Tax briefing winter 2022.
DIVIDEND TAX
Dividends are taxed at much lower rates than other forms of income
and they are not subject to national insurance contributions (NIC).
This can make taking
income from your own company in the form of
dividends far more attractive than paying yourself a
bonus.
All taxpayers are currently entitled to a dividend al-
lowance of £2,000 in addition to the personal allowance which is gradually withdrawn where annual
income exceeds £100,000.
The dividend allowance effectively applies a zero
rate of tax to the first slice of dividends received in
the tax year. The Chancellor has decided to cut the
dividend allowance to £1,000 per year for the tax
year 2023-24 and then to £500 from 6 April 2024.
The rates of tax applicable to dividend income have not been changed for 2023-2024.
| Tax Year |
2022-2023 |
2023-2024 |
| Dividend Allowance |
£2000 |
£1000 |
| Basic rate band |
8.75% |
8.75% |
| Basic rate band |
33.75% |
33.75% |
| Additional rate band. |
39.35% |
39.35% |
In 2023-24 the cut in the dividend allowance will cost
a basic rate taxpayer £87.50; a higher rate taxpayer
£337.50; and an additional rate taxpayer £393.50
assuming that these individuals would use the full
allowance.
The rates of tax applicable to dividend income have T not been changed for 2023-24.
he Chancellor
has decided to
cut the dividend
allowance to £1,000
INCOME TAX
The main income tax thresholds and allowances had already been frozen at the 2021-2022 levels until 2026
and that has been extended until the 6th of April 2028.
The main income tax rates are unchanged for 2023-
24 at: 20%, 40% and 45%.
Individuals in England, Wales and Northern Ireland
will start to pay 40% tax on income above £50,270.
The 45% tax rate currently applies to income above
£150,000 but that threshold will be cut to £125,140
(the level at which a taxpayer's personal allowance
will have reduced to zero) from 6 April 2023.
The freeze or reduction of income tax thresholds and
allowances coupled with inflation of over 11% will
drag many more people into higher rates of tax every
year. Once a taxpayer's income strays into the 40%
band their personal savings allowance (the amount
of interest that is tax free) drops from £1,000 to £500
per year. Taxpayers who pay tax at 45% have no
personal savings allowance.
Taxpayers who are resident in Scotland pay income
tax on their earnings, profits and rental income at
different rates and from different thresholds to
people in the rest of the UK. However capital gains,
savings and dividends are taxed at the same rates
across the UK. The Scottish income tax rates for
2023-24 are due to be announced by the Scottish
Government on 15 December 2022.
The high income child benefit charge threshold
remains unchanged at £50,000 and families where
the higher earner has total relevant income over
£50,000 have some of their child benefit clawed
back. This catches some people whose highest mar-
ginal rate is only 20%.
CAPITAL GAINS AND INHERITANCE TAX
Capital gains made by individuals are generally taxed at lower
rates to income and taxpayers benefit from a separate annual
exemption that covers the first £12,300 of gains made per year.
This exemption will be
reduced to £6,000 for the
tax year 2023-24 and then
to £3,000 for 2024-25. Any
annual exemption unused
in a tax year cannot be carried over to the next year.
The lowering of the annual exemption will mean
that many more individuals will have to report capital gains on a self assessment tax return.
When the gain arises from the disposal of a residential property in the UK it must be reported using the
UK property service within 60 days of completion of
the sale and the tax paid by the same deadline. This
60-day report is required in addition to the annual
tax return.
The main rates of capital gains tax (CGT) remain at
10% for gains within the basic rate band and those
subject to business asset disposal relief and 20% for
other gains. However gains made from residential
property are taxed at 18% within the basic rate band
and 28% at higher rates.
The inheritance tax threshold (nil-rate band) has
been fixed at £325,000 per person since 2009 and it
will now be kept at that level until at least April 2028.
Where an individual leaves an interest in their main
home to one or more children or other direct descendants they can also benefit from the residential
nil-rate band worth a further £175,000 per person.
That amount is also frozen until April 2028 although
the value of residential properties has increased significantly since 2020-21 when it was introduced.
This exemption
will be reduced
to £6,000 for the tax
year 2023-24
HOME BUYERS PAY LESS STAMP DUTY
When buying a residential property in England or Northern
Ireland you must pay stamp duty land tax (SDLT) if the purchase
price exceeds a minimum threshold set at £125,000 since 2006.
In September's mini-Budget the then Chancellor announced that the entry threshold for SDLT payable on
residential properties would double to £250,000 for deals completed on or after 23 September 2022. This
higher threshold will apply until April 2025.
Where all the purchasers of the property have never owned a property they can take advantage of a first-
time buyer minimum SDLT threshold of £425,000, increased from £300,000. If the property costs more than
£625,000 (previously £500,000) the first-time buyer threshold does not apply.
The rates of SDLT were not changed in the Budget other than removing the lowest rate. The tax is due at
the following rates:
| Property Value |
Only home |
Second home or investment buyer |
Non-resident buyer |
| Entry threshold: £925,000 |
5% |
8% |
10% |
| £925,000 - £1,500,000 |
10% |
13% |
15% |
| £1,500,000 plus |
12% |
15% |
17% |
Non-resident buyers have an additional 2% surcharge applied to the figures above.
When buying in Scotland or Wales you will pay the appropriate land taxes for those countries which have
different rates and thresholds.
