In readiness for the new tax year starting in April 2023, Chancellor Jeremy Hunt delivered the government’s Spring Budget announcement. We explain what the changes mean for employees and employers, and self-employed business owners, sole traders, directors, and limited companies.
The planned update to the rate of business tax paid by limited companies will go ahead, taking effect from 1st April 2023. The changes mean that companies will pay Corporation Tax based on their reported profits:
Companies with profits up to £50,000 will continue to pay Corporation Tax at 19%
The rate increases to 25% for companies reporting profits over £250,000
Marginal relief will provide a gradual tax rate increase for those falling between the two
R&D tax credits give tax relief to businesses on the cost of their research and development expenses. There are two versions of the scheme, both of which will be updated from April 2023:
Research and Development Expenditure Credit (RDEC) scheme: Aimed at larger businesses, the rate of tax relief available will increase from 13% to 20%
SME scheme: The enhancement that smaller business can claim will reduce from 130% to 86%. However, eligible loss-making research-intensive businesses spending more than 40% of their total expenditure on R&D could claim £27 for every £100 they spend on R&D
Capital Allowances are a type of tax relief that companies can claim against the cost of investing in long-term business assets. There are already different types of Capital Allowances available, but with the heroically named super-deduction due to end in March 2023, the government have announced new measures to replace it.
Full Expensing (FE): This means that between 1st April 2023 and 31st March 2026 businesses can deduct 100% of the cost of some main-rate plant and machinery from their profits before tax.
50% first-year allowance for special rate assets:(FYA) Taxpayers can deduct 50% of the cost of assets that would normally fall into the special rate pool. This scheme was originally introduced alongside the super-deduction, but the government are now extending it until 31st March 2026.
Updates to free childcare
In the hope of helping some parents with costs, the Chancellor announced new measures for free childcare in England. Equivalent funding is expected to be announced for Wales, Scotland and Northern Ireland.
Under the current rules, children aged three and four are eligible for 30 hours of free childcare each week, and this will now be extended to include children over the age of 9 months, with effect from April 2024.
The cap on household energy bills was due to increase in April 2023, but the Energy Price Guarantee has now been extended at the current level until the end of June 2023, limiting the bill for a typical household to £2,500. It might offer some protection if you run your business from home, but remember you can only claim tax relief on the portion of your bills relating to the business.
For eligible businesses and other non-domestic users the Energy Bills Discount Scheme will replace the Energy Bill Relief Scheme. It offers support for high energy bills until 31 March 2024, and for those businesses operating in sectors which require high levels of energy use in particular.
The amount you can save into your pension pot in a tax year before starting to pay tax is currently £40,000. Known as the annual tax-free pension allowance, the threshold will increase to £60,000 from April 2023.
Under current rules you’ll also normally pay tax if your pension pot goes above the lifetime allowance of £1,073,100. The Spring Budget removes this charge, with plans to abolish it completely in a future Finance Bill.
The point at which taxpayers start paying the 45% additional rate on income will reduce from £150,000 to £125,140 as of April 2023. It means that high earners will pay the additional rate on more of their earnings.
Basic rate tax
A planned reduction to the basic rate of income tax will no longer go ahead. Originally expected to take effect from April 2023, the income tax basic rate will remain at 20% for the foreseeable future.
The personal tax allowance and tax thresholds frozen
An increase to income tax thresholds and the personal tax allowance is normally welcome, because the point at which you start paying tax goes up – hopefully matching rising wages in line with inflation. When the tax thresholds are frozen but pay goes up, it means you’ll eventually pay tax on more of your earnings.
Income tax thresholds have been frozen until 2028.
Business rates are a type of tax charged on non-domestic properties, such as shops and offices. To help businesses affected by new property valuations impacting rates, the Government announced in late 2022 that they are introducing a new £13.6 billion support package. The government’s business rates factsheet explains the measures in more detail, or ask your accountant for help with anything you’re unsure of.
Capital Gains Tax
Normally only individuals pay Capital Gains Tax (CGT), but this does mean it also applies where a business isn’t legally distinct from its owner, such as a sole trader or partnership.
The Capital Gains Tax allowance reduces in April 2023, and again in April 2024.
You’ll pay Capital Gains Tax on gains that you make above the tax-free allowance. Also known as the Annual Exempt Amount, the thresholds will change in the new tax year:
The allowance reduces to £6,000 for the 2023/24 tax year
It reduces again to £3,000 for the 2024/25 tax year