FreeAgent and The New Tax Year

The new tax year is fast approaching! The 2022/23 tax year will end on 5th April and the new 2023/24 tax year begins on 6th April – dates that have remained unchanged since the 19th century.

The Chancellor of the Exchequer, Jeremy Hunt, announced some important tax changes in the budget statement he delivered in November last year and it’s vital that contractors, freelancers and small business owners keep on top of these changes.

The Spring Budget will be announced on 15th March but read on for the current key points for the 2023/24 tax year.

Income Tax Rates and Allowances

From 6th April 2023, the income threshold at which individuals pay the additional rate of income tax will be reduced from £150,000 to £125,140. Aside from that, the personal allowance will remain at £12,570, the higher rate tax threshold at £50,270 and these will be fixed until April 2028 at the earliest.

There are no changes to the income tax rates, as a reminder these are:

  • Basic Rate Tax Band = 20%
  • Higher Rate Tax Band = 40%
  • Additional Rate Tax Band = 45%

The dividend allowance will be reduced from £2,000 to £1,000, and in April 2024 it will be further reduced to just £500.

The rates at which dividends are taxed are as follows:

  • Basic Rate Tax Band = 8.75%
  • Higher Rate Tax Band = 33.75%
  • Additional Rate Tax Band = 39.35%

No Changes to National Insurance

The 2022/23 tax year saw a significant number of changes to National Insurance. The Government increased the rates by 1.25 percentage points in April with employees paying a 13.25% NI contribution instead of 12%. This increase was part of the Government’s Health and Social Care Levy aimed at helping the NHS.

This was not well received and in July 2022 the Chancellor of the Exchequer at the time, Rishi Sunak, increased the contribution threshold to £12,570 (previously it was £9,880) meaning that less lower income workers would be impacted.

By September Kwasi Kwarteng had replaced Rishi Sunak as Chancellor and in his ill-fated mini-budget this increase was scrapped. This meant that employees earning between £12,570 and £50,270 would pay their NI contributions at 12%. Employees earning £50,270 or more would pay 2% instead of 3.25%.

The 2022/23 tax year has been a tumultuous one from a National Insurance perspective, but 2023/24 promises to be calmer with no further changes likely.

Cuts to Dividend and Capital Gains Tax Allowances

You pay Capital Gains Tax (CGT) on any profit that you make when you sell an asset that’s increased in value. You only have to pay CGT if you overall gains are more than your tax-free allowance.

For the 2022/23 tax year, the tax-free CGT allowance is £12,300. Significant cuts will be made to this amount – it will reduce to £6,000 in April 2023 and will reduce again to £3,000 from April 2024.

There will be no changes to the tax rates levied on gains made above your tax-free CT allowance. They vary depending on whether you pay tax at the basic rate or higher rate.

  • Basic Rate Tax Band = 18% for property sale / 10% for other asset sale
  • Higher Rate Tax Band = 28% for property sale / 20% of other asset sale

It is also worth noting that with any capital gain realised on the sale residential property, should there be any capital gains tax due this must be reported and paid to HMRC within 60 days of the sale of the property.

Corporation Tax

Originally announced in March 2021 by the former Chancellor Rishi Sunak and now intended to go ahead as originally planned, from April 2023 the main rate of corporation tax will increase from 19% to 25%. However, this will only apply to those companies’ generating profits of £250,000 or more.

Those with profits of £50,000 or less will continue to pay corporation tax at a rate of 19%, referred to as the “Small Profits Rate”. Between the two thresholds of £50,000 and £250,000 a marginal rate of 26.5% will apply which will ensure that companies with profits between the two thresholds pay an effective rate of tax between 19% and 25%.

The lower limits and upper limits will be proportionally reduced where there are shorter accounting periods or associated companies to consider. Associated companies are defined as those under common control.

No Changes to Stamp Duty

In Kwasi Kwarteng’s September 2022 mini-budget, some significant Stamp Duty changes were announced. Before the mini-budget first-time buyers didn’t need to pay stamp duty on the first £300,000 of a property purchase and existing homeowners didn’t need to pay stamp duty on the first £125,000.

