Personal And Business Tax Changes For The New Tax Year: Key Updates From 6th April 2023

As the new tax year approaches, starting on 6th April 2023, individuals and businesses should be aware of changes in tax regulations. It’s important to plan ahead for these changes, especially for sole traders, small businesses, and limited companies.

One significant change to be aware of is the reduction of the additional-rate income tax threshold from £150,000 to £125,140, which takes effect on 6th April 2023. This reduction means that around 250,000 taxpayers will be pushed into the higher tax band, paying 45% tax on any income above the new limit. Furthermore, other tax changes that could affect small businesses and business owners during the new tax year have been announced, so it’s crucial to familiarise yourself with these updates and seek advice from a professional if needed.

By keeping yourself informed and up-to-date on these tax changes, you can make informed decisions about your personal and business financial matters, ensuring that you’re well-prepared to face the new tax year and its implications on your finances.

New Tax Year: Key Changes and Dates

As the new tax year approaches, it’s essential for you to stay informed about the key changes and dates that could affect your personal and business finances. In this section, we’ll cover the most important shifts for the 2023/24 tax year, as announced in the Autumn Statement 2022 and the Finance Bill 2022. Learn more about these Tax Rates and Allowances for 2023-24. For Scottish taxpayers, understand the specific Scottish Income Tax Rates.

One significant change in the 2023/24 tax year is the reduction of the capital gains tax (CGT) exemption from £12,300 to £6,000. This will impact both basic-rate and higher-rate taxpayers as any profits that exceed the exemption will be taxed at 10% and 20% respectively source.

Regarding income tax, the freeze on the personal allowance, along with the basic and higher-rate income tax thresholds in England and Northern Ireland, will be extended to April 2028 source. In Scotland, income tax bands for Scottish taxpayers are set as follows:

• Personal allowance: Up to £12,570
• Starter rate: £12,571 to £14,732 at 19%
• Basic rate: £14,733 to £25,688 at 20%
• Intermediate rate: £25,689 to £43,662 at 21%

Another important aspect for businesses is the basis period reform. In the tax year 2023 to 24, all businesses’ basis periods will be aligned with the tax year, and any outstanding overlap relief will be provided source.

In conclusion, being aware of these key changes and dates in the new tax year will help you effectively manage your personal and business finances. Make sure to consult with a financial professional if you have any concerns or need further guidance on how these changes will affect you.

Income Tax Revisions

Changes to Income Tax Rates

In the new tax year, starting on 6th April 2023, there are revisions to income tax rates. In England and Wales, the basic rate, higher rate, and additional rate will remain the same, but the income tax thresholds have changed. The additional-rate income tax threshold has been reduced from £150,000 to £125,140, impacting around 250,000 taxpayers who will now be subject to a 45% tax rate on income above this limit.

These changes are significant for various business structures, including partnerships and limited liability partnerships, which may see different tax implications.

Changes to Personal Allowance

The personal allowance for UK residents has also been updated. For the new tax year, this allowance is indexed with the CPI (Consumer Price Index) according to section 57 of the Income Tax Act 2007. The changes to personal allowances could affect income taxpayers, including both basic-rate taxpayers and higher-rate taxpayers.

Modifications to Dividend Tax

There are also changes to the dividend tax rates and the dividend allowance for the new tax year. If you have a portfolio of investments that generate dividend income, you should be aware of these modifications and their potential impact on your returns. Be sure to consult with your financial advisor or accountant to understand the changes and their implications on your personal finances.

Adjustments to National Insurance

Finally, adjustments have been made to national insurance contributions and the national insurance threshold. Specifically, Class 1 National Insurance Contributions (NICs) will be affected. Make sure to review these adjustments and their impact on your payroll and business operations if you are a business owner or employer in the UK.

By staying informed on these tax changes for the new tax year, you can adapt your financial planning and budgeting accordingly. While this summary provides a brief overview, it is essential to consult with a professional to fully understand how these changes may affect your personal and business finances.

Capital Gains Tax and Inheritance Tax Adjustments

Capital Gains Tax Updates

As of 6th April 2023, the UK government has made significant changes to the Capital Gains Tax (CGT) allowances. The threshold for how much you can earn before paying CGT has been reduced from £12,300 to £6,000. This change is crucial as it directly affects your tax liability on profits made from selling assets, such as property or shares. Furthermore, the allowance is set to decrease once more to £3,000 in April 2024.

To better navigate these changes, it’s essential to keep track of your capital gains and losses throughout the tax year. By accurately recording this information, you can ensure that you are aware of your tax obligations and take advantage of available reliefs and exemptions provided by HMRC.

Inheritance Tax Revisions

The government has also made updates to Inheritance Tax (IHT), affecting the way you handle money, shares, and property you inherit. Paying IHT depends on the value of the estate you inherit, with a few exemptions and reliefs available. To determine your tax obligations accurately, it’s crucial to be well-informed about the current rules and rates.

