2022-2023 Budget Updates: Key Accounting & Tax Changes Impacting Your Finances

For many of us 2022 was a difficult year, not helped by the issues caused by measures announced in the Mini Budget, many of which were then reversed in the Autumn Statement. As well as covering some of the measures in place following the Autumn Statement, this update includes some important announcements made in the recent Spring Budget and highlights some current accounting and tax issues. Much of the detail behind the Spring Budget measures has yet to be released so the below is a summary of the information currently available.

Corporation tax

The Autumn Statement increased the main rate of corporation tax to 25%. Companies with profits of up to £50,000 will continue to pay tax at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate. Where there are associated companies (includes companies with same ownership/control), the £50,000 and £250,000 thresholds are reduced by a factor of the number of associated companies.

Rates and allowances

Rates and allowances for 2023/24 are:

• Income tax
  • Personal allowance of £12,570
  • Basic rate tax of 20% up to taxable income of £37,700
  • Higher rate tax of 40% on taxable income of £37,701 to £125,140
  • Additional rate tax of 45% on taxable income of over £125,140
• Dividend allowance reduces to £1,000 (£500 from 5 April 2024)
• Dividend rates are 8.75% up to the basic rate threshold, 33.75% up to the higher rate threshold and 39.35% thereafter
• Personal savings allowance whereby individuals to earn up to £1,000 of interest tax free for a basic rate (20%) taxpayer, or £500 for a higher rate (40%) taxpayer

National insurance

The main national insurance thresholds will remain frozen so £12,570 for employees and to self-employed in relation to class 4 NI and class 2 NI. With respect to class 2 NI, if profits fall between £6,725 and £12,570, no NI will be paid but a notional credit will be made to your NI account.

The employers NI threshold remains at £9,100. The Employers NI allowance for companies with more than a single director on the payroll remains at £5,000 per annum.

Voluntary national insurance contributions

There is currently a window of opportunity to fill gaps in your NI contribution history. Entitlement to the state retirement pension depends on accruing sufficient qualifying years - those where enough NI is paid or are treated as being paid. Gaps in work can lead to missing out on qualifying years, meaning entitlement to a full pension may not be achieved. In some cases, it's possible that the minimum number of years to receive anything (currently ten years) may not be achieved.

To rectify this, you can fill gaps by making voluntary Class 3 payments. Usually, you can only do this for the past six years. However, it's currently possible to make contributions for years right back to April 2006. This opportunity was due to end on 5 April 2023, but the government has just announced an extension to 31 July 2023. If you're concerned about your entitlement, check your contribution history via your personal tax account or contact HMRC. Remember to consider the years you have left to work before making any payments though. See the link at the end of this note.

Optimum Salary for directors

This is more complicated this year due to the variability of Corporation Tax rate based on company profits.

For companies with taxable profits of under £50,000:

1. Single director company (with no employees) salary

The national insurance thresholds have not changed so from a net company & personal perspective, it is most tax efficient to have an annual salary of £12,570 (£1,047.50 per month as currently). However this will entail paying employers NI each month so if you want to avoid this hassle it is the employers NI threshold of £9,100 that is relevant with a salary of £758 per month (as currently).

1. Director salary for a company with more than a single director on the payroll

A company with more than one salaried employee can receive the £5,000 employers NI allowance so the most tax efficient salary is £12,570.

For a company with taxable profits of over £50,000 it may be slightly more beneficial to have a higher salary but it will depend on the company’s taxable profit and the total drawings made by the director so please contact us to discuss.

 We will not automatically make any amendments to salaries without client approval so please contact Tracy to let her know if you wish to change your salary from its current level

 Pensions

There are big changes to the taxation of pension contributions from 1 April 2023. The annual allowance for contributions has been increased to £60,000 from £40,000 and the lifetime allowance has been removed completely.

Making Tax Digital for income tax

MTD will be extended to include tax returns for sole traders and landlords with gross turnover in excess of £10,000 from 6 April 2026 – a delay of two years was announced in December 2022.

Property and Trading allowance

You can get up to £1,000 each tax year in tax-free allowances against property or trading income. If you have both types of income, you’ll get a £1,000 allowance for each. If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. If your annual gross trading income is £1,000 or less, from one or more trades you may not have to tell HMRC, however there are circumstances when you must register for self assessment and declare your income on a tax return.

