New tax year: Key changes and initiatives for 2023/24

The new tax year has arrived, ushering in changes that could impact your business.

With high inflation, fragile supply chains and increasing energy costs hitting hard, now’s the time to start thinking about minimising the impact of these challenge on your bottom line.

The UK tax year differs from the normal calendar year—you might call it the financial year or accounting year. It starts on 6 April and ends on 5 April.

Here’s what we cover in this article:

• Business taxes
• Corporation tax rise
• Business rates package
• VAT threshold frozen
• Energy support
• Childcare support for working parents
• Income tax changes and freezes
• Wages and payroll
• Work and pensions
• New investment zones
• Research and development
• Additional announcements
• Final thoughts on the new tax year

Business taxes

The government’s super-deduction scheme ended on 31 March 2023. Two capital allowance schemes have replaced it: a new full expensing scheme and the extension of the 50% first-year allowance.

Full expensing

Full expensing allows businesses to claim 100% capital allowances on qualifying plant and machinery investments in the year they incur the expenditure, reducing their taxes by up to 25p for every pound invested.

This scheme is available from April 2023 until the end of March 2026 and may be made permanent.

Extension of the 50% first-year allowance

The 50% first-year allowance to special rate assets will continue until 31 March 2026.

Annual investment allowance

The AIA limit of £1m announced in September 2022’s mini-Budget is permanent. This allows all businesses to write off their first £1m of capital expenditure against their tax bill.

Corporation tax rise

Corporation tax rate rises, announced in March 2021, have gone ahead as planned:

• From April 2023, companies with taxable profits above £250,000 will pay a higher rate of 25%.

• The rate remains at 19% for companies with profits below £50,000.

• Companies with profits between £50,000 and £250,000 have to pay tax at a reduced main rate, which gradually increases their effective corporation tax rate.

Compared to the current flat rate of 19%, this new rate system will add significant cost and complexity to businesses.

Business rates package

The Chancellor introduced a £13.6bn package of measures to provide relief around business rates in England, with many rates significantly reduced from April 2023.

VAT threshold frozen

The VAT registration threshold will remain at £85,000 until 31 March 2026.

Due to high inflation, more businesses must register for VAT, generating more revenue for HMRC.

All businesses that reach the threshold will have to meet certain obligations, including:

• Registering for VAT
• Charging customers VAT on sales
• Submitting VAT returns using Making Tax Digital compliant software
• Paying the difference between input and output VAT to HMRC.

However, registered businesses can reclaim input VAT.

Energy support

From April 2023:

• The Energy Price Guarantee has been kept at £2,500 for the average household for three months (until July 2023).
• The Energy Bills Discount Scheme will supersede the Energy Bill Relief Scheme and run for 12 months.

The Chancellor said any further energy bill support for businesses would be significantly lower and more targeted towards those most affected beyond March 2023.

Childcare support for working parents

From April 2024 and in stages, with full implementation in September 2025, working parents of children between nine months and five years old will get up to 30 hours of free childcare.

This is currently only available to eligible parents of three and four-year-olds.

• All parents in a household must work at least 16 hours per week at minimum wage to qualify, and funding will begin when maternity or paternity leave ends.
• The change is intended to encourage more parents to return to work, potentially relieving business staff shortages.
• Additionally, from September 2026, all primary schools will offer wraparound care alone or in partnerships with other schools.

Income tax changes and freezes

From April 2023 in England, Wales and Northern Ireland:

• The additional 45% tax rate threshold has been lowered from £150,000 to £125,140 for England, Wales and Northern Ireland.
• The other income tax thresholds remain frozen at their current rates until April 2028.
• This comes after the 45% tax rate for taxable income over £150,000 was initially removed in the mini-Budget in September 2022 but later reinstated.

In Scotland:

• The higher rate threshold has been reduced to £125,140, with the rate increasing to 42%. The top rate has been increased to 47%.

Wages and payroll

National Living Wage and National Minimum Wage increases

The top National Living Wage rate has increased by 9.7%, from £9.50 to £10.42 per hour. It’s aimed at those 23 and over, and this rise came into play from April 2023.

The National Minimum Wage has also gone up at the same time, as follows:

• 10.9% increase for 21 to 22-year-olds: from £9.18 to £10.19 an hour
• 9.7% increase for 18 to 20-year-olds: from £6.83 to £7.49 an hour
• 9.7% increase for 16 to 17-year-olds and apprentices: from £4.81 to £5.28 an hour.

