On 15 March 2023 the chancellor, Jeremy Hunt, announced the Spring Budget 2023. Read how the 2023 Spring Budget affects you and your taxes. Our clients can ask us what it means to them, all included in our low fixed-fees.

Highlights of the Spring Budget 2023

• Recession expected to be avoided in 2023 and inflation to fall to around 3%
• Energy price guarantee (£2,500 cap for a typical bill) is extended by 3 months to 30th June 2023
• Duty on draught drinks will be cut on 1st August 2023, 11p lower than supermarkets.
• Fuel duty frozen for another 12 months
• Corporation tax increase from 19% to 25% as expected, but only 10% of companies pay 25%.
• Full tax relief on all plant and equipment in the year purchased. This replaces the 130% super-deduction and the £1m Annual Investment Allowance, so it only helps the very largest companies.
• Annual prize offered for best Artifical Intelligence projects.
• Tax relief for theatres, orchestras, museums and gallaries to stay at 45-50% until 2025.
• Disabled people will not lose disability benefits if they become employed.
• Hours of working while still claiming some benefits to increase from 16 to 18 per week, and pressure applied if working less than 18.
• Over 50s encouraged back to work with incentives, including mid-life MOT scheme expanded, apprenticeships ‘returnaships’, skills boot camps and increasing pension limits.
• Annual pension limit increased from £40k to £60k.
• Lifetime pension limit of just over £1m is to be abolished.
• Childcare reforms: incentive payments of £600-£1,200 to new childminders, providers given 30% increase in funding and ratios of children to carers relaxed, upfront payment to workers towards childcare £951 – £1,631, all schools to offer wrap around full-time cover by 2026. 30 hours of free childcare for every child from 9 months to under 5 years old.

More details will follow here soon.

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Corporation tax rates increase on 1st April 2023 for many companies. We will explain how your corporation tax rate changes from April 2023. You will need to know your expected annual net profit and the number of companies associated with yours.

Corporation Tax Rate Changes

From 1st April 2023 the UK main corporation tax rate increases from 19% to 25%. However, some companies will pay between 19% and 25%, depending on the profit for the year and the number of associated companies.

Profit

The relevant profit to use is the company’s taxable profit for the year. To find this you need to start with the company’s net profit. This is its sales, plus other income, minus costs like salaries and depreciation but not dividends and not corporation tax itself. Then you add back onto the net profit any costs that are not tax deductible such as depreciation and entertainment. Deduct any income that is not taxable such as dividend income. You can also usually deduct the cost of equipment purchased during the year, which is called a capital allowance. Now you should be close to the taxable profit, which is relevant to work out your tax rate.

Associated Companies

You also need to know the number of companies associated with yours. For this you’ll need to read our separate post: what is an associated company? If you have associated companies you’ll need to read the Reducing The Corporation Tax Thresholds section below.

Corporation Tax Thresholds

The lower limit is £50,000 and the upper limit is £250,000. So if you have no associated companies, you’ll pay corporation tax at 19% if your profits are less than £50,000. You’ll pay 25% corporation tax if your profits are over £250,000. If your profits are between these thresholds, you’ll pay a total rate on all of the profits somewhere between 19% and 25%. It’s tapered so that if you’re just over £50,000 you’ll pay just over 19%. Similarly if you’re just under £250,000 you’ll pay just under 25%.

Reducing The Corporation Tax Thresholds

The tax thresholds need to be divided by one plus the number of associated companies. So if you have one associated company, add one (for your own company) to make two. Then divide the thresholds by two so the lower one is £25,000 and the upper one is £125,000. So if your profits are £25,000 or less you will pay 19% corporation tax. Or if your profits are over £125,000 you’ll pay 25%.

Also, if your accounting period is shorter or longer than 1 year, you’ll need to proportionally reduce or increase the thresholds. So if you have a 9 month accounting period, the thresholds become £37,500 and £187,500.

The examples below assume that you don’t need to reduce the thresholds. If you have to reduce the thresholds, you will need to reduce the £50,000 and £250,000 referred to below e.g. in the marginal relief formulas.

Corporation Tax Rates Between The Thresholds

If your profits are between the thresholds, you use the main rate of 25% on all of your profits. Then there is a marginal relief formula to work out how much to reduce this by. Ignoring dividends received, the formula is (£250,000 – taxable profits) x 3 / 200. So profits of £100,000 would be taxed at 25% which is £25,000 minus marginal relief. Entering £100,000 into the formula makes it £150,000 x 3 / 200, which is £2,250. So the corporation tax is £22,750 which is 22.75%.

Marginal Rates of Corporation Tax

Another simpler way to work out the corporation tax is to use the marginal rate of 26.5%. The first £50,000 of profits are taxed at 19%, then the next £200,000 of profits are taxed at 26.5%. Then you add them together. So with £100,000, £50,000 at 19% is £9,500, then the remaining £50,000 is taxed at 26.5% which is £13,250. Added together this gives a total of £22,750.

Save Tax At Marginal Rates

As the marginal rate between the thresholds is 26.5%, that is the rate of tax you will pay or save on any increase or decrease to your taxable profits within the thresholds. So if it looks like you will have taxable profits of £60,000, paying pension or charitable contributions of £10,000 will save you tax at 26.5% which is £2,650. Wages or a bonus could also work but you will need to consider whether any PAYE and NIC payable will outweigh any corporation tax savings.

Dividends Received

If your company receives dividends, these are not taxable but they may affect the corporation tax rate. Dividends received are effectively added to profits when calculating the marginal relief formula. So if your company receives a substantial amount of dividends it could end up paying 25% tax even if its taxable profits are less than £250,000. The full marginal relief formula is (£250,000 – (profits + dividends)) x (profits / (profits + dividends)) x 3 / 200. Or ask your accountant!