You must keep records of this income. This is known as ‘full relief’. If your annual gross trading or property income, from one or more trades or businesses is more than £1,000 you can use the tax-free allowances, instead of deducting any expenses or other allowances.

If you use the allowances you can deduct up to £1,000, but not more than the amount of your income. This is known as ‘partial relief’. If your expenses are more than your income it may be beneficial to claim expenses instead of the allowances.

Capital Gains Tax on residential properties (not principal private residence)

The tax-free Capital Gains Annual Exemption will be reduced from £12,300 to £6,000 from 6 April 2023 and further reduced to £3,000 from 6 April 2024. The rates of capital gains tax payable on gains above the Annual Exemption amount remain unchanged at 10% to 28% (depending on the individual’s level of income and the type of asset sold). The reporting of capital gains and the payment of capital gains tax on residential property is 60 days.

Inheritance tax

Inheritance tax is payable on any estate above £325,000 – the tax rate is currently 40%.  There is also the ‘residence nil-rate band’, which increases the tax-free allowance to £500,000 when the family home is passed to children/grandchildren.

National minimum wage

From 1‌‌‌ April‌‌‌ 2023, the National Living Wage (NLW) for workers aged 23 years and over will increase by 9.7% (£0.92) to £10.42.

Company cars

While it is usually beneficial to have a company car only if it is electric, the BIK rate currently at 2% will increase to 3% for the 2025-26 tax year, 4% for 2026-27 and 5% for 2027-28. Similarly, all non EVs will also see the same 1% increase per annum over the same timescale.

Stamp duty on property

For purchasers of residential property in England and Northern Ireland, the following measures on Stamp Duty are in place until 31 March 2025:

• the SDLT Nil rate threshold is £250k
• the SDLT Nil rate threshold is £425k for first-time buyers
• the maximum purchase price for relief for first time buyers is £625k

VAT thresholds

It was confirmed that the VAT registration threshold of £85,000 and deregistration threshold of £83,000 will be maintained at current levels until 31 March 2026 rather than 31 March 2024. These thresholds have been unchanged since 1 April 2017.

This measure means that more businesses will fall within the VAT net and be net contributors. It remains the case that some businesses choose to limit growth to avoid the ‘cliff edge’ effect of exceeding the VAT threshold.

Normal minimum pension age

The normal minimum pension age, which is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge unless they are retiring due to ill-health, increases from age 55 to 57 in April 2028.

Tax year for sole traders and partnerships

From April 2024 the tax year (or basis period) for all sole traders and partnerships will be 5 April (or 31 March). For those sole traders or partnerships that currently have a year end date that is not 5 April (or 31 March) the 2023/24 year will be a transition year.

Submission of accounting records

While the records from many clients are received in good time, some clients provide their records at the last minute which results in us having to rush accounts and tax returns through.  Completing accounts and tax returns ‘early’ does not of course mean that tax is payable sooner (corporation tax is always payable by 9 months and one day after the company year end and any tax arising from personal tax returns has to be paid by the 31 January following the 5 April). The benefits of completing accounts and tax returns as soon as possible include allowing us time to liaise with clients on any queries and also provide time for clients to properly review the accounts and make any preparations for the payment of tax.

As company accounts have a filing deadline of 9 months after the year end, we must insist that the records are received no later than 7 months after the year end – so for example, companies with a year end of 31 March, the records must be with us by the following 31 October at the latest (and earlier if possible would be appreciated).

For personal tax returns, the filing deadline is 31 January so we must have the records by the previous 30 November (and again earlier would be much appreciated given two weeks is effectively ‘lost’ in December). However, for clients on salaries, if the amount of tax due is less than £3,000 you can pay your tax through an amendment to your tax code but HMRC will only consider this if the tax return is submitted by 30 December, so we would need to receive the records by 31 October to ensure there is time to meet this deadline.

If records are received after these dates, we cannot guarantee that the accounts and tax returns will be filed by the legislated deadlines.

Contact details

It is important that clients inform us if their personal circumstances change – address, email address, phone number, employment status etc

Please do contact us if you wish to discuss any of the above or on any other matters