The start of a new tax year offers your practice an opportunity to set itself up for success.
From adopting automation and streamlining workflows to accommodating legislative changes, there are a number of ways to position your practice for its most successful year yet.
In this article, we’ll explore key steps and insights to help you lay a solid foundation for the 2024/25 tax year and empower your team to deliver exceptional service and drive growth.
Here’s what we cover:
New changes to the law for the 2024/25 tax year
The Chancellor has introduced numerous changes to the law for the 2024/25 tax year, many of which will impact your small businesses and self-employed people.
Here’s a summary of the changes you need to be aware of, which came into effect in April 2024 (see our new tax year article for a full update):
Social security contributions were reduced
National insurance contributions (NICs) were reduced by two percentage points. The tariff changes are:
- For employees: (Class 1) from 10% to 8%
- For self-employed people: (Class 4) from 8% to 6%
Standalone Class 2 NICs have been completely abolished.
This will simplify NICs for the self-employed and reduce social security contributions for employees and the self-employed overall by a third.
Reduction of the dividend tax allowance
The tax allowance for dividend income has been reduced from £1,000 to £500.
The average loss is around £155, with the reduction estimated to affect 4.4 million people in 2024/25.
Minimum wage increase
The minimum wage and living wage (NLW) rates have been increased. The eligibility age for the National Living Wage has also been reduced from 23 to 21.
The new tariffs are:
- Trainee: £6.40
- Under 18: £6.40
- 18 to 20: £8.60
- 21 and older (NLW): £11.44
Change in R&D program
The Research and Development Expenditure Credit (RDEC) and R&D Tax Relief for SME programs have been merged to simplify tax relief rules.
The new R&D credit is equal to 20% of eligible expenses.
Change in cash basis
Cash basis is now the standard method of calculating taxable profits.
It used to be accrual accounting, but after the changes come into effect in April 2024, companies will have to opt out to continue using accrual accounting.
Reduction in capital gains tax
The higher rate of capital gains tax on residential property gains has been reduced by 28% to 24% for sales from April 6, 2024.
Base period reform
With the base period reform, all unincorporated companies that prepare financial statements with a period end date other than March 31 or April 5 must now use the 2024/25 tax year basis.
This means that a company’s profit or loss for the tax year must be based on the tax year itself, regardless of its accounting date.
Reduction in lifelong pension
The lifelong allowance has been abolished for all members of registered pension schemes.
This means that private individuals can now increase their pension pot as much as they want without any tax burden.
Update your processes for the new tax year
Now is the perfect time for you to review your practice processes and find ways to make them more efficient so you can provide more value to your clients.
From re-engaging your clients to highlighting the benefits of digital record keeping to upskilling your staff, there’s a lot you can do to ensure your practice is successful.
We’ll go into this in more detail below.
Review, reassess, and re-engage your customers
Retaining clients is critical to a successful and stable practice, but you can’t rely on it to happen automatically.
You need to set a strategy.
It’s important to reconnect with your existing customers as the new tax year begins for several reasons:
- Understanding your clients’ goals for the coming year will help you better tailor your services to their needs. You may also be able to resell your listings
- You can discuss scope and price changes
- You can advise them on how to deal with relevant changes in the law
- Acquiring new customers is expensive. A new customer can cost you five times more than retaining an existing customer.
When setting new prices, applying a flat percentage increase may be the quickest approach. But without first checking your customers’ profitability, you won’t know if it’s effective.
It’s worth taking the time to review your customer fees and then organize your customer list into three categories:
- Profitable customers
- Breakeven customers
- Customers who lose you money.
This allows you to take an individual approach for each group.
It can be difficult to have a pricing conversation with an unprofitable customer because their fees may need to be increased significantly. But the fact is, even if you lose those customers, you’ll be better off.
If you can focus the conversation on the value your practice can provide the client, most clients will be happy to pay more for that value.
If you encounter resistance to your price increases, suggest different options to your customer, such as:
- Maintaining your current price and reducing the scope of work
- Reconsider the scope of work and update pricing to reflect this.
Present your customers with the advantages of digital file management
Switching your customers to digital file management is beneficial all around.
This saves both your practice and your clients time and gives you the opportunity to offer more value-added services.
By starting these discussions at the beginning of the tax year, you will have time to educate your clients and address any issues they may have without having to deal with the stress of upcoming tax deadlines.
Here are some points you can raise with your customers:
- They will be able to streamline their accounting processes, automate repetitive tasks, and quickly access information so they can focus more on their core business activities.
- Digital systems can improve accuracy and ensure tax compliance using automated calculations and built-in validation checks.
- Through digital recording, customers gain real-time insights into their financial performance and can make timely, informed decisions. Cloud-based platforms also enable seamless document sharing and real-time collaboration, regardless of location (which is particularly useful for remote workers).
- Digital recording systems can grow as a customer’s business grows. Digital solutions provide the flexibility to meet changing needs, whether customers are expanding their operations, adding new locations or increasing transaction volume.
For example, clients working under the Construction Industry Scheme (CIS) often overpay tax and wait for an income tax refund once their tax return has been processed.
These customers have a strong incentive to switch to digital accounting, where they can easily record income and expenses, file their self-assessment tax returns early and ultimately receive their refunds more quickly.
Automate processes to make your practice more efficient
By automating processes, you can free yourself from tedious manual tasks and free up valuable time for more strategic activities.
Accounting software can eliminate the need for data entry by integrating with bank entries, invoices and expense receipts. This means transactions can be automatically imported, categorized and reconciled with minimal intervention.
For example, Sage’s AutoEntry is an AI-powered tool that captures data from photos of receipts and invoices and automatically uploads them to Sage Accounting.
By automating tasks at the start of the tax year, you can benefit from efficient workflows and streamline processes from the start.
To assess which areas your practice could automate, identify where your team spends the most time:
- If you need to manually copy numbers from the client’s ledgers into tax preparation software, you can implement integrated accounting and tax software that communicate with each other.
- If you’re digging through shoeboxes of receipts, consider implementing expense management tools to track expenses and allow customers to take photos of their receipts and upload them instantly.
- If tracking billable time proves time-consuming, you can use invoicing software to track your time and help you create and send customer invoices efficiently.
Educate and support your practice team
The new tax year is an ideal time to reassess your team’s development needs and take the time to upskill while everyone has a reduced workload.
Investing in continuous development not only helps grow your practice and your team’s skills, but also means you can work more efficiently.
Don’t forget that in addition to access to external courses such as workshops and conferences, it may also be useful to enable cross-training opportunities within the practice team.
Development covers a wide area, but it can be easy for accountants to focus only on developing basic technical skills.
And while these are important for day-to-day work, there are also more general skills that help accountants better serve their clients, including soft skills, cloud accounting, time management, and customer service.
Final thoughts on preparing for the 2024/25 tax year
To continue to grow your practice, you must view each new tax year as an opportunity to learn and adapt.
It’s the perfect time to reflect on your processes, reconnect with your customers and think about new ways of working that will invigorate your team.
Reaching out to your customers at this time will help you reaffirm your commitment to providing exceptional service, address concerns or changing circumstances, and align strategies for the coming year.