These thresholds were raised and after the mini-budget first-time buyers don’t need to pay stamp duty on the first £425,000 and existing homeowners don’t need to pay stamp duty on the first £250,000.

No Stamp Duty changes are anticipated in the 2023/24 tax year with these thresholds remaining in place until March 2025.

Possible Council Tax Rises

The 2023/24 tax year could see a rise in council tax bills for many people. Local authorities were able to increase council tax by up to 2.99% in the 2022/23 tax year without having to hold a local referendum about it. In the 2023/24 tax year, local authorities can increase it to 3%.

If the council qualifies for the social care precept, which allows council’s that provide social care to adults to increase their share of council tax, they can increase it by an extra 2%. Ultimately this means that your council tax bill could increase by 5% without a referendum, but this is very unlikely to happen.

If you reside in Scotland, there’s no limit on potential council tax bill increases in the 2023/24 tax year. However, the Scottish Government has encouraged local authorities to carefully consider how any increases would affect their constituents, especially in the current economic climate.

How You Can Prepare for The New Tax Year

If you already have an accountant, they should have everything in hand. But if you feel that you’re not being looked after, Gorilla Accounting can help.

Your accountant should offer a proactive service that saves you both time and money in the day-to-day running of your business. They should support you with laborious and time-consuming bookkeeping tasks and leverage available tax efficiencies to maximise your take home pay.

At Gorilla Accounting, we offer all our clients an exceptional level of service – just take a minute to read our Trustpilot and Feefo reviews! If you’re not getting the same level of service from your current accountant, it may be time to appoint Gorilla.

The best time to switch accountants is at your company year-end, or before the new tax year, but it is possible to switch accountants at any time. We take on new clients every day throughout the year.

Gorilla Accounting offer an efficient, streamlined switching and onboarding process. We’ll have you up and running and enjoying the Gorilla Accounting service and FreeAgent in no time, and we can even liaise with your previous accountant on your behalf.

How FreeAgent Can Help with Your Tax

If you’ve recently become self-employed for the first time, you must register with HMRC for tax and National Insurance purposes.

If you’re self-employed, HMRC may have sent you a letter to inform you that you must submit a tax return if you’ve earned £1,000 or more (before tax relief deductions) during the last year. You also have to submit a tax return if you were a partner in a business in the 2022/23 tax year.

If you’re required to do a tax return, you’ll have until 31st January 2024 to complete it (or 31st October 2023 if you do it in paper format). Failure to meet these deadlines will see interest added to the tax you owe from 1st February and a £100 late fine if you file it after 31st January 2024.

Having Gorilla Accounting in your corner means you won’t miss any deadlines as we provide a deadline and payment reminder service, but you need to start collecting receipts and bank statements from 6th April in preparation to complete your tax return for the year.

Gorilla Accounting clients receive full access to FreeAgent market-leading accountancy software included in their monthly fee. We understand that tax submission time can be very stressful, but FreeAgent’s automation makes it a breeze.

FreeAgent has an inbuilt tax timeline which provides a live overview of your tax calculations as well as forthcoming submission deadlines for Self-Assessment, VAT and Corporation Tax. It also provides a real-time overview of how much tax you owe.

As the tax year progresses, FreeAgent works away in the background to calculate your Self-Assessment liability and prepare your tax return for you. Parts of the Self-Assessment form will be automatically populated so you’re ahead of the curve when filing time approaches.

If you’re a director of a limited company or sole trader you can also use FreeAgent to electronically file your tax return directly with HMRC.

Looking beyond the new tax year, it’s recently been announced that there is a delay to the deadline for mandatory use of Making Tax Digital (MTD) compatible software to submit tax returns to HMRC. This means that landlords, unincorporated businesses and self-employed people with a turnover of £50,000 or more have to submit using MTD-compatible software from April 2026, and from April 2027 if they have a turnover between £30,000 and £50,000. Previously the deadline was April 2024.

You can find out more here from our Webinar with FreeAgent and our Operations Manager Richard Hepburn.