Following on from our brief update on Wednesday, we have now been able to have a more in-depth look into the budget set by Chancellor Jeremy Hunt. This has been labelled the ‘Budget for Growth’ after the Office for Budget Responsibility (OBR) forecast a stronger than expected performance from the UK economy this year with inflation continuing to fall. Hopefully that happens, but, as has been the case in the past, the OBR’s projections have proved notoriously unreliable!
Leading the way, a £27 billion transformation of capital allowances will take effect from April this year. This will include the Full Expensing (100% write off) of investment in qualifying plant and machinery.
Another headline announcement was reforms to childcare in England, which will see expanded free care and subsidies. These are key to Mr Hunt’s plans to remove the barriers to work for parents. Funding to the devolved governments is to be provided so that the childcare support schemes already in place can be expanded. There are also changes for the disabled and the over-50s, including yet more revisions to the pension system to incentivise doctors and other highly-skilled workers to remain in the labour market.
As high energy costs continue, the Chancellor extended the Energy Support Guarantee at £2,500 for another three months while fuel duty was frozen once more. Although this does not stop our ever-growing bills, it does take some pressure off and stop things getting worse.
Let’s now look at the tax measures that were announced on Wednesday in a bit more detail and discuss how it might affect you and your business.
PERSONAL TAX
The personal allowance
As we knew from last year’s Autumn Statement the income tax personal allowance is fixed at the current level of £12,570 until April 2028.
The government will however uprate the married couple’s allowance and blind person’s allowance by inflation for 2023/24.
It continues to be the case that there is no personal allowance where adjusted net income exceeds £125,140.
UK TAX BANDS & RATES (excluding Scotland)
The current basic UK rate of tax is 20%. In 2023/24 the band of income taxable at this rate will be £37,700 so that the threshold at which the 40% band will apply is £50,270 for those who are entitled to the full personal allowance.
Once again, the basic rate band is frozen at £37,700 up until April 2028. The National Insurance contributions upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for these years.
From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140.
Scottish residents
In 2023/24 there will again be five income tax rates which will range between 19% and 47%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK but from 6 April, the higher and additional rates are each increased by 1% to 42% and 47%. For 2023/24, the 42% band will apply to income over £43,662 for those who are entitled to the full personal allowance. The 47% rate will apply to income over £125,140.
Full UK and Scottish rates and allowances can be found in the tables below.
COMMENT
The freezing of this allowance and reduction in tax bands for such an extended time will lead to many current non-taxpayers having to pay tax and will mean many new higher and additional rate taxpayers in the years ahead.
Tax on savings income
The Savings Allowance, which remains unchanged following yesterday’s Budget, applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.
Tax on dividends
Currently, the first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). As previously announced in the Autumn Statement, this will be reduced to £1,000 for 2023/24 and £500 for 2024/25.
These changes will apply to the whole of the UK.
Dividends received above the allowance will be taxed at the following rates for 2023/24:
8.75% for basic rate taxpayers
33.75% for higher rate taxpayers
39.35% for additional rate taxpayers.
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.
COMMENT
For some clients who are paid dividends instead of higher salaries, with the increase in corporation tax (see below) and dividend tax rates the overall tax savings are becoming much more marginal.
PENSION TAX LIMITS
This measure is designed to encourage those considering retiring not to do so or those inactive individuals to return to work, in particular those aged 50 and above, From 6 April 2023 the changes will:
Increase the Annual Allowance from £40,000 to £60,000.
Increase the Money Purchase Annual Allowance from £4,000 to £10,000.
Increase the income level for the tapered Annual Allowance from £240,000 to £260,000.
Ensure that nobody will face a Lifetime Allowance charge.
Limit the maximum an individual can claim as a Pension Commencement Lump Sum to 25% of the current Lifetime Allowance (£268,275), except where previous protections apply.
Change the tax rate to an individuals’ marginal rate from 55% where Lifetime Allowance excess lump sum, serious ill-health lump sum, defined benefits lump sum death benefit and uncrystallised funds lump sum death benefit.
COMMENT
There are some welcome changes here that will enable taxpayers to potentially save considerably more into their pension schemes without incurring penal tax charges. Limiting the ‘tax free cash lump sum’ to the amount based on the current lifetime allowance is in our view unnecessary and will be a deterrent to some. Also, a word of caution - only 4 months ago, and in almost every other Budget or Statement for the last few years, there have been rumours that higher and additional rate tax relief for pension contributions will be axed, so this change may yet prove to be short lived.
Rendering void assignments of income tax repayments
This provides a welcome protective measure to taxpayers from rogue tax agents who have ’ripped off’ clients who mandate a tax repayment to go their tax adviser rather than direct to the taxpayer. With immediate effect this will no longer be possible. No reputable tax adviser should ever have undertaken such a practice in the first place.
EMPLOYMENT
National Insurance Contributions (NICs)
A similar principle to that outlined above for income tax thresholds will be followed in respect of many of the NICs thresholds, namely that they are frozen at the limits for the preceding year and will remain at those levels until 2028. Full details can be found in the tables below. This link also covers the changes to the National Living Wage (NLW) and National Minimum Wage (NMW).