Our clients can ask us to estimate what their corporation tax rate from April 2023 is likely to be, all included in our low-cost fixed monthly fees.

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The current tax year will end on 5th April, so now is a good time for you to check that you’re not going to pay more tax than necessary this year and next year.

HIGHLIGHTS – FROM 6TH APRIL 2023:

• Employees start paying NIC at £12,570pa but the Employers’ threshold remains at £9,100.
• The tax-free dividend allowance is reducing from £2,000pa to £1,000pa, then £500 next year.
• The threshold for the Additional Rate of tax decreases from £150,000 to £125,140.
• Voluntary NIC contributions to top up recent non-qualifying years, is being restricted.
• Corporation tax is increasing from 19% to between 19% and 25% if annual profits exceed £50,000. Will I Pay Less Tax As A Limited Company?
• Directors should take a salary of between £9,100 and £12,570, plus dividends of £37,700.

Below are some suggestions to consider first for directors/shareholders only, then for everyone.

DIRECTORS/SHAREHOLDERS ONLY

Background information

As a recap, it’s important to remember that your company is a completely separate entity from you. A company pays tax on its profits. You pay tax on the wages and dividends received from a company. However, the way you take money from your company may affect the company’s tax, so it is important to consider all taxes when you decide how to pay yourself. A company usually pays a salary to directors, and has the option of paying out its profit (as dividends) to its shareholders. Your company’s taxable profit includes a deduction for salaries and expenses but not for dividends. So a salary will reduce corporation tax but dividends don’t affect it.

Your company will pay corporation tax on the profit it makes in its accounting year, which is usually different to the tax year. The corporation tax rate is currently 19% and will remain at 19% for companies with annual taxable profits of £50,000 or less. Companies with annual taxable profits of over £250,000 will pay tax at 25% from April 2023. Companies between these thresholds will pay a tapered rate between 19% and 25%. These thresholds are divided by the number of associated companies. A company is associated with another company if they are both owned 50% or more by the same person, or the same group of people – read more.

You will pay income tax on your total income in the tax year, including any salary and dividends taken from your company, but not on expenses or loans. See below for the various tax bands and rates.

Even if your corporation tax rate increases to 25%, the most tax-efficient way to take money from your company is still with a small salary and then dividends. That’s because the income tax (20% then 40%), employees NIC (12% then 2%), employers NIC (13.8%) minus corporation tax relief (19-25%) is still more than the tax on dividends (8.75% then 33.75%). Even in the higher rate band when the employees NIC drops to 2%, it’s not enough to claw back the savings made in the basic rate band.

What to do this month

Check that you’ve received trivial benefits from the company of up to £50, up to 6 times per tax year for directors. Trivial benefits can be gifts or vouchers but not cash. The cost of each trivial benefit must not exceed £50.

On or before 5th April make sure you’ve used up your tax-free personal allowance of £12,570 with salary/earnings/dividends.

Last year we advised a salary of between £9,100 and £12,570, depending on whether your company is profitable and whether you would benefit from the Employment Allowance. If you have sufficient profit reserves in the company, you should also pay yourself dividends covering:

1. Any remaining personal allowance after your salary (£12,570 minus your salary);
2. Your tax-free dividend allowance of £2,000, then;
3. Your remaining basic rate band of up to £35,700, taxed at 8.75% (above this dividends are taxed at at least 33.75%).

It’s best to have a similar amount of total income from year to year, rather than not using up your basic rate band one year, then going into your higher rate band in the other year. You will save tax of about £9k by declaring total dividends of £35k this year and £35k next year, instead of none this year and £70k next year.

Any extra salary and dividends don’t have to be paid – they can be credited to your directors loan account to draw out tax-free at a later date, or to repay what you’ve already taken out.

The company must have net profit reserves remaining after any dividends are declared. You must approve the dividend and pay or credit the dividend by 5th April for it to be taxed in the current tax year. As always, you must also prepare the meeting minutes and dividend voucher to support the dividend.

The Changes

The main changes on 6th April 2023 are that: the NIC threshold where employees start to pay NIC increases to £12,570; the dividend allowance reduces from £2,000 to £1,000; and the Additional Rate threshold reduces from £150,000 to £125,140. 

What to do from next month

Our general advice on extracting funds from your own company is set out below. However, due to the numerous scenarios, which could also change during the year, we may advise you differently on an individual basis.

From 6th April 2023, our advice is that each director/shareholder should take money from the company in the following order:

1. If the company is not profitable or if you have other income:
   • Salary of £9,100pa or £758pcm, tax-free
2. If the company is profitable or the employers NIC on your salary is covered by the Employment Allowance:
   • Additional salary of £3,470pa (£12,570pa or £1,047.50pcm)
3. Stop here if the company does not have sufficient profit reserves to pay dividends
4. Dividends of £1,000, tax-free
5. Dividends of £36,700, taxed at up to 8.75%
6. Dividends of £49,730, taxed at 33.75%
7. The next £25,140 of dividends are taxed at 60% (see ‘Avoid’ sections below)
8. The remaining dividends are taxed at 39.35%

This assumes you have no other income and there are sufficient profit reserves in the company to take dividends. Profit reserves are the net profits/losses since the company started, less dividends since the company started. The relevant amounts can be found on the company’s balance sheet within the capital and reserves section.

