Understanding Tax Rates for 23/24

The 2023/24 tax year brought about several noteworthy updates that individuals and businesses alike should be aware of. In this blog post, we'll remind you of the key tax changes for the UK for this tax year, shedding light on how they may impact you.

Personal Allowance and Income Tax Rates:

The tax-free personal allowance for individuals, which is the amount of income you can earn before you start paying income tax, has remained at £12,570 for the 2023/24 tax year, being the same level as it was for the previous tax year. Although if you earn more than £100k, you start to lose your personal allowance and you can read more about this here.

The basic rate income tax band also remains unchanged at £50,270 and income between this level and the personal allowance of £12,570 is taxed at a rate of 20%. However, the higher rate threshold has decreased from £150,000 to £125,140, which will bring more tax payers into the higher rate tax of 40%, as well as more tax payers now falling withing the additional rate of tax at 45% on income over £125,140. Dividends are taxed at different rates (8.75% basic rate, 33.75% higher rate and 39.35% additional rate).

National Insurance Contributions (NICs):

National Insurance Contributions, which are contributions made by both employees and employers towards the UK's social security system, have also undergone changes. The primary threshold, below which employees do not pay NICs, has increased to £12,570 per year, which is now in line with the tax free personal allowance. The secondary threshold remains at £9,100 per year and the upper earnings threshold also remains unchanged at £50,270.

For the self-employed, the Class 2 NICs rate has increased to £3.45 per week, while the Small Profits Threshold has risen to £6,725 per year.

Capital Gains Tax (CGT):

The CGT annual exemption, the amount of capital gains that are tax-free, has decreased from £12,300 to £6,000 for individuals and personal representatives. For trustees, the annual exemption has decreased to £3,000. The rates of CGT have not changed, with basic rate taxpayers paying 10% on gains and higher rate taxpayers paying 20%. This also remains the same for capital gains from residential property, which is 18% for basic rate taxpayers and 28% above the basic rate threshold.

Inheritance Tax (IHT):

The nil-rate band for inheritance tax remains unchanged at £325,000. The IHT rates are set at 40% for the portion of the estate above the nil-rate bands.

Corporation Tax:

For businesses, the main rate of corporation tax has been increased from 19% to 25%, effective from 1st April 2023. This is payable for all companies that makes a profit of £250,000 or more.

There is an introduction of the small profits tax rates, which is set at 19% for companies that generates profit of £50,000 and less.

Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief. This provides a gradual increase in the effective Corporation Tax rate.

Marginal Relief formula is: (Adjusted upper limit - taxable profit including distributions) × (taxable profit ÷ taxable profit including distributions) × (Marginal Relief fraction), the fraction used by HMRC is 3/200

VAT Threshold:

The VAT registration threshold remains at £85,000 for the 2023/24 tax year. Businesses with a taxable turnover exceeding this threshold are required to register for VAT.

Conclusion:

Understanding the tax changes for the 2023/24 tax year is crucial for individuals and businesses. The adjustments to personal allowances, income tax rates, NICs, CGT, IHT, and corporation tax will have an impact on many taxpayers' financial planning and obligations and there’s plenty of time to plan ahead for the current tax year so you don’t find yourself paying too much tax later on.

It is recommended that you consult with a tax professional or refer to official HM Revenue and Customs (HMRC) guidance and legislation to ensure compliance. By staying informed and making appropriate adjustments, taxpayers can navigate the changing tax landscape and make the most of their financial circumstances in the year ahead..

---

FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.