Business tax in 2023/24

 Like personal taxes, the planned business tax changes for 23/24 have been revised on several occasions and we could still see further alterations in the forthcoming budget. Fortunately we are only dealing with UK wide taxes for the most part which makes it a bit easier. Here's where we seem to be today.

The rate of Corporation tax for 23/24 will rise to 25% for companies earning over £250,000. Companies earning up to £50,000 pay 19% and a marginal rate will apply between £50,000 and £250,000. The effective rate of tax within this band is 26.5%.

The secondary threshold for National Insurance, like the primary threshold, has been frozen for the foreseeable future. This will result in significant real increases in NI payments from employers. Fortunately the primary threshold has been re-aligned with the income tax personal allowance which may allow for some increase in salaries for owner-directors. Sadly the amount of dividend these individuals can take tax free is dropping significantly.

Careful consideration of the remuneration packages for owner-directors will be needed especially for those companies close to, or within, the marginal rate of corporation tax where capital allowances may also be important to assist the maximisation of tax allowances and the minimisation of effective tax rates.

Personal tax in 2023/24

 You may well be confused about the likely tax changes which will have an effect in the new tax year - you are not alone. In the following paragraphs we'll try to summarise the main changes which are likely to occur - not with absolute certainty because we still have another UK budget to come and a Scottish budget to be confirmed!

Income tax bands and allowances have mostly been frozen for the foreseeable future in both Scotland and the UK. The only major change is the reduction in the amount of income you can earn before paying the top rate of tax - 45% in the UK and 47% in Scotland. This rate will come into play for taxable income above £125,140. Looks like a silly number but it has been set to coincide with the point at which the personal allowance has disappeared. No change in the main UK rates of tax but the Scottish higher rate should rise from 41% to 42% and the top rate from 46% to 47%.

Allowances and rate bands have also been frozen for National Insurance and for Inheritance tax but the annual allowances for dividends and capital gains will be cut. The CGT allowance drops in April from £12,300 to £6,000 then to £3,000 in April 2024. The dividend allowance drops from £2,000 to £1,000 in April then to £500 the following year. Don't be surprised if the tax free allowances for interest and others fall in April 2024 as well. The changes in CGT are likely to prove expensive and it may be beneficial to trigger some gains in the current tax year to utilise the current level of allowance.

Emergency Financial Statement

The Chancellor made a statement to Parliament containing a number of tax measures some of which were almost immediately effective with others planned for future dates. Subsequently he abandoned some of the future plans. Many of the proposals would, in any event, have had no immediate impact on the position in Scotland.

Income tax

The basic rate of income tax in will be reduced to 19% from April 2023. This will not affect Scotland where the starting rate is already 19% although the Scottish rates will be set later in the year and may also be altered. The proposal to abolish the 45% highest rate of tax has been abandoned for the moment. Again, this would not, of itself, have had any effect in Scotland.

Corporation tax

The proposal made by the previous Chancellor to increase the main rate of corporation tax to 25% has been abandoned. CT rates are set UK wide.

National Insurance

The increase of 1.25% in the NI rates for employees and employers which came into effect in April will be eliminated from 6 November 2022. The position regarding the rates to apply at various dates in the year along with the relevant thresholds are complicated. An average rate will be applied for directors who are subject to an annual basis of charge to NI and a similar proportionate rate applied for Class 4 NI.

Annual Investment Allowance

The AIA will, contrary to previous announcements, remain at £1m from April 2023 to April 2024.

SDLT

The threshold for SDLT has been doubled. This only applies to transactions in England and Wales. No changes have yet been announced for Scotland.

Dividends

The rate of tax on dividends was increased by 1.25% in April 2022. This will be removed from April 2023. It may be beneficial, where possible, to delay payment of dividends to avoid the additional rate.

Budget 2022

In many areas of taxation it was very much "as you were" after the Budget announcements. In UK terms there were no changes to any of the main tax rates or allowances although in Scotland starter and basic rate bands are due to increase in line with inflation. The changes to national insurance and dividend taxes to fund the social care levy had already been announced and these will result in the a substantial tax increase over the coming year. On the positive side, the Annual Investment Allowance which should have been reduced to £250,000 from 1 January 2022 has been maintained at its current level of £1m until at least 31 March 2023.

The Budget - CJRS & SEISS

Coronavirus Job Retention Scheme

This scheme has been further extended until 30 September 2021. There will be no change to the amount payable to furloughed staff (80% up to a cap of £2,500 per month) but, from July, employers will be asked to make a contribution to the cost. This will amount to 10% in July and 20% in August and September.

Self-employment Income Support Scheme

It was announced in November that a fourth grant would be forthcoming under this scheme and this has now been confirmed. Eligibility for this grant (and the 5th instalment) will be based on the submission of the tax return for 2019/20 but otherwise on similar criteria to the previous tranches. The fourth grant will be 80% of average trading profits for 3 months up to a maximum of £7,500 - broadly in line with the payments under CJRS.

There will be a fifth grant, probably payable in July, covering the period from May to September. Not all the details are available but it appears that the maximum grant will be the same as before ie 80% of 3 months profits up to a maximum of £7,500. However this will only be payable to those businesses whose turnover has reduced by more than 30% between April 2020 and April 2021. If the reduction is less than 30% the payment will only be 30% of 3 months profits capped at £2,850. This seems, on the face of it, to be far less generous than the CJRS given that it only covers 3 months for a 5 month period and could be a much lower percentage.

The Budget - Personal & Business Tax

Here are a few highlights from the Chancellor's statement, we'll cover some of these in more detail once fuller information is available.

Personal tax

The personal allowance is determined for all of the UK and rises to £12,570 for 2021/22. The basic rate of tax for the UK remains at 20% with the higher rate of 40% kicking in at £50,270. Scottish rates start at 19% rising to 21% then up to 41% on income over £43,662. The difference is becoming quite noticeable.

The personal allowance will now be frozen until April 2026 as will the annual exempt amount for Capital Gains Tax (£12,300), Inheritance Tax thresholds, and pension allowances. Any inflation will erode the real value of these allowances probably by around 8-10% over the period.

Business tax

Corporation tax is to be increased to 25% from April 2023. This will not apply to companies with profits of less than £50,000 who will continue to pay 19%. There will be transitional relief for profits between £50,000 and £250,000.

There is a temporary adjustment to the rules for utilising trading losses incurred between 1 April 2020 and 31 March 2022. It will, in most cases, be possible to carry back these losses against profits of the previous 3 years, rather than the usual 1 year. This will apply to both incorporated and unincorporated businesses.

Purchases of new plant and machinery between 1 April 2021 and 31 March 2023 will qualify for capital allowances at a "super" rate of 130% instead of the usual 18% (or 100% if eligible for AIA). Items which would usually only qualify for a 6% WDA will get 50% instead.

The VAT threshold for registration is frozen at £85,000 until 31 March 2024. The current temporary rate of 5% for hospitality and tourism will stay until 30 September 2021 and will then rise to 12.5% until 31 March 2022.