EVERYONE

Use up Income Tax allowances

To recap, everyone has a tax-free personal allowance. Income above that is taxed at different rates depending on the type of income it is and which band of your income (tax band) that income falls into. Earned income, such as a salary or self-employed profit, use up your tax bands before investment income, such as interest and dividends. So if you have a £50,270 salary and £40,000 dividends, all of the salary exceeding your personal allowance uses up your basic (lower) rate band so will all be taxed at the basic (lower) rate of income tax, then all of the dividends fall into your higher rate band so will all be taxed at the higher tax rate for dividends (except any covered by the dividend allowance so are taxed at 0%).

Unused personal allowances and tax bands are not available to be carried forward, so it is important to check that you are using them efficiently each year. If it’s possible to increase or decrease your income, it’s best to use up the lower rate bands and avoid the higher rate bands. Some tax planning can achieve this, such as changing ownership of assets (e.g. transferring shares of a company and therefore the amount of dividends paid out), or changing employment income or dividends. The bands and rates for Scottish residents are here, and for everyone else in the UK are currently as follows:

• £0 – £12,570 Personal allowance
• £12,571 – £50,270 Basic rate band
• £50,271 – £150,000 Higher rate band (reducing to £125,140 in 2023/24)
• Over £150,000 Additional rate (reducing to £125,140 in 2023/24)

Other allowances and bands to consider:

• £2,000: tax-free dividend allowance per person per tax year. This still counts as income so also uses up your tax bands. This is reducing to £1,000 in 2023/24 and to £500 in 2024/25.
• £50,000 – £60,000: child benefit repaid – see below.
• £100,000 – £125,140: personal allowance withdrawn – see below.

The different tax rates for Income and Dividends are as follows:

	from 2022/23	from 2022/23
	Income	Dividends
Basic rate	20%	8.75%
Higher rate	40%	33.75%
Additional rate	45%	39.35%

Use up National Insurance allowances

National Insurance (NI) is payable by employers, employees, and the self-employed. Each of whom have different bands and rates to consider. As with income tax above, it’s best to use up lower bands and avoid higher bands. You need to have a salary or self-employed profits that exceed the lower earnings limit for the tax year, or voluntarily pay sufficient NI in the tax year, for it to be a qualifying year for your state pension. You need 35 qualifying years for a full state pension. If self-employed profits exceed the main threshold (was the lower earnings limit), a fixed amount of NI is payable at £163.80pa (was £158.60pa). Credits for the state pension will still be gained if profits exceed the lower earnings limit.

Below are the national insurance thresholds and rates for the 2022/23 and 2023/24 tax years. During 2022/23 the NIC rates were increased, then the NIC thresholds were increased, then the NIC rates were reduced! So there are slightly higher thresholds and slightly different rates of NIC as originally advised this time last year.

	Self-Employed	Self-Employed	Employee	Employee	Employer	Employer
	2023/24	2022/23	2023/24	2022/23	2023/24	2022/23
Lower earnings limit	£6,725	£6,725	£6,396	£6,396	n/a	n/a
Main threshold	£12,570	£11,908	£12,570	£11,908	£9,100	£9,100
Main rate	9%	9.73%	12%	12.73%	13.8%	14.53%
Upper limit	£50,270	£50,270	£50,270	£50,270	n/a	n/a
Upper rate	2%	2.73%	2%	2.73%	13.8%	14.53%

Check your National Insurance history now

As mentioned above, for a full state pension you need 35 qualifying years of employment or credits. You can check how many qualifying years you have on your personal HMRC online account. If it looks like you will fall short before your statutory retirement age, you may be able to make voluntary NI contributions to add missing years if they are recent enough. From 6th April 2023 the rules are restricted so you can only top up any missing years from just the previous 6 years. See here for more details.

Avoid earning over £50k

As well as paying higher tax rates on income over £50,270, any child benefit received needs to be paid back if income exceeds £50,000 for the year. If one parent or the other receives child benefit, and if one or the other parent has a total income of £50,000 or more, the higher earner will need to repay some or all of the child benefit. A proportion of it is repaid if the total adjusted income is between £50k and £60k. This can result in marginal tax rates of 60% for 2 children and over 70% for 4 children. If the repayment can’t be avoided, consider stopping the child benefit, as this may spare any need to file a tax return. To calculate the amount of child benefit to be repaid, your total income is adjusted down for any personal pension contributions and charity contributions. So you could pay more of these contributions to reduce your adjusted total income within the £50k – £60k band to save tax.

Avoid earning over £100k

When your total income exceeds £100,000 the tax-free personal allowance is gradually removed until you get no personal allowance when your income reaches £125,140 or more. In this band of total income, you have a marginal tax rate of 60% (i.e. your tax bill increases by 60p for every £1 your total income increases between £100k and £125k). Also, more benefits are removed such as tax-free childcare. As with the child benefit above, you could pay personal pension or charitable contributions to reduce your adjusted total income within the £100k – £125k band and save tax at 60%.

Claim Marriage Allowance

A spouse or civil partner who does not pay income tax above the basic rate for a tax year, can transfer £1,260 of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer does not pay income tax above the basic rate. This can potentially mean a reduction in tax liability of £252. 

Transfer assets to a spouse

If a spouse, or civil partner, pays tax at a different rate, consider transferring income-producing assets (e.g. savings, company shares, investment property) to give the income to the person paying at the lower rate.

Check your bank

If you have large sums of cash in ordinary accounts paying very little interest, consider moving cash to other accounts earning a higher interest rate. An Individual Savings Account (ISA) is tax free so make sure that ISA allowances have been fully utilised for all the family, where applicable.