Taxable benefits for company cars for 2023/24
The rates of tax for company cars remain frozen until 2024/25.
From 6 April 2023 the figure used as the basis for calculating the benefit for employees who receive free private fuel from their employers for company cars is increased to £27,800.
Company vans
For 2023/24 the benefit increases to £3,960 per van and the van fuel benefit charge where fuel is provided for private use increases to £757. If a van cannot in any circumstances emit CO2 by being driven, the cash equivalent is nil.
Reform of the Company Share Option Plan (CSOP)
This reform makes changes to the CSOP, a tax-advantaged employee share scheme available to all UK companies and their employees as follows:
The employee share options limit will be doubled from £30,000 to £60,000.
The ‘worth having’ condition, which limits which types of shares are eligible for inclusion within a CSOP scheme, will be removed.
These changes will have effect for share options granted under CSOP schemes on or after 6 April 2023. Existing options granted before 6 April 2023 will also benefit from these changes.
Enterprise Management Incentives (EMI): improvements to the process to grant options
The measure makes changes to simplify EMI by removing two administrative requirements when companies grant EMI options on or after 6 April 2023. Existing EMI share options granted before 6 April 2023 that have not been exercised will also benefit from the changes.
First, it removes the requirement for the company to set out within the option agreement the details of any restrictions on the shares to be acquired under the option.
Second, it removes the requirement for notification that an employee has signed a working time declaration when they issued an EMI option. It does not remove the working time requirement itself.
BUSINESS
Corporation tax rates
The expected increase in the rate of corporation tax for many companies from April 2023 to 25% will go ahead. This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Capital allowances
The super-deduction regime, which gives a 130% enhanced first year allowance (FYA) to companies on the purchase of qualifying plant and machinery, comes to an end on 31 March 2023. Instead, the government has announced Full Expensing, a 100% FYA, which allows companies to deduct the cost of qualifying plant and machinery from their profits straight away with no expenditure limit. Qualifying expenditure will include most plant and machinery, as long as it is unused and not second-hand, but will not include cars. Full Expensing will be effective for acquisitions from 1 April 2023 to 31 March 2026.
A 50% FYA for other plant and machinery including long life assets and integral features (known as special rate assets) will operate along similar lines.
Disappointingly the discrimination against sole traders and partnerships in this area of tax continues as Full Expensing and the 50% FYA are only available for companies.
The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. However, the temporary £1 million level will become permanent.
100% FYA for electric vehicle charge points will now continue to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
COMMENT
This was one of the major changes from Wednesday and certainly for businesses large and small planning on investing in new equipment these are welcome measures and will help allay the increases in corporation tax. It does however not do anything for companies or businesses who are not able to make such investments.
Research and Development (R&D) relief
For expenditure on or after 1 April 2023, a significant change will apply to the small and medium-sized enterprises (SMEs) as the additional deduction, currently 130% will decrease to 86% and the SME credit rate will decrease from 14.5% to 10%. A higher rate of SME payable credit of 14.5% will continue to apply to loss-making SMEs which are R&D intensive. To qualify the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period.
Other changes announced include expanding qualifying expenditure for costs of datasets and cloud computing. Also, to reduce fraudulent claims future claims for R&D reliefs, they will have to be made digitally and be accompanied by a compulsory additional information form. Companies will also need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates, if they have not made an R&D claim in the previous three years. These changes apply to claims in respect of accounting periods beginning on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.
The restriction to relief on overseas expenditure has been deferred until 1 April 2024.
COMMENT
This contains good and bad news. Undoubtedly the reduction in the qualifying percentage is not welcome and will reduce the tax savings from small and medium sized companies currently investing in qualifying R&D. Measures to prevent fraud from claims is, however, something we support.
Making Tax Digital (MTD) for income tax
More changes and delays announced for MTD, the regime where businesses will be required to maintain their accounting records in a specified digital format and submit returns quarterly to HMRC. For self-assessment, MTD will now be introduced from April 2026, with businesses, self-employed individuals and landlords with income over £50,000 mandated to join first; a change from the original £10,000 limit.
Those with income over £30,000 will be required to use MTD from April 2027.
The government will also review the needs of smaller businesses and look in detail at whether the MTD for ITSA service can be shaped to meet the needs of smaller businesses.
HMRC has previously announced that MTD for corporation tax will not be mandated before 2026. This now looks even further away.
COMMENT
At long last HMMRC seem to be listening to tax advisers that these changes are being imposed too quickly. We dread to think how much money has been wasted on this project to date.
Simplification measures for small businesses
The government is introducing a number of simplification measures to the tax system for small businesses with the aim of encouraging growth by reducing the administrative burden.
The announcements include changes to IT systems to allow tax agents to payroll benefits in kind on behalf of their clients and simplifications to the customs import and export processes.
