National Insurance Contributions (NIC) for the self-employed in 2023/24
Self-employed individuals are required to pay Class 2 and Class 4 NICs if their profits exceed £12,570. These NICs are usually collected with the individual’s income tax self-assessment payments.
For 2023/24, Class 2 NICs are calculated at £3.45 per week, and Class 4 NICs are calculated at 9% on profits between £12,570 and £50,750, and at 2% on profits over £50,750.
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 are scheduled to be phased in, in 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 plants and machinery, is now permanently set at £ 1 million.
The super-deduction, which gives enhanced 130% relief for new qualifying plants and machinery acquired by companies, ended on 31 March 2023.
As a replacement for the super-deduction, ‘full expensing’ (effectively 100% tax relief, called a ‘First Year Allowance’ (FYA)) is now available to companies incurring expenditure on new qualifying plant and machinery from 1 April 2023 and 31 March 2026. The qualifying criteria are quite broad although there are exclusions, including cars and feature integral to a building (for example, heating systems). With regard to ‘integral features’, a smaller 50% FYA is available. Subsequent disposals of assets on which one of these FYAs has been claimed will trigger a clawback of tax relief at a rate of 100% or 50% of the disposal proceeds, depending on the rate of the original relief. These new FYAs will mainly be of interest to companies that have already fully utilised their £1million AIA.
The separate 100% FYA for electric vehicle charge points remains available for unincorporated businesses and companies until Spring 2025.
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 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, but this does not necessarily require a change in accounting year-end.
This will however make it harder for some self-employed individuals to predict their income tax liabilities, but we will be on hand to help you.
CORPORATE TAXES
New rates from 1 April 2023
From 1 April 2023, the rate of Corporation Tax increased to 25% if a company’s profits exceed £250,000 a year. The 19% rate will however 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, with 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, making the 25% rate more likely to apply.
Research & Development (R&D) Reliefs
From 1 April 2023 a raft of changes came to the R&D tax relief regime and claimant companies should consider obtaining updated advice if they’ve not already done so. The key changes are:
- The Research and Development Expenditure Credit (RDEC) available to non-SME companies was increased from 13% to 20%.
- For SME companies, R&D tax relief rates were reduced from 230% to 186%.
- For loss-making SME companies, the payable credit of 14.5% is now only available for companies whose R&D expenditure constitutes at least 40% of their total expenditure. For R&D claimants that don’t meet the new 40% test, the payable credit was reduced from 14.5% to 10% of the eligible loss.
- Qualifying R&D expenditure has been expanded to include data licences and cloud computing services.
- New claimants (those who have not made a claim in the previous 3 years) are now required to inform HMRC of their intention to make an R&D claim within 6 months of the end of the accounting period to which the claim relates.
From 1 August 2023, additional information requirements will need to be fulfilled when making an R&D claim.
Creative Industries tax relief
The government continues to support the creative industries by reforming and enhancing film, TV and video games tax reliefs. The government extended the temporary higher rates of theatre, orchestra, and museums and galleries tax reliefs for 2 further years until April 2025.
EMPLOYMENT TAXES
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) and employees will continue to pay 12% on earnings between £12,570 and £50,270 and 2% thereafter.
Company Cars and Other Benefits
Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. Employers also pay Class 1A NIC at 13.8% on the value of benefits.
The set percentages used to calculate company car benefits are fixed until 5 April 2025 before slight increases apply to most car types, including electronic and ultra-low emissions, from 6 April 2025.
More imminently, the figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) will increase in line with the Consumer Price Index (CPI) from 6 April 2023. These will become:
- Van benefit £3,960
- Van fuel benefit £757
- Car fuel benefit multiplier £27,800
Share Options
From 6 April 2023, the Company Share Option Plan (CSOP) employee share options limit increased from £30,000 to £60,000. Additionally, restrictions on the types of shares eligible for CSOP options were lifted.
Simplifications were made to the process to grant Enterprise Management Incentive (EMI) options. From 6 April 2023, there is no longer a requirement for the company to set out any restrictions to the shares being acquired in the option agreement and the employee no longer has to sign a working time declaration.
National Minimum Wage
The hourly rates applicable from 1 April 2023 are:
| Over 23 £10.42 21 to 22 £10.18 18 to 20 £7.49 | Under 18 £5.28 Apprentice £5.28 |
INVESTMENT ZONES
The Government will establish 12 ‘Investment Zones’ across the UK, including a promise to have at least one each in Scotland, Northern Ireland, and Wales.
Each successful zone will have access to £80m funding over 5 years and benefit from a package of tax reliefs. These include relief from Stamp Duty Land Tax (SDLT), enhanced capital allowances for plant and machinery, enhanced structures and buildings allowances, and relief from secondary Class 1 National Insurance Contributions (NICs) for qualifying employers on the earnings of eligible employees up to £25,000 per annum.
VENTURE CAPITAL SCHEMES
The following changes took effect from 6th April 2023.
The Government increased the generosity and availability of the Seed Enterprise Investment Scheme for start-up companies. The amount of investment that companies will be able to raise under the scheme increased from £150,000 to £250,000. The gross asset limit also increased from £200,000 to £350,000 and the investment must be made within 3 years (increased from 2 years) of trade commencing. In a bid to support these changes, the annual investor limit was doubled to £200,000.