Pay into savings

The ISA maximum subscription limit is currently £20,000 and there is no longer a restriction on the amount that may be invested in a cash ISA. The overall investment limits on ISAs mean that a couple could save a substantial amount in tax-efficient savings accounts. Any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year (until 50) and savers will receive a 25% bonus from the government on this money. Broadly, money invested in this type of account can be saved until the investor is 60 and used as retirement income, or it can be withdrawn to help buy a first home.

Junior ISAs are available to UK resident children (under-18s). Junior ISAs are tax-relieved and have many features in common with existing ISA products. The maximum annual subscription is currently £9,000. Investments may be made in any combination of qualifying cash or stocks and shares investments. Withdrawals are not permitted until the named child has reached the age of 18, except in cases of terminal illness. It’s possible to transfer Child Trust Funds (CTFs) to Junior ISAs.

Regular sums can be invested in National Savings (some products offer a tax-free return, which is particularly attractive to 40% and 45% taxpayers), banks and building societies. Those willing to accept the possibility of greater risk perhaps equalling greater reward might consider the stock market, stock market-linked investments or buy-to-let property.

Pay into pensions

Paying personal pension contributions can currently give tax relief at the individual’s highest income tax rate. Personal pension contributions are limited to your earnings. Employer pension contributions are not limited to earnings but give tax relief to the employer not the employee. Pension contributions are taxable if the total contributions into all of your pension schemes exceed an annual limit of £40,000 (or less if your total income exceeds £200,000). Unused £40,000 allowances from the previous 3 years can be brought forward and used in the current year if required, which would give a total allowance of £160,000 in one tax year. There is a lifetime pension limit of £1,073,100.

Consider paying into pensions for family members. The introduction of stakeholder pensions allow contributions to be made for all UK residents, even children, as there is no requirement to have any earnings. Consider making payments of up to £3,600 for family members, as the fund will grow in a tax-free environment. The net cost is only £2,880.

Sell some chargeable assets – allowances are reducing

Everyone has an annual capital gains exemption. The exemption is currently £12,300, however this is reducing to £6,000 for 2023/24 and to £3,000 for 2024/25. You are only taxed on total capital gains that exceed the annual allowance. Taxpayers should therefore consider selling taxable assets to make a capital gain up to this figure. Gifts between spouses and civil partners are tax free, so it is possible to double the yearly exemptions available by giving shares or other investments to a spouse or civil partner.

Realise losses

If you have shares standing at a loss, you should consider selling them so that the loss can be set against any gains made over and above the capital gains annual exemption. If you want to retain the investment, it could be bought back by the spouse or partner, within an ISA. It will not be tax effective for them to buy back the investment within 30 days of you selling it. In addition, care must be taken not to fall foul of anti-avoidance legislation which prevents loss relief being claimed where certain arrangements exist, the main purpose, or one of the main purposes, of which is to secure a tax advantage.

Capital gains tax may be deferred through the use of an Enterprise Investment Scheme investment.

Give to charity

Making charitable donations via the Gift Aid scheme is an effective way to reduce taxable income. If donations have been made, it is important that you ticked Gift Aid so that the charity can benefit from the basic rate tax relief. Higher rate taxpayers should make the necessary claim on their tax return for further relief. If future donations are planned, you may wish to bring these forward to on or before 5th April to ensure the tax relief is obtained at an earlier date.

Check your PAYE code

Employees should check that their PAYE tax code number for the following tax year is correct and ensure that any inaccuracies are amended.

Don’t get fined!

There are penalties and surcharges for submitting your tax returns late and for paying any tax due late. These penalties increase substantially over time so if you’re already late for the previous tax year, further delays will cost you more – see here.  If you have a second payment on account to pay as a result of the previous year’s tax return, that payment is due by this 31st July.

Your tax return for the year ending 5th April can be submitted soon after 5th April, so provide your details to us as soon as possible. Look out for our Tax Return Due emails later next month. The balance of tax due for the year ending 5th April plus potentially an extra 50% first payment on account will be due by 31st January. 

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On the 17th of November 2022 the Chancellor Jeremy Hunt announced important changes to tax and spending. Most of this Autumn Statement 2022 was about increasing tax to reduce the amount the government needs to borrow. Here we explain how those tax increases could affect small businesses and individuals.

Income Tax Thresholds

The Autumn Statement 2022 reduced the income threshold at which the additional rate of tax applies, from £150,000 to £125,140. This applies from April 2023. Anyone with total income over £125,140 will pay more tax of up £1,392 per year. It means that the higher rates of tax will apply to income between £37,700 and £100,000. A marginal rate of tax (20% higher than the applicable rate e.g. 60%) will apply to income between £100,000 and £125,140. That’s because the tax-free personal allowance is taken away in that band. Then the additional rate applies to income over £125,140.

Apart from dividend allowances, the other income tax thresholds have been frozen until 2028. So the tax-free personal allowance will remain at £12,570. Plus the basic rate of tax will apply to income above the personal allowances, up to a total income of £50,270.

Freezing the personal allowance and the higher rate threshold acts like a stealth tax. Effectively a tax increase without increasing the rates. As an individual’s income increases over time due to pay rises, but the tax thresholds don’t increase, they will be paying more tax and potentially move up to higher rates of tax.

National Insurance

The national insurance thresholds are also being frozen until 2028. So that’s another stealth tax. From April 2023 the class 2 rate paid by the self-employed will increase to £3.45 per week from £3.15. As previously announced, the 1.25% increase from July 2022 will end in November 2022.

