions should be recorded in your bookkeeping software as an employer expense. If you’re unsure, we can guide you through the process to ensure everything is compliant and properly categorised.

High-Level Summary

With Christmas approaching, small business owners should take full advantage of tax-efficient ways to spread cheer while remaining compliant with HMRC rules. From trivial benefits to staff parties and charitable donations, there are numerous opportunities to reward your team, thank your clients, and give back to the community while staying compliant with tax. Here’s what you need to know:

• Trivial Benefits: Give small, tax-free gifts (up to £50) to bring a little extra joy to directors and employees
• Christmas Parties: The £150 per head allowance for staff events is a great way to celebrate and enjoy tax relief.
• Branded Gifts: Thoughtful, branded items for clients can promote your business while staying within tax guidelines.
• Charitable Donations: Donations to registered charities can be tax-deductible and align with your company values.
• Christmas Bonuses: A wonderful way to reward employees but must be handled carefully to ensure compliance with PAYE and NICs.

Now, let’s dive deeper into each topic to help you make the most of this festive season.

Detailed Breakdown

1. Trivial Benefits for Directors and Employees

Trivial benefits are small gifts that can be given to employees and directors without incurring tax or National Insurance. To qualify as a trivial benefit:

• It must cost £50 or less per person (including VAT).
• It cannot be cash or a cash voucher.
• It must not be a reward for work or a contractual obligation.
• If you are a director of a close company you can not receive more than 6 x £50 vouchers or gifts across the year – therefore your cap is £300 across the year.

What is a Close Company? A close company is typically a small UK limited company controlled by five or fewer shareholders (or solely by directors). Most small businesses run by owner-directors fall into this category.

Do Store Gift Vouchers Qualify? Yes, a store gift voucher meets the requirements as long as the value is £50 or less and it’s not given as a reward for work. For example, a £40 voucher for a high-street shop is acceptable, but cash or a cash-equivalent gift like a prepaid debit card would not qualify.

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2. Staff Christmas Parties – £150 Per Head Allowance

You can host a Christmas party for your employees with up to £150 per head as a tax-free benefit. Key points to remember:

• The £150 is an annual allowance, not per event. If you host multiple events, the total cost must remain under £150 per person.
• The calculation includes all costs (e.g., food, drinks, entertainment, VAT, and transport).
• The event must be available to all employees, ensuring inclusivity.

Bringing Guests Employees can bring a guest, increasing the allowance by £150 per attendee. For instance, if 5 employees each bring a guest, the tax-free limit becomes £1,500 (£150 × 10 attendees). Just ensure the event remains primarily for staff entertaining.

Single Director Companies Inviting Guests If you’re the only director, you can invite one guest, such as a partner or friend, and the event would still qualify as staff entertaining. However, inviting two guests would disqualify it, as the event would no longer be ‘mainly for staff.’

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3. Branded Gifts for Clients

Branded gifts are a thoughtful way to thank clients and promote your business. They are tax-deductible if:

• The gift features a clear business logo.
• It costs £50 or less per recipient in a tax year.
• It is not food, drink, tobacco, or a cash equivalent (unless it’s promotional, like branded chocolates).
• Be mindful that gifts exceeding £50 per recipient or lacking your business branding will not qualify for tax relief

Exciting Gift Ideas Stand out with creative and thoughtful branded gifts. Examples include:

• High-quality reusable coffee cups or water bottles.
• Desk plants with a branded pot.
• Personalised puzzles or games featuring your brand.
• Mini hampers containing promotional, branded items (e.g., branded hot chocolate or cookies).

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4. Charitable Donations

Giving back during the festive season can reflect your company’s values while reducing your corporation tax bill. Tax-deductible donations can include:

• Cash donations to UK-registered charities.
• Donated goods or sponsorships.
• Employee time, such as volunteering, though this is not tax-deductible.

Important Note: Only donations to UK-registered charities qualify for tax relief. Make sure the charity is registered with the Charity Commission or a similar regulatory body.

Example: A £500 donation to a UK-registered charity could reduce your corporation tax by £95 if your company pays the 19% rate.

Why This Matters

Making the most of these opportunities ensures your business can spread festive cheer in a tax-efficient way while remaining compliant. From rewarding your team to thanking clients and giving back, these strategies can align with your company’s values and strengthen relationships.