HMRC’s guidelines detail the circumstances under which you may be required to pay Income Tax, Capital Gains Tax, or Stamp Duty on the assets you inherit. By understanding these guidelines, you can ensure that you are compliant and aware of your IHT obligations.

Remember, navigating the complexities of both Capital Gains Tax and Inheritance Tax can be challenging. It’s essential to stay informed, organised, and seek professional advice when needed to ensure that you’re meeting your tax obligations in the new tax year, starting on 6th April 2023.

Corporation Tax and Dividends

In the new tax year beginning on 6th April 2023, you should be aware of changes in corporation tax rates. The main rate of corporation tax is set to increase to 25% for companies with profits exceeding the upper profits limit of £250,000. For those businesses with profits below the lower profits limit of £50,000, the corporation tax remains at the small profits rate.

If your limited company makes investments, the taxable profits will be subject to the corporation tax increase. This may affect your strategy for reinvesting or distributing your profits.

When it comes to dividends, remember that your limited company doesn’t need to pay any tax on dividend payments made to shareholders. For the tax year 2023/24, the first £1,000 of annual dividend payments you receive as a shareholder remain tax-free, known as the “dividend allowance”. If you receive annual dividend payments worth more than £1,000, you’ll need to declare and pay taxes on them.

As an employer, these tax changes might have an impact on your business’s overall financial strategy. Incorporating the new corporation tax rate and understanding tax liabilities related to dividends are essential for both the self-employed and limited company owners.

In addition to corporation tax and dividend-related changes, be mindful of how the new tax year might affect other aspects of your business, such as personal tax allowances and employee taxes. By staying informed about these changes and adapting accordingly, you’ll keep your business financially compliant and ready for success in the new tax year. Understanding these tax implications is vital, and specialised services for company accounts may be beneficial for your business.

Changes to Pensions and Allowances

In this section, we will discuss the various adjustments to pensions and allowances that will take effect in the new tax year starting on 6th April 2023. These include topics such as Pension Adjustments, Allowance Revisions, and National Living and Minimum Wage Changes.

Pension Adjustments

In the new tax year, there will be significant changes to pensions, particularly regarding the lifetime allowance and annual allowances. The lifetime allowance will be abolished from 6th April 2024, removing the current limit and the associated charges.

The money purchase annual allowance has increased from £4,000 to £10,000 starting in April 2023. This affects the amount you can save into a pension after you have taken money out of it. Your workplace pensions and personal pensions will benefit from these changes in the upcoming tax year.

Professional tax return services can assist in adapting to these changes effectively.

Allowance Revisions

Several personal allowances, including the income tax threshold and the inheritance tax threshold, have been adjusted in the new tax year. The ISA allowance has also seen a change, which will impact your savings rates and investment options.

It’s essential that you keep up to date with changes to your personal allowance, as this directly affects the amount of money you can earn before paying any income tax. Make sure to review the latest revisions to ensure you’re optimising your income potential and tax efficiency.

National Living and Minimum Wage Changes

To reflect the cost of living, the National Living Wage and National Minimum Wage have been adjusted in the new tax year. These changes will have a significant impact on your earnings and the long-term planning of your personal finances.

Keep an eye on the updated rates and apply them accordingly to ensure that you are earning a fair wage according to your age and job role. Staying updated on the changes to the National Living Wage and National Minimum Wage will put you in a better position to make informed decisions about your personal and professional life.

By staying informed about the tax changes taking effect in the new tax year, you will be better prepared to optimise your financial situation and take full advantage of the new opportunities available to you.

Updates to Benefit in Kind

As the new tax year begins on 6th April 2023, it’s essential to stay informed about updates to Benefit in Kind (BIK) that might affect your business and personal taxes. One of the key areas to consider is changes to company cars and their associated BIK rates.

From April 2023, new BIK rates will be introduced for company car drivers. These updates are designed to encourage the adoption of low-emission vehicles and reflect the government’s commitment to reducing the UK’s carbon footprint. As a result, cars with lower CO2 emissions are likely to have more favourable tax implications for both employees and employers.

To make the most of these updates, you should consider the following:

• Review your company car fleet: Assess the current CO2 emissions of your company vehicles and consider replacing higher-emission cars with more environmentally friendly options. This can help to reduce the BIK charges for your employees and potentially lower your overall tax bill.

• Plan for electric and hybrid vehicles: The push towards greener vehicles means that there may be more tax incentives for your business to invest in electric or hybrid cars. These vehicles usually have lower BIK rates compared to their petrol or diesel counterparts, making them an attractive option from a financial perspective.

• Inform your employees: It’s crucial to communicate changes in BIK rates to your employees, particularly those who are affected by the changes. Encourage them to review the updated company car tax bands to understand how the new rates might impact their personal tax liabilities.

Remaining aware of these new changes will ensure that you and your employees can make informed decisions when it comes to company car policies and personal tax planning. Taking a proactive approach to managing your Benefit in Kind responsibilities can result in cost savings and improved environmental performance for your business.

For more information on managing such expenses, consider exploring bookkeeping services that can offer comprehensive assistance.