Dividends

The dividend allowance means that an individual can receive a tax-free amount of dividends each year. This is being reduced in April 2023 from £2,000 to £1,000. In April 2024 it will reduce to £500. Despite the end of the 1.25% increase in NIC, there is no similar reduction to dividend tax rates. The dividend tax rates will continue with the 1.25% increase at 8.75%, 33.75% and 39.35%. For whether it is still worth trading as a company to save tax, see here.

Capital Gains Tax

Everyone has an annual exempt amount for capital gains. If you make any capital gains in a tax year you pay tax on the total gains that exceed the exempt amount. From April 2023 the capital gains annual exempt amount reduces from £12,300 to £6,000. Then from April 2024 it reduces to £3,000 for individuals or £1,500 for trustees.

Stamp Duty Land Tax

From April 2025 the recent changes to stamp duty, the tax paid when purchasing residential property, will revert back to their previous levels. So the nil-rate threshold will reduce from £250,000 to £125,000. The first-time buyers nil-rate threshold will reduce from £425,000 to £300,000. The maximum price for first-time buyers will reduce from £625,000 to £500,000.

Car Tax

From April 2025, electric vehicles will no longer be exempt from vehicle excise duty. The expensive car supplement will also start applying to new zero-emission cars.

The benefit-in-kind percentages for private use of company vehicles are increasing by 1% per year. Electric vehicles will reach 5%, ultra-low emission cars will reach 21%, and all other vehicles will go up to a maximum of 37%. These percentages are applied to the list prices to calculate the taxable value.

Research and Development

Various incentives are available for companies that incur qualifying expenditure on qualifying research and development projects. These include tax credits, and an extra deduction when calculating taxable profits/losses. From April 2023 the Research and Development Expenditure Credit will increase from 13% to 20%. The additional deduction for R&D expenditure will decrease from 130% to 86%. Also, the R&D credit for surrendering losses will decrease from 14.5% to 10%.

Other Business Taxes

The Autumn Statement 2022 also announced other measures that will affect large companies. Banks will pay an additional 3% tax on profits over £100m. The windfall tax on energy companies will increase from 25% to 30%. A temporary tax of 45% will be charged on certain low-carbon electricity generation, affecting those with high outputs and returns exceeding £10m.

Other Announcements

As well as changes that affect taxes, the Autumn Statement 2022 announced other measures that are likely to affect small businesses and individuals.

The national living/minimum wage rates will increase from April 2023 for the following ages:

• 23 and over: from £9.50 to £10.42
• 21 to 22: from £9.18 to £10.18
• 18 to 20: from £6.83 to £7.49
• Under 18 and apprentices: from £4.81 to £5.28

The energy price guarantee which currently limits a typical household bill to £2,500 per year, will increase to £3,000 from April 2023. It will end in March 2024.

Import tariff’s for over 100 types of goods are being removed for 2 years.

Pensions and benefits will increase by the rate of inflation.

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Here are the autumn statement 2022 headlines regarding tax from the chancellor’s statement on 17th November 2022. More details will be added in another blog post.

• Additional 45p rate threshold reduced from £150k to £125k
• Other Personal and NIC allowances frozen until 2028
• Dividend allowance reduced from £2,000 to £1,000 in 2023 then £500 in 2024
• Capital gains tax allowance reduced from £12,300 to £6,000 in 2023 then £3,000 in 2024
• Electric cars will no longer be exempt from vehicle excise duty (car tax)
• Stamp duty thresholds will revert back to previous levels in 2025
• Research and Development Tax Relief reduced
• Windfall tax on energy companies increased from 25% to 35%
• Windfall tax on low-carbon generators of a temporary 45%
• Business rates will be cut.
• Not tax, but the energy price guarantee will be extended until March 2024 but at higher rates. A typical bill would be capped at £2,500 until March 2023, then £3,000 until March 2024.
• Also, the national living wage will increase from £9.50 to £10.42 from April 2023.
• Pensions triple lock protected and the pension and pension credits rates will increase 10.1%.

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There was a mini budget in September that shocked the markets. The mini budget announced major tax cuts as well as confirming the energy price cap. The markets were not expecting such radical changes and reacted badly. For example the value of the pound dropped to record lows. As a result, the Prime Minister Liz Truss and the most recently appointed Chancellor, Jeremy Hunt, announced major u-turns to the mini budget. We explain what those u-turns are, what is staying, and whether you can still save tax as a company.

Income Tax

The basic rate of income tax was going to be reduced from 20% to 19% from April 2023. This has been cancelled indefinitely, so the same reduction that was originally planned for April 2024 has also been cancelled.

Additional Tax Rates

The mini budget planned to abolish the additional tax rates on income over £150,000. For example the 45% income tax rates. This was cancelled so the additional rates will continue.

Corporation Tax

The mini budget cancelled plans to increase corporation tax in April 2023 from 19% to between 19% and 25% depending on profits. The increase will now go ahead. Companies with annual profits (divided by associated companies) of under £50,000 or over £250,000 will pay 19% or 25% corporation tax respectively. Companies inbetween those thresholds will pay a marginal rate somewhere between 19% and 25%.

Dividend Tax

Dividend tax rates increased in April 2022 by 1.25% in line with the increase to National Insurance rates. The mini budget proposed to reverse this increase from April 2023. However, this was cancelled so they will stay at the increased rates.

Energy Price Caps

This isn’t a tax but it affects everyone. The energy price cap for all domestic accounts was going to last for 2 years from October 2022 until September 2024. However, this will only be for the most needy from April 2023. We await an announcement about who or how the new price cap will apply.

IR35 Reforms

The IR35 rules for subcontractors were reverting to pre-2017 rules. This would mean that all subcontractors would decide for themselves whether or not the IR35 rules apply to them. However, this was cancelled so medium and large companies will determine whether IR35 applies to subcontractors.

