Spring Budget 2023 – How it affects you and your business?

The Spring Budget was announced on Wednesday 15^th March 2023 by the new chancellor Jeremy Hunt in his first ever budget speech.

The forecast for the UK economy is gloomy with GDP expected to shrink in 2023.

Most individuals and businesses will see increases in tax. The Spring Budget included freezing of income tax allowances, reductions in dividend and capital gains allowances, plus increases to corporation tax.

There was also important changes to pensions and childcare plus much more.

We go through all of the main announcements in the Spring Budget 2023 below, with some tips on how to minimise the effects.

Personal Taxes

The main personal tax announcements in the Spring Budget 2023 are below.

What is the personal allowance?

The personal allowance is the amount that can be earned before income tax is charged.

The current threshold of £12,570 was already fixed until April 2026. A further 2 years has now been added, resulting in no increase in the personal allowance until April 2028.

The tax code 1257L is the most common for a taxpayer with only a single employment. As the personal allowance remains unchanged the tax code 1257L will also remain.

What is the optimum directors salary for 2023/24 tax year?

For tax year 2023/24 the optimum directors salary will be £12,570 per annum.

We recommend that most directors should pay themselves £1,047.50 per month from April 2023.

How much do you need to earn to lose your personal allowance?

When earnings exceed a £100,000 the personal allowance available is reduced.

It reduces by £1 for every £2 earned over £100,000.

As a result, for tax year 2023/24 the personal allowance is reduced to £nil when earnings exceed £125,140.

What is the marriage allowance and can I still save £250?

The marriage allowance allows you to transfer unused personal allowances to your partner.

It can result in a tax refund of just over £250 per tax year. Claims can be made for the previous 4 tax years producing a possible claim of up to £1,241.

To make a claim for the 2018/19 tax year the submission needs to be made by 5^th April 2023. (3 weeks away from date of writing).

What are the income tax bands?

The main change from April 2023 is the reduction in the additional rate from £150,000 down to £125,140. The basic rate and higher rate bands remain unchanged.

• Basic rate band remains at £37,700. (Tax year 2022/23 £37,700).
• The higher rate band is charged on income over £50,270.  (Tax year 2022/23 £50,270).
• The additional rate band is charged on income over £125,140. (Tax year 2022/23 £150,000).

What are the savings tax allowances?

There are no changes to the savings income allowances.

• Basic rate taxpayers (total income under £50,270) receive a tax free allowance of £1,000. As a result no tax is payable on savings interest up to £1,000.
• The tax free allowance on savings interest reduces for higher rate taxpayers to £500. A higher rate taxpayer has total income over £50,270 but under £125,140.
• Additional rate taxpayers receive no savings allowance. From April 2023 the additional rate band changes. A taxpayer with earnings in excess of £125,140 will pay tax on all of their savings interest.

N.B Savings interest received from ISAs are not subject to savings taxes. If you are taxed on savings consider utilising your ISA allowances.

What taxes are paid on dividends?

The tax free dividend allowance will reduce to £1,000 for tax year 2023/24.

The dividend allowances and rates from April 2023 will be as follows:

• First £1,000 of dividend income is tax free. This is available to all taxpayers.
• Basic rate taxpayers pay dividend tax of 8.75%.
• Higher rate taxpayers pay dividend tax of 33.75%.
• Additional rate taxpayers pay dividend tax of 39.35%.

N.B Dividends held in ISAs are not subject to dividend taxes. If you are taxed on investments consider utilising your ISA allowances.

What is the minimum wage from April 2023?

From 1^st April 2023 the national minimum wage increases to £10.42 for those aged 23 years old and over. This equates to an annual increase of over £1,600 for a full time employee.

The full list of age related hourly rates are as follows:

• 23 years and over – £10.42.
• 21-22 years old – £10.18.
• 18-20 years old – £7.49.
• 16-17 years old – £5.28.

Ensure that your employees receive the uplift in the minimum wage or you could face significant penalties.

