This wasn’t a particularly radical Budget but, after 13 years in power, you’d expect tax policy to already be broadly in line with the political outlook of the Government.
And radical didn’t go particularly well for the last guy…
Here’s the main things we’d highlight for our writer clients.
Increase in corporation tax rates
Corporation tax (the tax that a company pays on its profits) is set to increase from 1 April 2023. This had already been announced in a previous Budget, then scrapped, then reintroduced. There was a glimmer of hope it would be scrapped again but that’s not the case.
Here’s a brief guide to what the change will mean.
A company with profits of £50,000 currently pays £9,500 of corporation tax. Under the new rules it would still pay £9,500. Yay!
A company with profits of £75,000 currently pays £14,250 of corporation tax. Under the new rules it would now pay £16,125. An increase of £1,875. Hmmm…
A company with profits of £150,000 currently pays £28,500 of corporation tax. Under the new rules it would now pay £36,000. An increase of £7,500. HOW MUCH!!?
There are special rules to stop people having a lot of little companies all paying the lower rate. These rules can also catch people who are involved in more than one company without any intention to avoid tax.
Is it still worth having a company? Certainly the days of it being an obvious choice are long gone and the benefits now depend on personal situation.
Increase in pension annual allowance
Currently the maximum you can put in your pension each year is £40,000. This will increase to £60,000 from 6 April 2023. For most people this change will make no difference at all as they were already well within the limit.
For some people, especially those looking to keep their company profits down with the new corporation tax rates, it will make putting money into a pension a very attractive proposition to save tax.
Likewise, a sole trader wanting to save tax will be able to pay more than they previously could
In summary – a positive change for those with the profits to take advantage. It’s certainly worth looking into pension planning again if you haven’t done this recently.
Increase in pension lifetime allowance
Currently there is a lifetime allowance for pension savings. This is the maximum your pension pot can get to before a huge tax charge on the surplus. The limit is currently £1,073,100. This will now be scrapped from 1 April 2023. The main reason given was to encourage senior doctors (who currently retire early rather than exceed the cap) to keep on working. The relief isn’t just restricted to doctors though and anyone in the same position will benefit.
In summary – maxing out my pension wasn’t keeping me awake at night.
Under tax rules there is a different tax treatment when you buy an asset (like a computer) compared to when you pay for an expense (like paying an agent).
Expenses get deducted from your profit. This means they reduce the amount you get taxed on and therefore save you tax.
Assets don’t get deducted from your profit. Instead you claim a ‘capital allowance’. Over the years the amount of capital allowances you can claim has varied. Currently your can have up to £1 million a capital expenditure and get a 100% allowance. This means the tax position for assets is effectively the same as expenses.
The new announcement of ‘full expensing tax relief’ will mean very little change to our clients who already get a 100% deduction.
In summary – if you buy equipment for your business you’ll continue to get tax relief at the same rate as before.
Personal tax rates
No major changes to the rates or bands of income tax. With inflation running at 10% the decision to not increase the bands is a big revenue raiser as more people get dragged into paying tax at higher rates.
The dividends allowance falls from £2,000 to £1,000 from 1 April 2023. Dividend tax was also increased last year by 1.25% when the Health and Social Care levy was announced last year. Although the levy has now been scrapped the increase has remained. As a reminder the rates are now:
Basic rate – 8.75%
Higher rate – 33.75%
Upper rate – 39.35%
A major announcement in childcare which will be welcome by those with young children. Eligible households with receive 30 hours of funded childcare for 38 weeks a year for nine months old to 4 year olds. The new rules will only apply from September 2025 so there is quite a bit of time to wait. There will also be a General Election before the new rules come into force.
In summary – a big change but a long wait while capacity is built up
And finally a disclaimer – this is a very brief summary and deliberately avoids bombarding you with every nuance and detail. If you’re a client and there is anything you are unsure about then just get in touch with either Louise or Jonathan.