Is anything staying?

• National Insurance rate reduction of 1.25% will continue to go ahead from November 2022.
• Removal of the bankers bonus cap.
• Stamp duty changes will go ahead as announced.

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Following the chancellors mini budget on 23rd September 2022, you can save tax by delaying bonuses and dividends. You could also save tax by delaying loans, income, and IR35 contracts. Read below to find out what to do.

Save NIC by delaying bonuses

National Insurance Contribution (NIC) rates were increased on 6th April 2022 by 1.25%. This applied to employees, employers and self employed profits. It was actually a healthcare levy which was supposed to go directly to the NHS. But due to the short timescale to set up the levy NIC was increased temporarily. It affected the lowest earners the most, so it was controversial. As a consequence the threshold at which you start paying NIC was increased on 6th July 2022. The threshold is now equal to the income tax threshold of £12,570. This meant that the lowest paid were better off overall.

However, the mini-budget will reverse the NIC increase from 6th November 2022. So NIC is reduced by 1.25% for employees, employers and self employed profits. The increase to the threshold will not change, otherwise the lowest paid would end up worse off.

If you are planning on paying bonuses to employees soon, you should delay the bonus until after 6th November 2022. As a result, both the employee and the employer will pay less NIC on the bonus by 1.25%. So a bonus of £10,000 postponed from October to November will save an employee £125. Also, it will save the employer £125.

Delay dividends to save tax

Business owners save tax by trading as a company, compared to being self employed or an employee. They do this by paying: a low rate of corporation tax; a small tax-free salary; and dividends with either no tax or a low tax rate. Company owners effectively avoided paying any NIC, so saved tax overall. A few years ago the tax rates on dividends was increased by 7.5% to close the gap between company owners and the self employed. There is still a tax saving by using a company but not as much. When the government increased NIC rates in April 2022 by 1.25%, they also increased dividend tax by 1.25%. So the dividends rates increased from 7.5%/32.5%/38.1% to 8.75%/33.75%/39.35%. The reason for this was to maintain the gap between the tax paid by company owners and the self employed.

In the mini budget, the chancellor cut the tax rate on dividends back to old rates of 7.5% etc. Again this was to maintain the gap in the tax paid by company owners and the self employed. However, this change will not take affect until the new tax year starts on 6th April 2023.

So if you can save tax by delaying dividends from the year ending 5th April 2023 to the year starting 6th April 2023. Similar to the NIC savings, a shareholder delaying dividends of £10,000 will save £125.

Directors loans

One way to save tax by delaying dividends, is to take money from your company as a short term loan instead. If the company already owes you that money, it won’t affect your tax by repaying that loan to you. If you end up owing the company money, you can repay that loan by declaring a dividend at a later date and not physically paying that dividend. Instead of physically paying the dividend, you are repaying the loan you took.

For example, let’s say you planned to take a dividend of £10,000 in March 2023. It could cost you tax of £875. Instead, you could take a loan from the company of £10,000 in March 2023. Then from 6th April 2023, declare a dividend of £10,000 which will cost you £750. But don’t pay that dividend, just prepare the meeting minutes/resolution and the dividend voucher. That unpaid dividend will repay the loan taken.

However, if you end up owing the company more than £10,000, you will need to pay interest on the loan at the beneficial loan interest rates. Also, if you owe the company money at the end of its financial year, and it is not repaid within 9 months of that date, it will be taxable. The tax is paid by the company, and eventually repaid to the company after the loan is repaid. The tax payable on loans to directors/shareholders is at the higher rate on dividends at the time the loan was taken. So loans taken in the year ending 5th April 2023 will be taxed at 33.75%. Loans taken after that date are taxed at 32.5%.

So you could also save tax by delaying a loan taken from company from the 2022/23 tax year until the 2023/24 tax year.

Delay profits or income

In the mini budget the chancellor scrapped the planned corporation tax increase from 19% to 25%. So companies trying to increase profit in the 2022/23 tax year, no longer need to. For example, companies may have delayed investment expenditure until 2023/24 to save tax at 25% rather than 19%. Or they could have moved their most profitable work forward from 2023/24 to 2022/23 to pay tax on that work at the lower rate. This is no longer necessary.

However, the reduction of the basic rate of income tax from 20% to 19% means that non-companies could save tax by delaying income. Perhaps employee bonuses planned for March 2023 could be delayed until April 2023 to save 1% of tax. This change also affects self employed profits. So shifting profit from 2022/23 to 2023/24 will save tax at 1%. This could be done by bringing forward any investment in equipment. Or by delaying profitable work.

Delay IR35 contracts to save tax

Since 2017 (public sector) and 2021 (non-small private sector), contractors have determined whether a subcontractor is caught by IR35. That is the Off-Payroll Working rules, which meant the contractor and subcontractor had to pay the same taxes as if the subcontractor was an employee. Many organisations erred on the side of caution with this to ensure they met the regulations. As a result, many genuine subcontractors were taxed as employees despite having more risks and less benefits.

In the mini-budget, the chancellor proposed scrapping the new reformed IR35 rules. This means that from April 2023 all subcontractors can determine for themselves, whether or not they are caught by the rules.

It is unclear at the moment how the transition will work in practice, as many contracts will straddle the 5th April 2023. However, there could be an opportunity to delay a new contract until 6th April 2023 to ensure the subcontractor decides whether IR35 applies. A genuine subcontractor will pay less tax than an employee. This is to reflect the fact they have all the risks of running their own business, and none of the benefits of being an employee. So subcontractors could save tax by delaying a contract.

