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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.
 

Corporation Tax

R&D changes

Capital Allowances

Childcare

Energy prices

Private pensions

Other changes taking effect from April 2023

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:

Learn more about Corporation Tax and Marginal Relief in our article.

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:

Read our article to learn more about the changes to R&D Tax Relief.

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.

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.

Without a workplace pension to pay into, lots of self-employed people rely on private pensions to help them prepare for the future. It can be a tax-efficient way to save, with the Government offering tax relief on private pension contributions.

 

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Though they didn’t get top billing in the Chancellor’s Spring Budget, other updates announced in the Autumn Statement 2022 are also rolling out from April 2023.

Employers must pay the National Living Wage to any employees aged 23 or older, and not in the first year of an apprenticeship.

The National Minimum Wage (NMW) applies to younger employees, and sets out the minimum amounts that employers must pay them depending on their age. These amounts will also increase from April 2023.
 

The upcoming changes to income tax rates and thresholds include a lower threshold for starting to pay the additional rate.

The additional rate of income tax

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.

The thresholds for National Insurance are also frozen until April 2028, including the threshold for making National Insurance contributions as an employer, although the £5,000 Employment Allowance remains available. If you’re the director of a limited company, these changes might affect the level of salary you take from your business in order to be tax efficient.

The dividend allowance is the total amount you can receive from dividends in a tax year before starting to pay tax on them.

Read our article about Paying Tax on Dividends to learn more.

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.

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:

 
Our Cost of Living Survival Guide for Businesses includes more tips for dealing with the changes, or learn more about how our online accounting services can support you. Call 020 3355 4047 to chat to the team, or get an instant online quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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