National Insurance thresholds and rates

The National Insurance contributions (NIC) thresholds and class 1 rates have been frozen until 2028, while the Class 2 and 3 NIC rates for the self-employed have been uprated to £3.45 and £17.45 from April 2023.

Employer’s National Insurance contributions (NICs) threshold frozen

The Chancellor froze the employer’s NICs secondary threshold at its current rate of £9,100 annually until 2028.

This will increase employment costs for eligible employers with employer NICs over £5,000 yearly.

Employment allowance

The employment allowance remains at £5,000 for 2023/24 to protect 40% of businesses from paying NICs.

Dividend allowance cut

The dividend allowance has been reduced from £2,000 to £1,000 from April 2023 and to £500 from April 2024, increasing the tax burden on limited company owners who pay themselves using dividends.

Capital gains tax

The annual exempt amount (AEA) for capital gains tax (CGT) has been reduced from £12,300 to £6,000 from April 2023, then to £3,000 from April 2024.

Vehicle excise duty on electric vehicles

The government will extend the vehicle excise duty to electric vehicles from April 2025, adding costs to employers that provide electric vehicle fleets to employees.

Work and pensions

The Chancellor introduced some new initiatives to boost the workforce for people over 50.

Returnership apprentices

This aims to bring back over 50s who want to return to work, focusing on previous experience to reduce training time.

It will be supported with £63m of additional funding, but there’s no start date announced yet.

Midlife MOTs

The Department for Work and Pensions will increase the number of people over 50 who benefit from midlife MOTs from 8,000 to 40,000 annually.

A midlife MOT is a free online tool that encourages people in their 40s, 50s, and 60s to plan actively for work, wellbeing and money. This tool is aimed at both employees and employers.

Pensions

The government has put in measures that it hopes will encourage people to stay in work longer before they retire.

From 6 April 2023:

• The annual pension allowance—the amount you can contribute to your private pension in a year without incurring tax—has been increased from £40k to £60k. It’s been frozen for the past nine years.
• The pension lifetime allowance of £1.07m has been scrapped, meaning people can make unlimited contributions to their pensions without incurring a tax charge.

New investment zones

The Chancellor announced a new scheme of 12 investment zones across the UK to drive investment and growth.

• Each zone will receive £80m of funding over five years, including tax reliefs and grant funding.
• The zones will be based around major research institutions, likely top universities, and become research and development hubs.
• Eight English mayoralty areas are on the shortlist, with at least one zone in Scotland, Wales, and Northern Ireland.
• The money will improve skills, provide specialist business support, enhance the planning system, or boost local infrastructure.

Research and development

From 1 April 2023, a new scheme targeting research and development (R&D) intensive loss-makers began.

Eligible small and medium-sized enterprises (SMEs) that spend 40% or more of total expenditure on qualifying research and development (R&D) can receive an enhanced R&D tax credit of 27% even if they are loss-making.

• R&D intensive loss-makers can claim £27 from HMRC for every £100 spent on R&D instead of the usual £18.60.

• The scheme is worth approximately £500m annually and is expected to help around 20,000 businesses.

Additional announcements

No online sales tax

Following a consultation, the government announced it wouldn’t introduce an online sales tax (OST). The idea of an OST was to rebalance business rates bills paid by in-store retailers compared to their online counterparts.

Stamp duty

The Spring Budget didn’t change the Stamp Duty Land Tax (SDLT) cuts introduced in September 2022’s mini-Budget. They will last until 31 March 2025.

No reprieve for the Office of Tax Simplification

The Chancellor decided not to reverse the government’s previous decision to abolish the Office of Tax Simplification (OTS).

Draught beer relief

Known as the new ‘Brexit pubs guarantee’, from 1 August 2023, the duty on draught products in pubs will be up to 11p lower than that in supermarkets.

Fuel duty frozen

Fuel duty has been frozen, and the 5p reduction to fuel duty on petrol and diesel remains for an extra year.

Final thoughts on the new tax year

With a new tax year, it’s always good to consider what these changes mean for you.

Although some changes might seem small, it’s essential to understand how they affect you as a business owner—and, if relevant, an employer and your employees.