Need Help?

Navigating tax rules can feel overwhelming, especially during the busy festive season. At The Orenda Collective, we’re here to ensure you make the most of tax-efficient opportunities while staying compliant. Contact us today to discuss your plans and how we can support you. Let’s make your Christmas merry, tax efficient and transformative.

On March 6^th, 2024, the government unveiled their Spring 2024 budget. There are many different topics covered in the budget such as public spending, housing, transport, investments etc., so it can be difficult to pinpoint those changes that are relevant to you. Here, we intend to summarise the most relevant updates for individuals and small businesses.

Reduction in National Insurance

After reducing the main National Insurance rate by 2% in Autumn, individuals paid via PAYE will experience another 2% cut, bringing the rate down from 10% to 8% starting April 6, 2024. According to the government estimates, the combined effect of these two national insurance rate cuts would save a worker earning £35,400 over £900 annually.

Taken together these cuts mean:

• an average full-time nurse on £38,900 will receive an annual gain of over £1,000

• an average teacher on £44,300 will receive an annual gain of over £1,250

• an average police officer on £44,300 will receive an annual gain of over £1,250

• a typical junior doctor on £65,000 will receive over £1,500

• and working families with two earners each on the average salary will receive a gain of over £1,800.

Self-employed individuals will also enjoy a national insurance cut, reducing from 8% to 6% (previously 9% for 2023/24). This combined with the abolition of Class 2 NICs altogether would save a self-employed person with taxable profits of £28,000 around £650 per year.

Reaction:

Although it’s positive for those employed or self-employed, we hoped for adjustments to tax-free allowances and brackets in the budget.

The tax-free allowance will remain at £12,570 for the 2024/25 tax year as will the basic rate of tax threshold which is £50,270 (where it has been since 2021/22), this creates ‘fiscal drag’, which is a term that describes the process of pulling more people into paying income tax and pushing others into a higher tax band.

Traditionally tax brackets are adjusted to keep pace with inflation; however, they have been frozen in cash terms since April 2021. This means that as incomes rise, more low earners are pulled into paying the 20% basic-rate income tax (which kicks in at £12,571) and those with earnings nearing £50,000 tip into the higher 40% rate (which kicks in at £50,271).

The government budget lacked substantial support for small, limited companies, despite SMEs constituting 61% of all private sector, meaning that more than 3 in every 5 people are employed in the UK private sector.

Corporation tax rates are at their highest in over 10 years and this coupled with increased minimum wage amounts means that small businesses are under increasing pressure, which is likely in turn to mean that those employed by small businesses are also impacted.

Capital Gains Tax

In an attempt to raise revenue and boost the availability of housing by encouraging residential property disposals, the government has decreased the higher rate of capital gains tax levied on sales of residential property from 28% to 24%.

Previously, basic rate taxpayers would pay tax at 18% on disposals of residential properties whilst higher rate taxpayers would pay 28%. The basic rate of 18% remains the same but higher rate taxpayers will pay 24% from 6 April 2024.

Sales of a main residence are not within the charge of Capital Gains tax, so this only applies to sales of additional residential properties owned.

Reaction:

It will be interesting to see the impact (if any) this has on house prices, and whether it translates to any respite for those renting who have been seeing ever increasing rent prices over previous years.

VAT registration threshold

From 1 April 2024 the VAT registration threshold will be increased from £85,000 to £90,000. This means a business’s 12 month rolling turnover now needs to reach £90,000 for it to be required to register for VAT and begin charging VAT on its taxable supplies.

The de-registration limit has now increased from £83,000 to £88,000 meaning if a VAT registered business’s turnover falls below £88,000 and they do not expect it to breach this threshold within at least the next 12 months then it can de-register from VAT.

The government predicts this will help 28,000 small businesses in 2024/25 from no longer needing to be VAT registered.

Reaction:

The increase to the VAT threshold will be helpful for those hovering around the current £85,000 threshold as they will now be able to increase sales by £5,000 before the need to register.

However, historically the VAT threshold was increased broadly in line with inflation, that was until 2017 when it was frozen. If inflationary increases had persisted, the VAT registration threshold would be approximately £108,000. The change in policy led to a steady increase in the number of businesses within the VAT system, therefore increasing the burden.

