Looking ahead to 2023: tax and accountancy changes to be aware of
7th December 2022
With the number of changes announced (and often retracted) in 2022, you’d be forgiven for being confused about what is actually happening in the world of tax and accountancy for 2023. In this article we summarise some of the key changes to be aware of for 2023.
Income Tax & NICs thresholds
Income tax personal allowance and higher rate threshold are fixed at their current levels until April 2028. They will be £12,570 and £50,270 respectively.
The additional rate threshold (ART) is set to be lowered from £150,000 to £125,140, the income level at which an individual will not have any Personal Allowance, because £1 of the Personal Allowance is withdrawn for every £2 of income above £100,000 from 6 April 2023.
From July 2022, the NICs primary threshold and lower profits limit were increased to align with the personal allowance and will be maintained at this level from April 2023 until April 2028. The Class 2 lower profits threshold will also be fixed from April 2023 until April 2028 to align with the lower profits limit. They will again be £12,570 and £50,270 as appropriate.
Dividends
From April 2023, the rates of taxation on dividend income will remain as follows:
- The dividend ordinary rate – 8.75%
- The dividend upper rate – 33.75%
- The dividend additional rate – 39.35%
Corporation tax
from April 2023 corporation tax will be increased for companies with profits over £250,000 to 25%.
The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Capital gains tax
The capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) pilot scheme
From April 6 2024, MTD for Income Tax Self Assessment (MTD ITSA) will apply to individuals with a gross income from self-employment or property exceeds £10,000 per tax year. This means self-employed businesses and landlords with annual business or property income above £10,000 will need to send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software
Although the changes don’t come into play until 2024, the Government is inviting eligible self-employed businesses and landlords to voluntarily sign up to a pilot scheme ahead of its official launch. You can find out more about MTD ITSA and the pilot scheme in our article here.
Interest rates and inflation
If you’ve paid attention to the news recently you’ll know that interest rates and inflation have risen much more sharply than expected over the past few months.
The Bank of England (BOE) is expected to raise its base rate again later this month from 3% to 3.5%, with further increases expected in 2023. BOE has projected interest rates reaching 5.2% by the end of 2023 before they start to fall again in 2024.
It is hoped that these increases will help get inflation under control. BOE expects inflation to fall sharply by the middle of next year.
R&D
For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.
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