Council and Vehicle Excise Tax Changes

Starting on 6th April 2023, there are some important changes to council tax and vehicle excise duty that you need to be aware of. In order to help you understand these changes, here’s a breakdown of the key points.

First, let’s talk about council tax. According to government data, the average Band D council tax in England for the 2023-24 tax year is £2,065, which is up by £99 from the previous year. This represents an average increase of 5.1%. However, it’s important to note that council tax hikes can vary significantly depending on your location. For example, Canterbury residents face a rise of 2.24%, while Birmingham residents will see an increase of 4.99% source.

Now, let’s move on to vehicle excise duty. The Spring Budget 2023 revealed the car tax rates for all owners from 1 April 2023. The so-called ‘luxury’ car tax rate for vehicles costing £40,000 or more increased from £335 to £390 on 1 April 2023. The RPI-related hike to vehicle excise duty (VED) has been applied to both petrol and diesel cars since 1 April 2022 source.

For electric vehicle owners, there’s more VED news. The government has published plans to introduce vehicle excise duty for zero-emission cars, vans, and motorcycles from 2025. This means current and future owners of electric vehicles will be affected by this change, both private owners and organisations source.

In summary, it’s essential to keep informed about the council tax and vehicle excise duty changes for the new tax year starting on 6th April 2023. Knowing these changes will help you budget and plan accordingly, which will save you time and potential headaches.

For a broader understanding of these tax changes, especially for businesses handling VAT, this section provides essential information.

Changes to Stamp Duty

In the new tax year starting on 6th April 2023, there are notable changes to stamp duty that you need to be aware of. If you’re planning to purchase a property, it’s important to understand these changes. For related tax information, visit What Business Expenses Can a Sole Trader Claim.

First, the September mini-budget introduced modifications to the stamp duty rates for first-time buyers. You’ll be pleased to know that first-time owners will not need to pay stamp duty on properties valued up to £425,000 until 31st March 2025. This can significantly reduce the financial burden on you when getting onto the property ladder.

Moreover, temporary reliefs from Annual Tax on Enveloped Dwellings (ATED) and the 15% rate of Stamp Duty Land Tax were announced in a written ministerial statement published on 31st March 2022. Make sure to consult with a tax professional to determine if these reliefs apply to your situation.

Lastly, another important update in the 2023/24 tax year is the reduction of the additional-rate income tax threshold from £150,000 to £125,140, starting on 6 April 2023. This change affects around 250,000 taxpayers who will now pay a 45% tax on any income above the new limit.

Remember to stay informed about these changes and consult with a tax advisor for a clearer understanding of how they might impact your personal and business finances.

Changes to Student Loans

From 6th April 2023, you’ll notice some significant changes in the student loan system. First, the repayment threshold will fall for existing Plan 2 student loans. In the past, graduates repaid 9% of any income earned above £27,295. With the new tax year, this threshold will be lowered, affecting your student loan repayments.

Another change to be aware of is the announcement by the Government of sweeping adjustments to student loans in England. These modifications, which begin with the 2023 student cohort, include lowering the repayment threshold to £25,000 a year and extending the repayment period by 10 years. These actions will significantly increase the cost of education for university students, impacting your financial planning for higher education.

Lastly, new basis period reform rules will come into effect from the 2024/25 tax year, with the 2023/24 tax year as a transitional period. These rules will impact how student finance applications and repayments are processed through self-assessment, potentially affecting your student loan status.

In summary, beginning on 6th April 2023, you can expect notable changes to the student loan system, including adjustments to repayment thresholds, extensions to the repayment period, and new basis period reform rules. It’s essential to stay informed and adapt your financial plans to accommodate these modifications, ensuring you’re prepared for the upcoming tax year.

Payroll and Software Updates

Payroll Changes

As a new tax year begins on 6th April 2023, there will be several payroll changes that you, as an employer, should be aware of. England, Wales, Northern Ireland, and Scotland will all experience changes in National Living Wage, National Minimum Wage, and National Insurance Contributions rates. For example, the National Living Wage increased to £10.42 for workers aged 23 years and over.

It is essential to be prepared for these changes impacting your payroll processing and to ensure that you comply with any amended requirements. 

Making Tax Digital

The UK government’s Making Tax Digital (MTD) initiative is aimed at simplifying and modernising the tax system to reduce the administrative burden on businesses. As part of the MTD initiative, businesses will be taxed on profits for the tax year, not the accounting year ending within a tax year, starting from April 2024.

This important change requires you to update your payroll software, both in preparation for the 2023/24 tax year and to adapt to the new MTD rules. Ensure that you have the latest payroll software updates from your provider, as they usually release updates to accommodate tax year changes. By doing so, you can maintain compliance with the HMRC’s evolving requirements, efficiently managing your payroll, and streamlining your tax filing.

To stay confident and knowledgeable about tax and payroll obligations, remember to monitor national and regional updates, adjust your payroll processes accordingly, and make use of updated payroll software to meet the demands of the new tax year starting on 6th April 2023.