If you are planning to enter into a property transaction we
can help you determine which SDLT
rate will apply.
TAX ON DWELLINGS HELD BY COMPANIES
The annual tax on enveloped dwellings (ATED) applies where a residential property worth over £500,000
is held by a company and is not commercially let out or used for some other qualifying purpose. This tax
currently starts at £3,800 per year but that starting rate will rise to £4,150 from April 2023.
Be aware that the ATED charge for 2023-24 to 2027-28 must be based on the property's open market value
on 1 April 2022 and it is up to the property owner to provide that valuation.
BUSINESS RATES
Properties subject to business rates will be revalued in 2023. Where the value has reduced compared to
the last valuation point in 2017 that will translate to a rates reduction from April 2023. Where the rateable
value has risen the increase in rates bill will be capped at 5% for small; 10% for medium; and 15% for large
properties.
CORPORATION TAX UP
When the current Prime Minister was Chancellor he announced an increase in the main
rate of corporation tax to 25% to apply to profits above £250,000 from 1 April 2023.
Under the previous ad- ministration this decision
was reversed but the
25% rate will now apply
next year.
Areas in Scotland, Wales and Northern Ireland
could also be designated as investment zones
if the devolved administrations for those areas
agree.
Companies with profits up to £50,000 per year will
continue to pay corporation tax at the small profits
rate of 19%. A company with total profits between
£50,000 and £250,000 will pay 19% on the first
£50,000 and a marginal rate of 26.5% on the rest.
Contractors who work through their own person-
al service companies will not be happy that the
off-payroll working rules - which the previous ad-
ministration vowed to repeal - are staying in place.
These rules require large private sector businesses
and all public sector bodies to decide whether the
contractors they engage should be taxed as employees under the IR35 rules.
Any agencies or intermediaries in the hiring chain are ignored for this decision.
Contractors can ask their ultimate customers whether they are
categorised as a large company. Contractors working for a small or medium sized business
must make their own decisions about whether the
IR35 rules apply to the contract.
We can help you
decide whether
the IR35 rules apply
to your contracts
VAT CHANGES
The VAT registration threshold has already been frozen at £85,000
since April 2017 and it will now be fixed at that level until April 2026.
The Chancellor made the point that the
UK's VAT registration threshold is more
than twice as high as the average in
OECD and EU countries so be prepared
for this threshold to be cut in the future.
The VAT threshold freeze will drag many more busi-
nesses into compulsory VAT registration if they in-
crease their prices with inflation which is now run-
ning at over 11%.
Once a business is registered for VAT it must keep
digital records and submit VAT returns using making tax digital (MTD) compatible software unless the
business owner can show that they are
digitally excluded.
There have been some teething problems with the new VAT registration
process and it can take many weeks to
receive a new VAT number. You need to
act quickly to register for VAT once your
turnover for the previous 12 months exceeds £85,000 or it is expected to exceed that level
in the next 30 days. There are significant penalties
for late registration.
We can help you with VAT registration and to comply with MTD.
PAYROLL MATTERS
The Chancellor has decided to freeze the Class 1 NIC thresholds and rates for 2023-24 at the
amounts that have applied since 6 November 2022 - the date of the latest rate changes.
The health and social care levy which was due to take effect from 6 April 2023 will not be introduced.
The rates of statutory sick pay; maternity; paternity; and adoption pay have not yet been announced. As
state benefits and pensions have been uprated by 10.1% in general it is reasonable to assume that statutory payments will be similarly uprated.
The national minimum wage rates are increased in line with the rate of inflation for pay periods starting on
and after 1 April 2023. The new hourly rates will be:
| Pay periods from |
Living wage - age 23 |
Adult - 21 to 22 |
Youth - 18 to 20 |
Under 18 |
Apprentice |
Accomodation daily offset |
| |
£/hr |
£/hr |
£/hr |
£/hr |
£/hr |
£/hr |
| 1st April 2023 |
£10.42 |
£10.18 |
£7.49 |
£5.28 |
£5.28 |
£9.10 |
| 1st April 2022 |
£9.50 |
£9.18 |
£6.83 |
£4.81 |
£4.91 |
£8.70 |
From 2024 the living wage age threshold of 23 will be reduced to 21 meaning that there will be only one
adult rate.
INVESTMENT INCENTIVES
Companies can currently claim super-deduction allowances
set at 130% of the cost of new plant and machinery or 50%
of the purchase cost of certain fixtures and fittings for buildings.
These super-deductions will expire on 31 March 2023.
The annual investment allowance
(AIA) cap was due to be reduced
from £1m to £200,000 on 1 April
2023 but will now be fixed at
£1m permanently. The AIA can be
claimed by any form of business
and can apply to second hand
equipment as well as items purchased brand new. Some 99% of
businesses will be able to claim a
full deduction for the cost of plant
and machinery using the AIA.
The rates of deduction available
under the R&D schemes for SMEs
are being reduced partly to take
into account the changes in corporation tax rates from 1 April
2023 but also because of perceived widespread abuse of the
schemes.
Companies using the SME scheme
will see the allowable deduction
reduced from 130% to 86% and
the payable tax credit reduced
from 14.5% to 10%.
Large companies that use the R&D
expenditure credit scheme will be
able to deduct an increased credit
of 20% instead of 13%.
The investment zones proposed
by the previous administration
will go ahead in a limited number
of areas but they will not attract
tax reliefs such as reductions in
business rates or employers' NIC.