Further consultations were launched which may lead to additional reforms, including expanding the use of the cash basis. Proposed changes in the consultation include:
increasing the thresholds so that more unincorporated businesses would be eligible;
making it the default for eligible businesses; and
relaxing the restrictions on interest costs and loss reliefs.
Investment Zones
An Investment Zones programme is being launched to encourage investment in 12 high-potential knowledge-intensive growth clusters across the UK. It is expected that eight sites will be in England and four across Scotland, Wales and Northern Ireland.
A five-year tax package will allow businesses located on special tax sites within Investment Zones to benefit from a number of tax reliefs, including Stamp Duty Land Tax relief, enhanced capital allowances, structures and buildings allowances and secondary Class 1 NICs relief for eligible employers.
Seed Enterprise Investment Scheme
From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.
CAPITAL TAXES
Capital gains tax (CGT) rates
No changes to the current rates of CGT have been announced. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% continue to apply for certain gains, mainly chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief.
CGT Annual Exemption
The government has announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024. Details of rates and allowances can be found in the tables below.
Inheritance tax (IHT)
No changes were announced in any of the rates or bands which like many other axes are frozen until April 2028. Details of nil-rate bands can be found in the tables below.
Estates in administration and trusts
Changes are being introduced which will affect the trustees of trusts and personal representatives who deal with deceased persons’ estates in administration, and beneficiaries of estates.
For 2023/24, technical amendments are made to ensure that, for beneficiaries of estates, their tax credits and savings allowance continue to operate correctly.
For 2024/25, changes will:
Provide that trusts and estates with income up to £500 do not pay tax on that income as it arises.
Remove the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income.
Provide that beneficiaries of UK estates do not pay tax on income distributed to them that was within the £500 limit for the personal representatives.
VAT
The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2024, staying at £85,000 and £83,000 respectively.
Annual Tax on Enveloped Dwellings
The annual chargeable amounts will be uplifted by inflation for the 2023/24 charging period.
SUMMARY
Although not all headline grabbing there can be a lot to digest, as mentioned so if you need assistance of any of these or other tax matters, we would be delighted to help.
|
Individuals UK |
From 6 April 2023 |
Rate of tax |
|
Basic |
£12,570 - £50,270 |
20% |
|
Higher |
£50,271 - £125,140 |
40% |
|
Additional |
Over £125,400 |
45% |
|
Individuals Scottish Income |
From 6 April 2023 |
Rate of tax |
|
Starter rate |
£12,570 - £14,732 |
19% |
|
Scottish Basic rate |
£14,733 - £25,688 |
20% |
|
Intermediate rate |
£25,689 - £43,662 |
21% |
|
Higher rate |
£43,663 - £125,140 |
42% |
|
Additional rate |
Over £125,140 |
47% |
|
Rate of tax |
||
|
Individuals – Dividends |
From 6 April 2023 |
|
|
Basic |
£12,570 - £50,270 |
8.75% |
|
Higher rate |
£50,271 to £125,140 |
33.75% |
|
Additional rate |
Over £125,140 |
39.35% |
|
From 6 April 2023 |
||
|
Income Tax Allowances |
||
|
Personal Allowance |
£12,570 |
|
|
Savings Allowance for basic rate tax payers |
£1,000 |
|
|
Savings Allowance for higher rate tax payers |
£500 |
|
|
Starter rate for Savings allowance |
£5,000 |
|
|
Dividend Allowance |
£1,000 |
|
|
Capital Gains Tax Rates, (Exemption up to £6,000) |
From 6 April 2023 |
Rate of tax |
|
Residential Property |
||
|
Basic rate |
£6,000 - £50,270 |
18% |
|
Higher rate |
Over £50,270 |
28% |
|
Other |
||
|
Basic rate |
£6,000 - £50,270 |
10% |
|
Higher rate |
Over £50,270 |
20% |
|
Inheritance Tax Rates, (Exemption up to £325,000) |
From 6 April 2023 |
Rate of tax |
|
NIL rate |
0 to £325,000 |
0% |
|
Residence NIL rate |
0 to £175,000 |
0% |
|
Standard rate |
Over £500,000 |
40% |
|
Corporation Tax Rates |
From 6 April 2023 |
Rate of tax |
|
Company profits |
Up to £50,000 |
19% |
|
Company profits |
£50,001 to £250,000 |
Marginal rate |
|
Company profits |
Over £250,000 |
25% |
|
National Insurance |
From 6 April 2023 |
Rate of tax |
|
Class 1 threshold before employees start paying |
£12,570 Per annum |
12% |
|
Class 1 threshold before employers start paying |
£9,096 per annum |
|
|
Class 2 – Small profits threshold |
£3.45 per week |
|
|
Class 3 – Voluntary threshold |
£17.45 per week |
|
|
Class 4 -Self-Employed earnings |
Lower limit £11,909-£50,270 |
9.73% |
|
Class 4 -Self-Employed earnings |
Upper limit £50,271 and above |
2.73% |
|
VAT |
From 6 April 2023 |
|
|
Registration threshold |
£85,000 |
|
|
De-registration threshold |
£83,000 |
