As the sun rises on a new tax year, businesses across the United Kingdom are gearing up to navigate a fresh set of changes and thresholds.
From alterations to income tax rates and allowances, to updates on VAT and corporation tax, the landscape of taxation in the UK has been in a state of constant evolution. With a series of unprecedented U-turns to deal with, we understand if it was difficult to keep track of new legislation – particularly in terms of how much tax companies would be expected to pay in the coming tax year.
In keeping with the concept that being forewarned is forearmed, let’s now explore some of the changes and thresholds that are coming into effect for the tax year 2023/2024.
When does the 2023/24 tax year start?
The 2023/24 tax year begins on 6 April 2023 and ends on 5 April 2024.
Changes in Tax Rates:
One of the most significant changes that businesses will see in the new tax year is an increase in the corporation tax rate. Currently set at 19%, the rate will rise to 25% from April 2023. This means that businesses with profits over £250,000 will face a higher tax bill. However, it’s worth noting that smaller businesses will not be affected by this change, as the rate will remain at 19% for companies with profits of £50,000 or less.
This significant increase in corporation tax will affect many businesses of a certain size. That said, the government expects more than 1.4 million companies at the lower end of the earnings spectrum to continue paying 19% on their taxable profits (or, in fact, continue paying no corporation tax at all).
QIPS is coming into full force:
Larger companies –i.e those with taxable profits over £1.5million – will also soon be expected to pay their corporation tax in four equal instalments, on the fourteenth day of the seventh, tenth, thirteenth and sixteenth months following the start of their accounting period. This is what’s known as the quarterly instalments’ payments regime, otherwise known as QIPS.
Dividend tax is changing:
If you are the Director of a limited company and take some or all your earnings in dividends, there will soon be changes to the way these dividends are taxed.
Dividend taxes will be reduced slightly to 7.5% for basic rate taxpayers; 32.5% for higher rate taxpayers; and 38.1% for additional rate taxpayers. However, this will only occur in cases where your annual income exceeds your Personal Allowance. The Personal Allowance has been frozen at £12,570 until 2028. (This means you can currently earn up to £12,570 per year without paying a penny to HMRC.)
Additionally, the tax-free allowance for dividend income will be reduced as of April 2023. At the time of writing, Directors can take up to £2,000 in tax-free dividends. This amount will be reduced to £1,000 in the coming tax year, and just £500 from 2024 onwards.
Income tax shake-up:
The freeze on the personal allowance, and the basic and higher-rate income tax thresholds in England and Northern Ireland will be extended to April 2028. The freeze on these taxes had been due to lift in 2025-26.
While this freeze may not look like a tax rise on the face of it, having thresholds that fail to rise in line with salaries, you’ll still end up paying more tax on your income – particularly if you end up in a higher tax band as a result.
The biggest change announced in the Autumn Statement was the reduction of the additional-rate income tax threshold, dropping from £150,000 to £125,140 from 6 April 2023. It’s estimated around 250,000 taxpayers will be pushed into this higher tax band, paying 45% tax on any income above the new limit.
National Insurance to stay the same:
There were a lot of changes to National Insurance in 2022-23. First, on 6 April 2022, rates went up by 1.25 percentage points, as part of the government’s plan to pay for health and social care.
The levy was controversial, however, and as a result then-Chancellor Rishi Sunak raised the contribution threshold from £9,880 to £12,570, which came into force in July 2022.
Then, come ex-Chancellor Kwasi Kwarteng’s mini-budget in September, the levy was abolished altogether. Since 6th November, the rate employees pay on earnings between £12,570 and £50,270 therefore dropped back down to 12%, from 13.25%. Those with earnings above £50,270 now pay 2%, down from 3.25%.
After this rollercoaster, no further changes are expected for 2023-24.
VAT Registration Threshold:
For businesses that are registered for VAT, there is also a change in the registration threshold to be aware of. From April 2023, the threshold will increase from £85,000 to £88,000. This means that businesses with a turnover of £88,000 or more will need to register for VAT and begin charging VAT on their sales.
If you feel overwhelmed, don’t fret right away…
As we’ve seen, there are a number of changes and thresholds that businesses will need to be aware of in the new tax year. From an increase in corporation tax rates to changes in personal tax thresholds, businesses will need to be prepared for higher costs and adjust their budgets accordingly.
However, these changes can be hard to keep track of. For more help preparing for the 2023/24 tax period, along with specialist support from us, contact team AccNet today.