What are the upcoming tax changes from April 2023?

What are the upcoming tax changes from April 2023?

The Chancellor has made a raft of tax announcements both in the Autumn Statement 2022 and the Spring Budget 2023.

April 2023 sees a number of tax changes that business owners need to be aware of. These changes include amendments in Corporation tax rates, the tax-free dividend allowance, Capital gains tax free allowance amendments and R&D tax relief changes from April 2023.

In this blog, we'll cover the main changes for tax year 2023/24 and how to get your personal tax planning and corporate tax planning in order.

Upcoming tax changes from April 2023

The Chancellor, Jeremy Hunt has introduced amended tax rates and freezing of thresholds in the Autumn statement 2022 and also some fresh announcements in the Spring Budget 2023. Below we summarise all the changes that business owners should be aware of from April 2023.

Capital expenditure / super deduction

In the Spring Budget, the Chancellor announced a replacement to the capital allowance super deduction that was set to end on 31 March.

The new scheme will be as follows:

Full Expensing (FE) - From 1 April 2023 to 31 March 2026, businesses can deduct 100% of the cost of certain plant and machinery from their profit before tax. The Chancellor expressed that his hope is to make full expensing permanent in the future.

First Year Allowance (FYA) - This lets companies deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long life assets such as solar panels and thermal insulation on buildings. This scheme has also been extended for three years until 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs).

Corporation Tax

Corporation Tax is scheduled to increase from 1 April 2023. For companies with profits of less than £50,000, the rate remains at 19%. For businesses whose taxable profits exceed £250,000, the rate will increase to 25%. For companies in between there will be a sliding scale of rates.

Companies with taxable profits between £50,000 and £250,000 will pay tax at the 25% rate, but this will be reduced by a marginal relief meaning CT rates of between 19% and 25%.

Read more about increases in Corporation Tax here.

Capital Gains Tax

The capital gains tax annual exemption will fall to £6,000 for disposals on or after 6 April 2023 and further reduce the exemption to £3,000 for disposals on or after 6 April 2024.

Research and Development

The Research and Development expenditure Credit (RDEC) rate will increase from 13% to 20% for businesses undertaking Research and Development (R&D) expenditure after April 1, 2023, however the small and medium-sized companies (SME) extra deduction will reduce from 130% to 86% and the SME credit rate would decrease from 14.5% to 10%.

A new R&D scheme was announced for 20,000 R&D intensive SMEs in the UK from 1 April 2023. This will apply to companies where its qualifying R&D expenditure is worth 40% or more of its total expenditure.

The Spring Budget saw changes for some sectors that claim Audio Visual Tax Relief, with the introduction of expenditure credit at a rate of 34% for film, high end television and video games and 39% for the animation and children's TV sectors. It was also confirmed that the qualifying threshold for high end television at £1m would be maintained.

UK investment zones

Great news for the North West and Wales in the Spring Budget with  the announcement of twelve new investment zones across the UK. In the North West two new investment zones will be created in Liverpool and Greater Manchester and Wales is also included.

Businesses within these new investment zones will have access to a 5 year enhanced tax offer matching that of previously announced freeports. These tax measures include enhanced rates of Capital Allowance, Structures and Buildings Allowance, and relief from Stamp Duty Land Tax, Business Rates and Employer National Insurance Contributions. Alongside this, Investment Zones will have access to flexible grant funding to support skills and incentivise apprenticeships.

Other zones in England, are in the West Midlands, East Midlands, North East, South Yorkshire, Tees Valley and West Yorkshire.

Pensions

One of the big surprises of the Spring Budget was the removal of the pensions lifetime allowance charge and the increase in the Annual Allowance to £60,000 from April 2023.

This is good news for business owners and the self-employed that want to invest more for retirement.

Dividend tax-free allowance

The Chancellor has cut the dividend allowance to £1,000 from 6 April 2023 and reducing it further to £500 from 6 April 2024.

Additionally, from April 2023, the rates of taxation on dividend income will remain as follows:

• the dividend tax ordinary rate - 8.75%
• the dividend tax upper rate - 33.75%
• the dividend tax additional rate - 39.35%.

Income tax thresholds

Whilst the rate of income tax remains unchanged from 2022/23, some thresholds and allowances are changing or remaining the same, which means many people will pay more income tax going forward.

If you are a higher rate taxpayer, you will be hit with the income tax additional rate threshold (ART) reducing from £150,000 to £125,140 from 6th April 2023. Changes to this additional top rate tax band, means that more taxpayers will pay income tax at the higher rate of 45% once their income goes above £125,140. The new threshold will apply to higher earners in England, Wales, and Northern Ireland.

The income tax personal allowance of £12,570 is frozen until 2028.

National Insurance

The NIC primary threshold for employees and the Class 2 Lower Profits Threshold for the self-employed will both be frozen until April 2028.

Inheritance tax threshold

The Inheritance Tax (IHT) nil-rate band of £325,000 will be frozen until April 2028. In addition, the residence nil-rate band will also be frozen at £175,000. The residence nil-rate band taper will be frozen at £2 million.

VAT registration threshold

The VAT registration and deregistration thresholds will also be frozen at £85,000 and £83,000, respectively for a further period of two years from 1st April 2024.

The National Living Wage (NLW) and National Minimum Wage (NMW)

The government will increase both the NLW and NMW from April 2023 as follows:

• Employees aged 23 and over: £10.42 per hour.
• Employees aged 21 – 22: £10.18 per hour.
• Employees aged 18 – 20: £7.49 per hour.
• Employees aged 16 – 17: £5.28 per hour.
• Apprentices: £5.28 per hour.

State pension

The reinstatement of the triple lock for state pensions comes into effect from 6 April 2023. It means that the State Pension will rise in line with September’s inflation rate of 10.1%. This is the biggest ever increase to the State Pension.  This was announced in last year's Autumn Statement.

Your State Pension age is the earliest age you can start receiving State Pension. You can check your State Pension age on the UK Government’s website.

State Pension age rose to 66 last year, but it’s regularly reviewed to take into account things like affordability and life expectancy. It’s currently being reviewed and is predicted to rise to 68 soon.

How can you plan ahead for these tax changes?

Planning ahead is always key with any tax changes or changes in circumstances. Speak to us today to help you with your tax planning. How you plan for changes will depend on your individual circumstances and your business circumstances.

It is important that you make use of all available allowances and tax relief for your business.

Personal tax can be complicated, with increased legislation and changing circumstances such as marriage, divorce, school fees planning, retirement, and long-term care.

Our personal tax planning helps you to structure your personal tax affairs tax efficiently dependent on your own personal circumstances. Careful tax planning has a big impact and could dramatically cut the tax you pay. We’ll work with you to come up with an individual tax planning strategy that ensures you don't pay more tax than is necessary.

Whether you run a single company or a whole group, we’ll make sure you can retain more profit or extract more value from your business with comprehensive corporate tax planning.

Paying tax that is due is important, however, we help to ensure you don't pay too much tax.

In Summary

With a number of tax rate changes looming and frozen thresholds and tax allowances, now is an important time to consider your personal and corporate tax planning.

Get in touch with Haines Watts today for tax advice.

Contact our offices in Chester, Liverpool or Wirral for help and advice.