The new tax year is well under way and there are plenty of changes to be aware of whether you’re in business, thinking of starting, or in employment. As we move into a new financial year, it’s essential to take stock of your financial situation and make a plan for the year ahead. In this blog post, we’ll take a closer look at how you can make the most of the new tax year.
The National Insurance contributions (NIC) thresholds and class 1 rates have been frozen until 2028, in 2023-24, employees will continue to pay 12% Class 1 NIC on earnings between £12,570 and £50,270 and 2% on earnings above £50,270. Class 2 and 3 NIC rates for the self-employed have been increased to £3.45 and £17.45 respectively from April 2023. Class 4 NIC rates remain at 9% on earnings between £12,570 and £50,270, and at 2% on earnings above £50,270.
Top tip: If you’re self employed or run your own limited company ensure that your national insurance history is up to date. Without at least 10 qualifying years you will not be entitled to the state pension when you retire. Speak to your accountant to ensure each year you are self employed is a qualifying year.
The dividend allowance has been reduced from £2,000 to £1,000 from April 2023 and will be reduced further to £500 from April 2024. The dividend tax rates will remain unchanged and vary depending on your other income. Dividends that fall within your basic rate band will be taxed at 8.75%, 33.75% for dividends within the higher rate band and 39.35% for additional rate dividends.
Top tip: Prepare regular management accounts to be able to plan dividends before the end of your financial year rather than at the end of the year when it may be too late to be able to efficiently utilise tax savings.
Capital Gains Tax (CGT) is the tax paid on any profit or gain generated from the sale of certain assets, such as shares or properties that aren’t your main residence. The annual exempt amount (AEA) is the amount of gain you can make tax fee without paying CGT. This has been reduced from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024. Any gain that falls within your basic rate band is taxed at 10%, or 18% for residential property. Gains falling within your higher and additional rate bands are taxed 20%, or 28% for residential property.
Top tip: The AEA is given to all individuals and therefore shared ownership of assets particularly between husband and wife can be a useful tool for reducing the tax burden. Either way speak to your accountant before selling higher value assets such as property to give you indication of the tax liability and ways to reduce it.
From April 2023, companies with taxable profits over £250,000 will pay a main rate of 25% compared to the previous flat rate of 19%. Companies with profits below £50,000 continue to pay the 19% lower rate. Companies with profits between £50,000 and £250,000 pay tax at a reduced main rate, which gradually increases their corporation tax rate. In effect profits between £50,000 and £250,000 are taxed at 26.5%.
Top tip: The £50,000 threshold after which the marginal rate applies is determined by the profits of all ‘connected’ companies. So if you have a number of companies or a group of companies speak to your accountant to see how your tax burden will change and what steps can be taken to reduce the impact of the higher rates.
There has been a general increase to the tax burden especially for owner managed businesses operating through limited companies. It is important you are having regular discussions with your accountant to assess and mitigate (as much as possible) the impact of these tax changes.
