2023 Spring Budget Update
On Wednesday 15th March 2023 Chancellor Jeremy Hunt published the Spring Budget for the 2023/2024 financial year and beyond.
Many tax rates and allowances remain as set out in the 2022 Autumn Statement with key changes to pensions and corporation tax capital allowances.
Here are the latest updates for limited companies, sole traders, partnerships and individuals;
Tax Rates and Allowances unchanged from the 2022 Autumn Statement
Corporation Tax - the rate for profits of more than £250,000 will increase to 25% from April 2023. Profits below £50,000 remain at 19%. Profits between £50,000 and £250,000 will be tapered between 19% and 25%. (More information can be found here).
Dividend Tax - rates remain the same at 8.75% at the basic rate (earnings of £12,570 to £50,270), 33.75% at the higher rate (£50,270 to £125,000) and 39.35% at the additional rate (£125,140 and above). Note - the additional rate threshold has been reduced from £150,000 to £125,140.
Dividend Tax Free Allowance - the tax free dividend allowance will reduce from £2,000 per year to £1,000 per year from 23/24, it will then further be reduced to £500 from 24/25.
Personal Allowance - the allowance is frozen at £12,570 until 2025/2026. This also applies to the higher rate (£50,270) and additional rate thresholds (£125,140). The personal allowance is the amount of personal income (self-employment, dividends, rent, etc) that can be earned tax free.
Class 2 National Insurance (Sole Trader Income) - the class 2 NI threshold will increase by £210 to £6,725 for 2023/2024. Sole Trader profits above £6,725 will pay Class 2 NI of £3.15 per week.
Class 4 National Insurance (Sole Trader Income) - the class 4 NI threshold will increase by £2,340 to £11,908 for 2023/2024. The class 4 NI rate is 9.73% (2.73% for profits above £50,270).
Income Tax - rates remain the same at 20% (basic rate - £12,570 to £50,270), 40% (higher rate - £50,270 to £125,140), 45% (additional rate - £125,140 or more). Note - the personal allowance remains frozen (see above).
Class 1 National Insurance (PAYE employees / directors) - the employee threshold remains at £12,570 for the 2023/2024 tax year.
VAT - the mandatory VAT registration threshold will remain at £85,000 of VAT-able revenues for 2023/2024 (calculated on a rolling twelve monthly basis). This is planned to be frozen until 2025/2026.
Making Tax Digital for Income Tax (MTD for ITSA) - applies to self-employed sole traders and landlords with gross income of £10,000 per year or more from April 2024. Read more on MTD for ITSA here.
Tax Rates and Allowances updated from the 2022 Autumn Statement
Pension Lifetime Allowance - the cap on the amount that individuals can accumulate in pensions savings over their lifetime before having to pay extra tax - currently £1.07m - will be abolished.
Pension Tax Free Allowance - the tax-free yearly allowance for pension pots is to rise from £40,000 per year to £60,000 per year - having been frozen for nine years.
Corporation Tax Capital Allowances - from 1st April 2023, the main rate allowance will be set at 100% and the special rate allowance at 50%. This replaces the previous capital allowance ‘super deductions’. Companies will therefore be able to claim the full cost of capital expenditure in year one against corporation tax liabilities, provided the item qualifies for the main rate allowance.
Capital expenditure that qualifies for the special rate allowance (50%) includes; parts of a building considered integral - known as ‘integral features’, items with a long life, solar panels, thermal insulation added to a building as well as company cars with CO2 emissions over a certain threshold. Most other capital expenditure will qualify for the main rate allowance (100%).