On 15 March 2023, Chancellor Jeremy Hunt presented his first Budget to Parliament and set out a plan to reduce inflation, grow the economy and get government debt falling all whilst avoiding a recession and tackling labour shortages.
Below we set out some of the main points.

INCOME TAX

Increasing liabilities

The personal allowance and basic rate band threshold are now frozen in place until 5 April 2028. As earnings increase, individuals will move into higher tax bands. This is often referred to as ‘fiscal drag’ because it will raise more tax without the government increasing income tax rates.

The personal allowance continues to be partially and then fully withdrawn for higher earners, with £1 of personal allowance lost for every £2 of adjusted net income over £100,000.

 

Summary table of key income tax rates and allowances for the tax year to 5 April 2024 (2023/24)

Band	Taxable Income	Tax rate in 2023/24
		Other income	Savings income	Dividend income
Personal allowance	Up to £12,570	0%	0%	0%
Basic rate	£12,571 – £50,270	20%	20%	8.75%
Higher rate	£50,271 – £125,140	40%	40%	33.75%
Additional rate	Over £125,140	45%	45%	39.35%

Other allowances

Savings income continues to benefit from a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Dividend income attracts a £1,000 dividend allowance in 2023/24, down from the £2,000 allowance seen in previous years. These allowances are in addition to the personal allowance and attract a 0% rate of income tax.

 

Pensions

It is proposed that from April 2023:

• The lifetime allowance limit is abolished.
• The maximum pension tax-free lump sum is frozen at 25% of the current lifetime allowance limit.
• The annual allowance is increased to £60,000 per year (currently £40,000) with increases to the tapered annual allowance and adjusted income level.
• In addition, there will be changes to the taxation of Serious Ill-Health Lump Sum (SIHLS), Defined Benefits Lump Sum Death Benefit (DBLSDB) and Uncrystallised Funds Lump Sum Death Benefit (UFLSDB), which are currently subject to a 55% tax charge above the LTA, to ensure that they are instead taxed at an individual’s marginal tax rate.

The proposed measures mean that from April 2023 no taxpayer should face a lifetime allowance charge on their pension pot.

The LTA has caused some high earners, particularly doctors, to retire early as tax charges apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded.

 

From April 2024:

There is a previously announced measure placing a duty on HMRC to make top-up payments to individuals who save into an occupational pension under net pay arrangements if their total taxable income is below the personal allowance.

 

CAPITAL GAINS TAX

No further announcements were made in respect of CGT rates and allowances since last Autumn where the following allowances were set.

From April 2023:

• Finance Act 2023 reduces the Annual Exemption from £12,300 to £6,000 for individuals and personal representatives (and only £3,000 in 2024/25), and from £6,150 to £3,000 for most trustees.
• The proceeds reporting limit for CGT is fixed at £50,000.

Couples who are in the process of separating, or who have commenced divorce proceedings, need to be aware of new rules taking effect from 6 April 2023 concerning the transfer of capital assets between them as a result of their separation.

 

VAT

The VAT registration and deregistration thresholds continue to be frozen at £85,000 and £83,000 respectively, instead of increasing each year in line with inflation. This will remain the case until March 2026.

Since 1 January 2023, a new penalty regime has been in operation for late VAT return submission and late payment of VAT.

The new points system is designed to target more persistent offenders, with penalties escalating quickly where defaults reoccur.

 

BUSINESS TAXES

National Insurance Contributions (NIC) for the self-employed in 2023/24

Self-employed individuals are required to pay Class 2 and Class 4 NICs if their profits exceed £12,570. These NICs are usually collected with the individual’s income tax self-assessment payments.

For 2023/24, Class 2 NICs are calculated at £3.45 per week and Class 4 NICs are calculated at 9% on profits between £12,570 and £50,750, and at 2% on profits over £50,750.

 

Making Tax Digital (MTD) for Income Tax

Under MTD for Income Tax, businesses will keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements will not be phased in until April 2026, starting with sole traders and property landlords with gross income over £50,000. Other individuals subject to Income Tax will follow at a later stage.

 

Tax Relief for expenditure on plant and machinery

The Annual Investment Allowance (AIA), giving 100% tax relief to unincorporated businesses and companies investing in qualifying plant and machinery, is now permanently set at £1million.

The super-deduction, which gives enhanced 130% relief for new qualifying plant and machinery acquired by companies, will end on 31 March 2023.

As a replacement for the super-deduction, ‘full expensing’ (effectively 100% tax relief, called a ‘First Year Allowance’ (FYA)) will be available to companies incurring expenditure on new qualifying plant and machinery between 1 April 2023 and 31 March 2026. The qualifying criteria is quite broad although there are exclusions, including cars and features integral to a building (for example, heating systems). With regard to ‘integral features’, a smaller 50% FYA will be available. Subsequent disposals of assets on which one of these FYAs has been claimed will trigger a clawback of tax relief at a rate of 100% or 50% of the disposal proceeds, depending on the rate of the original relief. These new FYAs will mainly be of interest to companies that have already fully utilised their £1million AIA.

The separate 100% FYA for electric vehicle charge points remains available for unincorporated businesses and companies until Spring 2025.

 

Unincorporated businesses and their accounting year-ends (Basis period reform)

Unincorporated businesses that prepare annual accounts to a date other than 31 March or 5 April will soon need to adopt a new process for how the profits or losses arising in those accounts are reported to HMRC.

At present, ‘basis period’ rules apply that broadly allow annual accounts that end in a tax year to act as the basis of profits or losses arising in that tax year.

