News and Updates
PETER HUGHES – CHARTERED ACCOUNTANT
This summary outlines the principal tax measures announced in the Budget on 15 March 2023. Except where stated, the changes take effect for the 2023/24 tax year.
Income tax bands remain unchanged as follows: personal allowance £12,570, higher rate threshold £50,270, additional rate threshold £125,140.
As previously announced, the dividend allowance reduces from £2,000 to £1,000 (and to £500 in 2024/25). Dividends are subject to income tax if a taxpayer’s total dividends exceed the dividend allowance. Basic rate taxpayers pay income tax at 8.75%, higher rate taxpayers at 33.75%, and additional rate taxpayers at 39.35%.
Before every recent Budget there has been an expectation that higher rate relief on pension contributions would be withdrawn. This might have been difficult to administer, which may be the reason why it has not yet happened, and once again there was no such measure this year. Instead, the announcements were beneficial to taxpayers contributing to pension schemes.
The annual allowance (the maximum yearly contributions on which tax relief is available) has risen from £40,000 to £60,000. This is the first change since 2014/15. Readers with long memories may remember that the annual allowance in 2010 was £255,000. Remember, though, that in order to take advantage of the £60,000 annual allowance, you must have earned income. Dividends and interest do not qualify as earned income, although profits from holiday letting do. Also, the three year carry forward of unused annual allowances still applies.
There remains a tapering down for additional rate taxpayers, for whom the annual allowance increases from £4,000 to £10,000. The taper will apply where adjusted income exceeds £260,000, an increase from the current £240,000 limit. Working out adjusted income can be complex, but very broadly it is all income plus employer pension contributions.
The lifetime allowance is currently £1,073,100, and this will be abolished. Taxpayers who had, or expected to have, pension savings exceeding the lifetime allowance were subject to a lifetime allowance charge of up to 55%. The maximum tax-free cash sum that can be taken from a pension remains limited to 25% of £1,073,100.
Saturday’s Financial Times suggested that pension savers should top up their pension as much as possible, and on the eve of the 2024 general election extract a lump sum to protect themselves against future adverse tax changes.
There is currently a “super deduction” which has the effect that a business which incurs expenditure on most plant and machinery can claim a tax allowance of 130% of the cost. This stops on 1 April 2023 and is replaced with an annual investment allowance of £1 million. This will last until 31 March 2026.
As previously announced, the CGT annual exempt amount will reduce from £12,300 to £6,000 for 2023/24. In 2024/25 it will reduce to £3,000..
The IHT threshold remains at £325,000.
The VAT exemption on healthcare will be extended from 1 May 2023 to include medical services carried out by staff who are directly supervised by registered pharmacists. The zero rate on prescriptions will also be extended to medicines supplied through patient group directions. This allows some health professionals to administer specified medicines to a pre-defined group of patients, without them having to see a prescriber.
I am a chartered accountant practising independently in York but with clients across the UK and a few in other countries. My two areas of specialism are VAT and financial reporting, and I am available for consultancy work, whether it be an answer to a simple question or a more complex request for advice. I can visit your premises if needed.
I offer training courses in VAT and financial reporting, principally on an in-house basis, although I am also available to speak at public events.
Peter Hughes, M.A., F.C.A.
11 Sails Drive, Heslington, York
YO10 3LR
Tel 01904 421570;
Mobile: 07801 810694
P.D. Hughes Consultancy Services Ltd
Company No 06841251 (Registered in England & Wales)
peter@pdhughesconsultancy.co.uk
www.pdhughesconsultancy.co.uk
20 March, 2023