Other ways to save

As well as keeping our accountancy fees low – see how much you could save – we’re always looking for ways our clients can save tax. Get in touch with us so you can save too.

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**PLEASE NOTE THAT MOST OF THE CHANGES BELOW HAVE BEEN CANCELLED**

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Mini Budget Summary

We knew that the new Prime Minister wanted to cut income tax rates. She told us repeatedly. We did not expect action so soon after the appointment of the new Chancellor. We certainly did not expect the scrapping of the 45% ‘additional rate’ tax band for those earning over £150,000. In the ‘mini budget’ the new Chancellor, Kwasi Kwarteng, delivered a package of more than 30 measures. The intention is to tackle high energy bills, drive down inflation and cut taxes to drive growth. You can read full details on the mini budget here.

Income Tax changes

In April 2010 the government introduced an ‘additional’ tax rate of 50%. The additional rate reduced to 45% three years later. From 6 April 2023 it will be no more. The 40% band will now be the highest tax rate. The 13.7% ‘additional’ rate taxpayers will pay less tax. Also, now everyone will benefit from the £500 personal savings allowance. The level of personal allowances remains, meaning taxpayers earning more than £125,140 will still have no personal allowances.

The government also reversed the increase in dividend rates from 6 April 2023. So the tax rates of income tax in England and Northern Ireland will be:

Earnings band (after allowances)		On earnings and profits		On dividends
Basic rate (0 to £37,700)		19%		7.5%
Higher rate (above £37,701)		40%		32.5%
Additional rate		Abolished		Abolished

This reduction/cancellation in tax rates is pleasing for the individual taxpayer. But it will affect tax relief given at source (currently at 20%) on pension contributions and Gift Aid donations. The government has confirmed that there will be a four-year transition period for Gift Aid relief. This is to maintain the income tax basic rate relief at 20% until April 2027. There is also a one-year transitional period for ‘Relief at Source’ pension schemes.

NIC changes

The rates of class 1 NIC will be back to the levels in place on 5 April 2022. But the rates imposed from 6 April 2022 to 6 November 2022 remain so there are two periods in the tax year. Firstly, for the first seven months (6 April to 5 November 2022). Secondly, for the remaining five months (6 November 2022 to 5 April 2023). The calculation means that over the year the main Primary rate payable by the employee will be 12.73%. That’s seven months at 13.25% and five months at 12%. The main Secondary rate payable by the employer will be 14.53% (15.05% and 13.8%). Corresponding rates of Class 4 NIC for the full tax year 2022/23 will be 9.73% and 2.73%. A reduction from 10.25% and 3.25% to 9% and 2% respectively.

The figures are as follows:

Employees’ class 1 NIC

12% on earnings in the band: £1,048 to £4,189 per month (£12,570 to £50,270 per year)

2% on earnings above £4,189 per month (£50,270 per year)

Employers’ class 1 NIC

13.8% on earning above £758 per month (£9,100 per year)

The employment allowance remains at £5,000.

Take care if payroll occurs around the changeover date. Depending on when software updates occur, the software could deduct too much NIC. Any net pay underpayment should be sorted out in the following payroll run.

Other key tax announcements

The statement included the reversal of a string of planned tax rises. Including the intended increase to 25% in the corporation tax rate originally set for 6 April 2023. This remains at 19%. The government also cancelled planned beer, wine, cider, and spirits duty rate increases. Overseas shoppers can now shop sales- tax free in the UK.

The Annual Investment Allowance provides a 100% tax deduction for up to £1m of equipment purchased in a year until 1 April 2023. But the government cancelled the cap reduction to £200,000 on 1 April 2023, keeping it at £1m indefinitely.

Queries remain over the application of the ‘super relief’. This is where qualifying expenditure on new plants and machinery incurred from 1/4/2021 to 31/3/2023 receives 130% tax relief. Thus creating an effective 24.7% tax relief on expenditure (130% x 19%). As the corporation tax rate remains at 19% from 1/4/2023, we emphatically await confirmation that this relief will remain.

The Enterprise Investment Scheme provides tax incentives for individuals to subscribe for shares in unquoted trading companies. It was due to end in 2025 but this will now continue for an undefined period. Similarly, Seed Enterprise Investment Scheme provides tax relief for investment in small trading companies. This also remains in place with increases in the annual investment caps of £100,000 per investor, £150,000 per company.

IR35 reversal

IR35 never really went away – the rules just changed. Now from 6 April 2023, another change means we are back to the original 2017 rules. So the government has scrapped the off-payroll working rules for public sector (from 6/4/2017) and for large private sector (from 6/4/2021). Consequently, it will now be up to the subcontractors to decide whether the IR35 rules apply. I.e. is there an employment relationship between the worker and the engager?

Stamp Duty Land Tax

From 23 September 2022, the SDLT threshold (on residential property) has doubled from £125,000 to £250,000. Consequently, there is no longer a 2% tax rate, saving purchasers a potential £2,500.

Our clients can get advice on any of the mini budget changes for no extra charge. That’s because we include advice in our monthly fixed fees which you can see on the Pricing page. You can also tailor an instant quote.

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A mini budget, only by name! What are your thoughts?

CANCELLED: Corporation tax increase to up to 25% next year cancelled. It will remain at 19%.

REPEALED: New IR35 rules started in 2017 (public sector) and 2021 (private sector). Presumably, all subcontractors can decide whether they are caught by IR35 rules, contractors don’t deduct PAYE/NIC.

REVERSED: 1.25% increase in NIC and dividends, from November.

