Lots to go through from the Spring Budget 2023 today. In this blog we’ve summarised the main points for you.
Announced in the Spring Budget 2023, from 1 April 2023, the rate of Corporation Tax will increase to 25% if a company’s profits exceed £250,000 a year. The current rate of 19% will continue to apply where profits are no more than £50,000 a year.
Where a company’s profits fall between £50,000 and £250,000 a year, the profits are taxed at the higher 25% rate, but a ‘marginal relief’ is given to reduce the liability. The effective rate being closer to 19% for those with profits just over £50,000.
Companies in the same corporate group (or otherwise connected by association) must share the £50,000 and £250,000 thresholds between them. This will make the 25% rate more likely to apply.
Making Tax Digital (MTD) for Income Tax
Under MTD for Income Tax, businesses will keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements will not be phased in until April 2026, starting with sole traders and property landlords with gross income over £50,000. Other individuals subject to Income Tax will follow at a later stage.
Tax Relief for expenditure on plant and machinery
The Annual Investment Allowance (AIA), giving 100% tax relief to unincorporated businesses and companies investing in qualifying plant and machinery, is now permanently set at £1 million.
The super-deduction, which gives enhanced 130% relief for new qualifying plant and machinery acquired by companies, will end on 31 March 2023.
Unincorporated businesses and their accounting year-ends
Unincorporated businesses that prepare annual accounts to a date other than 31 March or 5 April will soon need to adopt a new process. This process will be for how the profits or losses arising in those accounts are reported to HMRC.
At present, ‘basis period’ rules apply that broadly allow annual accounts that end in a tax year to act as the basis of profits or losses arising in that tax year.
This new system starts with transitional rules in the tax year ending on 5 April 2024 (2023/24). Going forwards, actual profits or losses arising in a tax year must be reported to HMRC. This does not necessarily require a change in accounting year-end.
Unfortunately, this will make it harder for some self-employed individuals to predict their income tax liabilities, but we will be on hand to help you.
National Insurance Contributions (NICs)
Like the main income tax bandings, employer and employee NIC thresholds are now also frozen until 5 April 2028. This broadly means that employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year (£175 per week). Employees will continue to pay 12% on earnings between £12,570 and £50,270 and 2% thereafter.
The VAT registration and de-registration thresholds continue to be frozen at £85,000 and £83,000 respectively, instead of increasing each year in line with inflation. This will remain the case until March 2026.
Since 1 January 2023, a new penalty regime has been in operation for late VAT return submission and late payment of VAT. The new system is designed to target more persistent offenders, with penalties escalating quickly where defaults reoccur.
This is just a summary of the main points of the Spring Budget 2023 that we thought would be relevant to you. For further information on the Spring Budget 2023 head to the gov.uk website. If you need help to see how the Spring Budget 2023 will affect you, give us a call today.