This new system starts with transitional rules in the tax year ending on 5 April 2024 (2023/24). Going forwards, actual profits or losses arising in a tax year must be reported to HMRC, but this does not necessarily require a change in accounting year-end.

Unfortunately, this will make it harder for some self-employed individuals to predict their income tax liabilities, but we will be on hand to help you.

 

CORPORATE TAXES

New rates from 1 April 2023

From 1 April 2023, the rate of Corporation Tax will increase to 25% if a company’s profits exceed £250,000 a year. The current 19% rate will however continue to apply where profits are no more than £50,000 a year.

Where a company’s profits fall between £50,000 and £250,000 a year, the profits are taxed at the higher 25% rate, but a ‘marginal relief’ is given to reduce the liability, with the effective rate being closer to 19% for those with profits just over £50,000.

Companies in the same corporate group (or otherwise connected by association) must share the £50,000 and £250,000 thresholds between them, making the 25% rate more likely to apply.

 

Research & Development (R&D) Reliefs

From 1 April 2023 a raft of changes is coming to the R&D tax relief regime and claimant companies should consider obtaining updated advice if they’ve not already done so. The key changes are:

• The Research and Development Expenditure Credit (RDEC) available to non-SME companies will be increased from 13% to 20%.
• For SME companies, R&D tax relief rates will be reduced from 230% to 186%.
• For loss-making SME companies, the current payable credit of 14.5% will only be available for companies whose R&D expenditure constitutes at least 40% of their total expenditure. For R&D claimants that don’t meet the new 40% test, the payable credit will be reduced from 14.5% to 10% of the eligible loss.
• Qualifying R&D expenditure will be expanded to include data licences and cloud computing services.
• New claimants (those who have not made a claim in the previous 3 years) will be required to inform HMRC of their intention to make a R&D claim within 6 months of the end of the accounting period to which the claim relates.

From 1 August 2023, additional information requirements will need to be fulfilled when making a R&D claim.

Creative industries tax reliefs

The government continues to support the creative industries by reforming and enhancing film, TV and video games tax reliefs. The government will also extend the temporary higher rates of theatre, orchestra, and museums and galleries tax reliefs for 2 further years until April 2025.

EMPLOYMENT TAXES

National Insurance Contributions (NICs)

Like the main income tax bandings, employer and employee NIC thresholds are now also frozen until 5 April 2028. This broadly means that employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year (£175 per week) and employees will continue to pay 12% on earnings between £12,570 and £50,270 and 2% thereafter.

 

Company Cars and Other Benefits

Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. Employers also pay Class 1A NIC at 13.8% on the value of benefits.

The set percentages used to calculate company car benefits are fixed until 5 April 2025 before slight increases apply to most car types, including electronic and ultra-low emission, from 6 April 2025.

More imminently, the figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) will increase in line with the Consumer Price Index (CPI) from 6 April 2023. These will become:

• Van benefit £3,960
• Van fuel benefit £757
• Car fuel benefit multiplier £27,800

National Minimum Wage

The hourly rates applicable from 1 April 2023 are:

Over 23                  £10.42 21 to 22                  £10.18 18 to 20                  £7.49

Under 18             £5.28 Apprentice           £5.28

 

COST OF LIVING SUPPORT

Energy Costs

The Energy Price Guarantee (EPG) brings a typical household energy bill in Great Britain down to around £2,500 per year. It has now been announced that the £2,500 EPG will be extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31 March 2024. This extra 3 months at £2,500 will be worth £160 for a typical household.

In Northern Ireland, a similar scheme operates, reducing typical household energy bills to around £2,109 per year. This has also been extended at the same rate until 30th June 2023.

A new scheme for businesses, charities and the public sector has been confirmed. The Business Energy Bills Discount Scheme will run until 31 March 2024, giving non-domestic customers discounts on their gas and electricity bills.

 

Childcare

Additional support is being provided towards childcare costs in what the government describe as a ‘childcare revolution’. This includes 30 hours of free childcare for every child over the age of 9 months, with support being phased in until every eligible working parent of under 5s gets this support by September 2025.

From April 2024:

• Children from the age of two will be entitled to 15 hours of free childcare.
• Children from three to four will be entitled to 15 hours of childcare, which can be increased to 30 if the parents are eligible (see below).

From September 2024:

• Children from the age of nine months will be entitled to 15 hours of free childcare.
• Children from three to four will be entitled to 15 hours of childcare, which can be increased to 30 if the parents are eligible (see below).

From September 2025:

• Working parents of all children over nine months but under five will be entitled to 15 hours of free childcare, this can be increased to 30 if the parents are eligible (see below).

It is worth noting that the free hours of childcare are for 38 weeks of the year.

For Universal Credit claimants, the government will also pay childcare costs in advance rather than arrears, when parents move into work or increase their hours. The maximum they can claim will also be boosted to £951 for one child and £1,630 for two children, an increase of around 50%.

Benefits and State Pension

As confirmed at Autumn Statement 2022, the government will also increase benefits, including the State Pension, paid to recipients in the tax year to 5 April 2024 by 10.1%.

This increase in the State Pension means that most pensioners will receive £10,600 in 2023/24, where they have 35 qualifying years. Individuals are being urged to check their contribution record on their Government Gateway account and consider making Class 3 voluntary National Insurance (NI) contributions in respect of missing qualifying years. Normally it is only possible to make voluntary NI contributions for the past 6 tax years, but until 31 July 2023, it is possible to go back as far as 6 April 2006 and pay additional contributions at the 2022/23 Class 3 rate of £15.85 per week.

In-year Class 3 contributions for 2023/24 will increase to £17.45 per week.

 

Please email us at info@mooreaccountancy.co.uk if there are any questions you have on the aforementioned update.