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.

Health & Social Care Levy

Earlier this week the Government announced the introduction of a 1.25% levy for health and social care. This will be collected via an increase in National Insurance rates for 2022/23 and thereafter through a separately identified levy alongside NI. This increase will be applied to both employees and employers so is effectively a 2.5% increase in the overall NI charge. It is not yet known over what precise band of income the rates will be applied but, based on current rates, it would apply to earnings above £184 per week for employees and over £170 per week for employers.

No announcement has been made regarding Class 2 NI for the self employed but Class 4 will increase by 1.25%. There will also be an increase in the tax on dividends of the same amount bringing the basic rate charge up from 7.5% to 8.75% with higher rates also increasing. These changes will also apply from April 2022 onwards, not to the current tax year.

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.

Penalties for late returns

At the last minute it has been decided that HMRC will not impose penalties on late submission of self-assessment returns until 28 February. Taxpayers therefore have been given an extra month to complete and submit their returns and pay any outstanding tax. This will come as good news to some, hopefully not very many, of our clients. Interest will still accrue on any payments after the normal due date of 31 January.

HMRC scam calls

It appears that we have once again reached the season of scam tax calls to all men (and women). We have received reports from clients of some very aggressive phone calls purporting to come from the Inland Revenue demanding overdue tax. These calls are bogus! HMRC do not phone and ask for money, even when they are as cash strapped as they are at the moment.

If you receive one of these calls do not provide any bank or other personal details at all and don't try to pay them any money. If you are in any doubt contact our office and we will check whether you are due anything and when and how to make any the appropriate payment.

Merry Christmas.

Capital Gains on Residential Property

Sales of residential property must now be reported to HMRC, and any tax paid, within 30 days of completion of the contract. No return is required where CGT is not chargeable, for example where the property is exempt as a main residence or where the gain is less than the annual exemption. The return is made online through a special portal and penalties for late reporting started in August. Please get in touch if you have made, or are about to make, any disposals which could fall foul of these new regulations.