ABOLISHED: The additional rates of tax (45% on income over £150k), from April.

DOUBLED: Stamp duty threshold doubled from £125k to £250k.

INCREASED: Stamp duty threshold for first time buyers increased from £300k to £425k.

TAX CUT: Income tax rate cut from 20% to 19% from April 2023.

SCRAPPED: Bankers bonus cap

INCENTIVES: extra tax relief for 40 investment zones.

PUNISHMENTS: Extra incentives/punishments to encourage people to work more/better.

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MTD for Income Tax (Making Tax Digital) will become compulsory soon. You will probably be wondering: What is MTD for Income Tax? Does MTD for Income Tax apply to me? When will MTD for Income Tax start? What do I need to do for MTD for Income Tax? This post will address all of your questions about Making Tax Digital for Income Tax.

What is MTD for Income Tax?

MTD stands for Making Tax Digital. It already applies to VAT returns. Soon, MTD will apply to Income Tax. Under MTD, HMRC requires businesses to keep digital records of their transactions. Then those businesses need to submit the totals of the transactions to HMRC using software. There must be a digital link between the transactions and the totals submitted to HMRC. Digital link means that you can’t re-enter or copy and paste amounts, the software must be ‘attached’ to the total of your transactions. You can still have paper invoices and receipts, but you will need to enter them into accounting software or a spreadsheet with a formula for the totals i.e. =sum(cell:cell).

How often are MTD reports required?

For Income Tax, the MTD returns will be quarterly and annually. All businesses will need to prepare reports to the tax year (5th April) and the tax quarters (5th July etc). There will be an option to change these to the month end just before those dates (31st Mar, 31st Jul etc).

Does MTD for Income Tax apply to me?

MTD for Income Tax will apply to most sole traders and many landlords. However, sole traders and landlords will be exempt if annual sales/rents are less than £50,000 (£30,000 from April 2027). The limit is per person, so if a property is jointly owned, you can halve the rental income when testing for the £50,000/£30,000 limit. When testing the £50,000/£30,000 limit for a particular tax year, you need to go back 2 years. So use your income that was included on the tax return that was due just before the tax year starts. So your income for the 2023/24 tax year will determine whether you are exempt or not for the 2025/26 tax year. That’s because it’s due by 31st January 2025, a few months before the start of 2025/26.

If annual sales are less than the VAT registration threshold (currently £85,000), only two amounts will be required. They are total income and total expenditure. However, you should also keep categorised totals to help check that there are no errors or omissions. Balance sheet amounts are not required.

When will MTD for Income Tax start?

Unless you are exempt, you will need to comply from 6th April 2026 (was 2024 but it was delayed by 2 years). The first quarter ending 5th July 2026 will need to be submitted by 5th August 2026. The returns and deadlines will be quarterly thereafter. The first End Of Period Statement (EOPS) will be for the year ending 5th April 2027 and will be due by 31st January 2028.

What do I need to do for MTD for Income Tax?

Change your year end to 5th April or 31st March

All sole trader businesses and landlords will need to prepare accounts to the tax year 5th April. There will be an option to change this to 31st March. If you currently prepare accounts to a different date, you will need to have a long period to change it to the tax year as soon as possible.

Get your Overlap Relief for MTD

If you need to extend your accounting period to end on the tax year end, it may mean that you have a higher tax bill than expected. However, you will be able to claim overlap relief. when you first started trading you will have had some profits taxed twice due to an overlap of periods. That’s because the first year would have been taxed up to the tax year end, the second year will have been taxed to the full accounting year end. You will be able to claim overlap relief which will reduce your taxable profit. You will need to contact HMRC to ask for the amount of your overlap profits, unless you or your accountant has a note of it.

Use Accounting Software for MTD

The easiest way to comply with MTD is to start using accounting software, such as Pandle (free or we can get Pandle Pro for £2.50pcm). Xero, QuickBooks and FreeAgent are other good options. After entering or importing your bank transactions, you just need to categorise each one. You can import using a CSV bank statement or an automatic bank feed. Then at the end of every quarter you will be able to simply click a few buttons to submit your MTD update to HMRC.

Or use Bridging Software for MTD

If you don’t want to use full accounting software, you could use a spreadsheet together with bridging software that will submit the totals of your spreadsheet to HMRC. You will need to direct the bridging software to the correct totals on your spreadsheet every quarter.

Retailers Need Daily Records for MTD

If you have a retail business, you don’t need a digital link back to every individual sale. However, the digital links must start from daily sales totals, not weekly and not monthly.

Keep separate records for separate businesses

If you are a landlord and have a trading business, your landlord records will need to be separate from your trading records. If you have more than one trade, you will need to keep separate digital records for each trade.

Cash or Accruals Basis for MTD

Quarterly updates can be on either the cash or accruals basis. If you qualify to use the cash basis, you can use the cash basis for The End Of Period Submission (EOPS), or you can use the accruals basis. The EOPS doesn’t have to be on the cash basis if the quarterly updates are cash. You adjust the EOPS with accounting adjustments (such as private use adjustment), so it will be different to the totals of the 4 quarterly updates.

Can I avoid MTD for Income Tax?

Not unless you are exempt – see above Does it apply to me section. You could transfer everything to a company. However, you may have to pay capital gains tax and companies are also in the pipeline for MTD but not until 2026 at the earliest.

Can accountants submit MTD returns?

Yes, we already submit MTD VAT returns and we will be offering to submit quarterly and annual MTD for income tax reports. Sole traders will need to be on our Quarterly packages. Landlords will need to be on our Investor+ tax return package. Click below for our prices and an instant quote.

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