What are the changes to capital gains taxes?

There are no changes to the tax rates. These remain at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers.

Capital gains on the sale of residential properties are taxed at higher rates of 18% (Basic rate) and 28% (higher and additional rate). This does not include the sale of your home which qualifies for private residence relief.

The annual exemption for capital gains tax is reducing from April 2023. The current exempt tax amount is £12,300.

From April 2023 the annual exemption will be £6,000.

From April 2024 the annual exemption will be £3,000.

Reducing the tax free amount to just £3,000 will result in many more assets having capital gains tax to pay. If you intend to sell a taxable asset in the next couple of years, then consider selling it sooner, when annual exemptions are higher.

Company Taxes

The main business tax announcements in the Spring Budget 2023 are below.

What is the corporation tax rate from April 2023?

The increase in the rate of corporation tax is to go ahead as planned.

The current corporation tax rate is 19%. This will remain the same for companies with profits under £50,000.

From April 2023, company profits in excess of £250,000 will be taxed at the new rate of 25%.

Profits between £50,001 and £250,000 are to be taxed at a marginal rate of corporation tax.

How much will the corporation tax increase cost my company?

Companies with profits in excess of £50,000 will see substantial rises in their corporation tax liabilities.

Try our corporation tax calculator to compare how much extra tax your company will pay.

What capital allowances are available on the purchase of assets?

The currently available super deduction which gives an uplift of 130% tax saving will end 31^st March 2023.

From 1^st April 2023 ‘full expensing’ will be available on the purchase of new assets (excluding cars). It allows a company to claim the full cost as a reduction in taxable profits in the year of purchase. This is only available to companies.

Unfortunately, full expensing isn’t something that small businesses should get excited about. Most businesses could claim first year allowances anyway as the limits historically have been high. The current limit is £1 million and was set to reduce to £200,000. As a result, it is only companies that spend in excess of £200,000 on assets in a year that will benefit from full expensing.

Other Announcements

The main other announcements in the Spring Budget 2023 are below.

What are the pension tax limit changes?

Many business professionals including Doctors were retiring in their 50s. One of the main reasons for this was the restrictions on pensions. To solve this problem the Government have announced some significant changes to the pension tax limits.

Firstly, the lifetime pension allowance, which was just over £1 million, is to be abolished completely.

Secondly, the annual allowance which is currently £40,000 is to increase to £60,000. This is the amount that can be paid into a pension scheme with tax relief.

For further details see the pensions schemes newsletter 148.

What are the changes to childcare?

To help parents back into work the Government have announced significant changes to childcare support.

Working parents will have access to 30 hours of free childcare per week. This will be for 38 weeks of the year from when their child is 9 months to when they start school.

The additional support will be rolled out in stages. The full 30 hours won’t come into effect until September 2025.

For further details of the rollout see the Childcare Factsheet.

Has making tax digital (MTD) been abolished?

MTD required businesses to keep their records in a digital format and then submit extracts on a quarterly basis to HMRC.

Those businesses who are VAT registered will already be filing their VAT returns under MTD. This was made compulsory last year.

The rollout to include sole-traders, partnerships and companies into MTD has been less successful.

The current mandating for MTD income tax is April 2026. It will effect self-employed and landlords with income over £50,000.

See the full details on the delay to making tax digital (MTD).

What are the new rules on accounting periods for self-employed?

Most sole-traders and partnerships have an accounting period ending either 31^st March or 5^th April. They are not affected by this announcement.

Any unincorporated business that use a different trading end date will be affected.

From 6^th April 2024 their trading results will be apportioned. For example a business with a 30^th September year end will half the profits in 2 sets of accounts to complete their 2024/25 tax return.

The alternative, which we expect most businesses to do, is to change their reporting end date, so that it is in line with the tax years. i.e 31^st March or 5^th April.

This does not affect Limited companies.

Further information

For further information on the topics covered see HMRC Budget announcements.

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