We see firsthand that some businesses manage their turnover in order to remain below the VAT threshold. This has the unwelcome effect of deterring business growth, as well as impacting on business owners’ living standards.

While businesses breaching the threshold and registering for VAT will be able to recover VAT on eligible costs, they may not be in a position to simply add 20 per cent to their prices, meaning they may have to absorb some of the VAT cost themselves, so would be worse off as a result. This issue is the most acute in the business to consumer (B2C) space, particularly domestic service suppliers such as plumbers, electricians, hairdressers etc.

High Income Child Benefit Charge

The government has now recognised that it is not fair that a household with two parents each earning £49,000 a year will receive child benefit in full, while a household earning less overall but with one parent earning over £50,000 will see some or all their benefit withdrawn.

The changes to the system have not yet been enacted, they expect them to be in place from April 2026.

In the meantime, the income threshold individuals can earn before they start losing their entitlement to child benefit is increasing from £50,000 to £60,000.

The taper has also been slowed so individuals only lose full child benefit if their income is above £80,000. Previously, child benefit entitlement was decreased by 1% for every £100 earned above the limit, now it is reduced by 1% for every £200 earned above the limit.

This does still mean that a household of two adults with children where one earns £80,000 and the other earns nothing would lose their child benefit entitlement completely, but a household with two adults with children earning £60,000 each will be entitled to full child benefits.

Overall, the government estimates 485,000 families will gain an average of £1,260 in Child Benefit in 2024-25 as a result of these changes.

Reaction:

We are very much in favour of a move to a household approach and are baffled an individual approach was ever introduced. It is however disappointing that this does not look likely to take effect until April 2026.

New British ISA

To improve the competitiveness of the UK’s capital markets and unlock more private capital for the UK’s growth industries, the government is launching a new UK ISA to support savers and open up new investment opportunities for individuals.

The UK ISA will have a £5,000 contribution allowance, which is in addition to the current £20,000 ISA investment limit per tax year.

The government will consult on the details so further specific details are expected in the coming months.

Reaction:

We are all for increased offerings of tax efficiencies on savings and we welcome further details of the ISA so that we can explore using them with our clients.

Furnished Holiday Lettings relief abolished

For a rental property to qualify as a Furnished holiday Let (FHL) the property must be available for letting for at least 210 days a year, it must be actually let for at least 105 days a year and the total of all lettings that exceed 31 continuous days must be no more than 155 days during the year.

Previously there were beneficial tax rules for properties that qualified as FHLs such as mortgage interest deductibility, Capital Gains Tax reliefs, capital allowances on asset purchases and the profits counting as earnings for pension contributions purposes. However, these are to be scrapped from 6 April 2025 and from then FHLs will receive the same treatment as long-term rental properties for tax purposes.

The government state that this will level the playing field between short- term and long-term lets and support people to live in their local area.

This will take effect from April 2025 and draft legislation will be published in due course.

Reaction:

This is a big change for those currently utilising the FHL scheme and will likely result in significant tax increases on this proportion of their income. It is too early to say how it will impact the market, but we will certainly be expecting big shifts.

Other changes to note:

• Non-domicile rules update – To help reduce taxes on working people the government will ensure that those with the broadest shoulders pay a bit more, by abolishing the tax rules for non-UK domiciled individuals, or non-doms, and replacing them with a residence-based regime. This will ensure that all UK residents who stay in the UK for over four years will pay the same tax on their foreign income and gains, regardless of their domicile status, creating a modernised regime that is simpler, fairer, and more competitive.
• Multiple dwellings relief – From 1 June 2024, the government is abolishing Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax regime. This follows an external evaluation which showed no strong evidence the relief is meeting its original objectives of supporting investment in the private rented sector. Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024.
• The government will seek to extend full expensing to assets for leasing when fiscal conditions allow and will publish draft legislation shortly.
• The capital gains tax (CGT) annual exemption will drop to £3,000 in 2024/25, down from £6,000 in 2023/24. This change will mean that those selling capital assets such as property or shares will pay more tax.

What’s staying the same?

Your personal allowance

Your tax-free personal allowance will remain at £12,570 in 2024/25. The personal allowance is partially withdrawn if your income is over £100,000 and then fully withdrawn if your income is over £125,140.

