As a business owner, you’re used to making financial decisions all the time. The choices you make – whether they’re about investing in equipment, growing your team, diversifying operations, planning your exit strategy – or something else altogether, have long-term implications.
Your decisions will be informed by all the information you have available to you at the time, but inevitably there will be variable factors over which you have little or no control and which, should they change, might impact your decision.
One area that can sometimes be overlooked is government legislation. Policies can shift – sometimes radically – as a government makes adjustments to influence the behaviour of individuals and organisations.
If you want proof of how policy changes can be introduced very quickly or over a relatively short space of time, you only have to take a look back at the very recent past to find numerous examples.
- Double Cab Pick-Ups
For years, Double Cab Pick Ups (DCPUs) were treated as goods vehicles for tax purposes. But in February 2024, DCPUs with a payload of one tonne or more were reclassified as cars – a change that had significant implications for capital allowances and benefit-in-kind calculations. Then, later in the same month, having listened to the uproar from farmers and the motoring industry, HMRC did a U-turn. The updated guidance was withdrawn and DCPUs reverted to their previous status as goods vehicles.
- Electric Vehicles
a. Excise Duty
In the past five years, the taxation landscape for electric vehicles (EVs) has undergone significant shifts. Until recently, EVs were exempt from Vehicle Excise Duty. However, starting from April 2025, this exemption will cease. Under the new system, electric cars registered from April 2025 will pay an initial rate of £10 in the first year. Subsequently, they will transition to the standard rate, currently set at £165.
b. Benefit in Kind Rules
Tax rules for EVs have evolved significantly over the past few years. Until recently, BIK rates for EVs were set very low by HMRC to encourage EV adoption. These rates were considerably favourable compared to those for petrol or diesel vehicles. As of now, the BIK rate for electric cars stands at 2% of the vehicle’s value. This rate applies until the end of the 2024-25 tax year when it will increase by 1% each year to reach 5% in the tax year 2027-28.
- Capital Gains Tax
In 2023-24, the Capital Gains Tax (CGT) exemption was slashed in half from £12,300 to £6,000, with gains over this threshold attracting a 20% (higher) or 10% (basic) rate.
- Dividend Allowance
The annual dividend allowance dropped from £2,000 to £1,000. By 2024/25, it’ll be £500.
So, what’s the lesson & what can you do?
Clearly, government strategies can be as unpredictable as the UK weather. If you find yourself on the wrong side of a policy change, it can feel as if one moment you were enjoying a sunny day and the next you’re caught in a thunderstorm without an umbrella.
Embracing the potential for change and proactively adjusting plans is critical for resilience. The key lesson is that when making plans, business owners need to keep them as flexible as they can, stay vigilant and be prepared to respond to change at short notice.
You can’t possibly anticipate everything; to paraphrase Donald Rumsfeld: “There are known knowns; there are known unknowns; But there are also unknown unknowns.” Even so, there are things you can do to ensure that if change happens, it doesn’t come as a shock, and you’re as prepared to react as you can be:
- Work with experts: Make sure your accountant is abreast of shifting legislation. They should understand your business, be there to help you make your most important financial decisions, and be proactive in helping you anticipate and respond to change.
- Stay informed: Tax legislation is constantly evolving. Hone your knowledge by reading and attending workshops whenever you have the opportunity.
- Plan ahead: Anticipate changes as much as you can and be ready to adapt your strategy accordingly.
Let Inca Help You Navigate Shifting Legislation
Whenever you make an important financial decision in your business, you should always factor in the possibility of legislative change. With an election on the horizon and a change of government a very real possibility, this is especially crucial right now.
While we can’t predict the future, if you have an important financial decision to make, we can provide informed, professional advice and help you plan for a range of different scenarios. Contact one of our advisors today for an initial discussion. Call us on 01235 868888 or email us at [email protected].
