Tax Changes to Watch out for in April 2023

Back in November, Chancellor Jeremy Hunt announced a series of tax freezes and changes which will impact businesses' tax accountancy. April is a big month, and with it being the beginning of a new financial year and the incoming budget, there are a number of tax changes we want you to be aware of. 

Increase in Corporation Tax

The main rate of Corporation Tax increases from 19% to 25% for businesses with profits exceeding £250,000. Businesses with profits under £50,000 will continue to pay at 19%, and those in between will be subject to a marginal rate of 26.5% on profits falling between those upper and lower limits.

Income Tax Shake Up

The Freeze on the personal allowance and the basic higher-rate income tax thresholds in England and Northern Ireland will be extended to April 2028. The freeze on these taxes is due to lift in 2025-26. While this may not appear to be a tax rise, having thresholds that fail to rise in line with salaries will result in you paying more tax on incomes, particularly if you are in the higher tax band. Mr Hunt announced in the Autumn Statement that there was a reduction of the additional-rate income tax threshold, dropping from £150,000 to £125,140 from 6 April 2023, exposing more individuals to the 45% tax rate. The chancellor also said that lowering the additional rate will mean someone earning £150,000 will pay an extra £1,200 income tax per year.

Reduction of the Dividend Allowance

The tax-free allowance for dividend income (the Dividend Allowance) reduces from £2,000 to £1,000 for individuals in receipt of dividend income.

National Insurance will Stay the Same

Despite changes to National Insurance in 2022 and with the change in chancellors causing a force of concern over the rate employees pay on earnings between £12,570 and £50,270, there are to be no changes to National Insurance for 2023.

Frozen Inheritance Tax Threshold

Another threshold that will be frozen is inheritance tax. Currently, IHT is charged at 40% on assets or money you leave to heirs. 

The nil-rate band - the amount that can be passed on before IHT is due - will remain at £325,000 until April 2028. 

Capital Gains and Dividend Tax Allowance Cuts

VGT, or Capital Gains Tax, is charged on the profits you make from selling an asset, such as a second property or a high-value possession. 

Currently, the tax-free allowance is £12,300 for 2022-23, but from April, this will be cut down to £6,000. Another dramatic cut will be made in April 2024, reducing to £3,000. 

The capital gains tax rates that apply after the tax-free allowance will, however, remain the same.