Income tax rates and allowances

For 2024/25, income tax rates and thresholds remain frozen at their 2023/24 levels. After your tax-free ‘personal allowance’ has been deducted, your remaining income is taxed in bands in 2024/25 as follows.

		‘Other income’	Savings income	Dividend income
Basic rate	£1 – £37,700	20%	20%	8.75%
Higher rate	£37,701 – £125,140	40%	40%	33.75%
Additional rate	Over £125,140	45%	45%	39.35%

‘Other income’ means income other than from savings or dividends. This includes salaries, bonuses, profits made by a sole trader or partner in a business, rental income, pension in

Tax on savings income

A savings allowance determines how much savings income you can receive at 0% taxation, instead of the usual tax rates for savings income as shown above. This continues to be set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

Further, interest income from an Individual Savings Account (ISA) continues to be exempt from tax.

Tax on dividend income

A dividend allowance determines how much dividend income you can receive at 0% taxation, instead of the usual tax rates for dividend income as shown above.

As expected, this allowance will drop to £500 in 2024/25, down from the £1,000 2023/24 allowance. However, dividend income from a ‘stocks and shares’ ISA continues to be exempt from tax.

Individual Savings Accounts (ISAs)

The limit on how much you can save into ISAs (including cash and stocks and shares ISAs) in 2024/25 remains at £20,000 overall.

The Chancellor did announce that the government will introduce a new ‘UK ISA’ with an additional allowance of £5,000 a year but this is subject to consultation, and we do not yet have a start date (see above).

For employers

There have been no changes to the rate or thresholds for employer’s Class 1 NICs, which remains at 13.8% for wages paid in excess of £9,100 a year (£175 per week). For eligible employers, the employment allowance remains at £5,000 per year, reducing their total employer’s NIC liability by this sum.

Benefits in kind

Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. Employers also pay Class 1A NIC at 13.8% on the value of benefits.

The set percentages used to calculate company car benefits are fixed until 5 April 2026 before slight increases apply to most car types, including electronic and ultra-low emission, from 6 April 2026.

The figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) remain fixed at their 2023/24 levels in 2024/25.

These are:

Van benefit £3,960

Van fuel benefit £757

Car fuel benefit multiplier £27,800

National minimum wage (NMW)

Employers must pay their employees at least the national living wage (for workers aged over 21) / national minimum wage. The minimum hourly rates change on 1 April each year and depend on the worker’s age and if they are an apprentice.

	1 April 2024 – 31 March 2025	1 April 2023 – 31 March 2024
Age 23 and over		£10.42
Age 21 and over	£11.44
21-22 year old rate		£10.18
18-20 year old rate	£8.60	£7.49
16-17 year old rate	£6.40	£5.28
Apprentice rate	£6.40	£5.28

These increases are not insubstantial, and the affordability of the rates will need to be carefully considered by employers when planning their headcount for the year ahead.

Corporate Taxes

Rates from 1 April 2024

Corporation tax rates and thresholds remain at the levels used in the year to 31 March 2024 as follows:

Financial year to 31 March 2025

• Main rate 25%
• Small profits rate 19%
• Lower threshold £50,000
• Upper threshold £250,000
• Marginal relief fraction 3/200
• Effective marginal relief rate 26.5%

Companies with profits between the lower and upper thresholds will qualify for marginal relief, which means they pay tax at 19% up to the lower threshold and at 26.5% on the remainder of the profits.

The thresholds must be equally shared between companies in a group and those controlled by the same person or persons. It has been confirmed in the Budget that the same rates and thresholds will also apply in the year to 31 March 2026.

Conclusion:

If you have been impacted by any of the above changes or have concerns you would like to discuss, please do not hesitate to reach out to us so that we can support you on a 1-1 basis.

As always, we welcome you to share this information with any one you feel it can benefit.

We’d love to hear from you about your thoughts on the budget through social media or via email using [email protected]

Disclaimer: This newsletter covers the key news headlines from Budget 2024. The authors take great care in its production, but it is not exhaustive and should not be read as a full fiscal summary. The content displayed is correct as of 6 March 2024. We cannot take responsibility for any action taken or not taken from this document alone. Please contact us for personalised advice.