By David Watkinson – WatkinsonBlack
TODAY, March 15 2023 was the day of the budget. This is when the Chancellor announces the changes that will take effect for the following tax year.
So following this year’s budget what will we be facing from April?
Income Tax. This is the area that affects the most people, and so what changes will there be:
Rates of Tax: No change to the Basic rate, Higher Rate, or Additional Rate.
Allowances and Thresholds: Ignoring inflation, there is no change except for a substantial reduction in the level at which the Additional Rate is applied. Therefore, you will pay no tax on the first £12,570, 20% on the following £38,171, 40% on the following £74,400 (currently £99,260), and 45% thereafter. However, in real terms this represents a substantial reduction. By law, allowances and thresholds increase in line with inflation by default unless the government decides otherwise. The Personal Allowance, for example, in April 2019 was £12,500. By default, therefore, the allowance in April 2023 should be increasing to £15,900 and this represents an effective tax increase of £680 for anyone paying tax at basic rate. It is expected that there will be no future increase until at least 2026.
Capital Gains Tax: Since 2020, the Annual CGT Allowance has been £12,300. From April 2023 this will be more than halved to £6,000, and it is expected to be further reduced to £3,000 in 2024. The rates at which CGT is paid remains at 10% for basic rate taxpayers and 18% for higher rate taxpayers, unless the gain arises from properties when the rates are 18% and 28% respectively.
Dividend Tax: When Dividend Tax was introduced in 2016, there was an annual Dividend Tax Allowance of £5,000, below which no tax was payable. This was subsequently reduced to £2,000 where it has remained since. In April, however, the allowance will be reduced to £1,000, with a further reduction expected in April 2024 to £500. The rates at which you pay dividend tax remain at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% if you pay additional tax.
Pension Contributions: It had been widely anticipated that the maximum that anuone could hold in a pension pot was to be increased from £1.3m to £1.8m. However, the Chancellor actually went further and removed all restriction, a move that will benefit the very richest. More people may be affected, however, by the increase in the Money Purchase Allowance, the amount that you can put into a pension each year once you have started taking a pension, from £4k to £10k.
Corporation Tax: For many years there has been a single rate of Corporation Tax, currently 19%. From April the rate will remain at 19% for companies with taxable profits below £50,000. However, companies with profits above £50,000 will see their rate of corporation tax increase. Companies with profits of £250,000 and above will pay corporation tax at 25% on the whole of their profits. Companies with profits between £50,000 and £250,000 will pay tax on these profits at 26.5%, which has the effect of gradually increasing the rate of tax on the whole profit from 19% to 25% over this range.
Other Announcements:
Free childcare up to 30 hours per week will be introduced over the next two years for children aged over 9 months provided each parent works at least 16 hours.
Duty on Draught Beer and Duty on Fuel are both frozen again.
The increase in the Energy Price Guarantee from £2,500 to £3,000 will be deferred by 3 months at lease to July, resulting in an average saving of £160.
A Full Capital Expensing (ie 100% Capital Allowances) will be in place for at least 3 years. Research intensive businesses will be able to claim Enhanced Credit.
WatkinsonBlack have considerable experience in all areas of taxation and business services. This includes providing a very cost-effective payroll bureau service, as well as assisting to ensure compliance with the latest Making Tax Digital legislation. If you are employed or self-employed either as a sole trader, partnership or limited company and want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us by telephone on 01925 413210 or by e-mail to [email protected].
Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
