Following the Spring Budget statement for 2023 from the Chancellor of the Exchequer, Jeremy Hunt, we are pleased to announce the core changes effecting our clients.
Corporation Tax
Since 2017, the UK Corporation Tax rate has been 19% for all companies. It was announced, effective from 1st April 2023, companies with annual profits of up to GBP 50,000 will continue to be charged tax at 19% and companies with profits over GBP 250,000 will be charged at a flat rate of 25%.
There will be a sliding scale for taxable profits (that is profits after the allowances for capital expenditure and R&D tax credits have been deducted) between GBP 50,000 and GBP 250,000.
The tax bands will be divided by the number of active trading companies in a group, including interconnected businesses under the same ownership. The details of how this will be calculated will be released later.
On buying capital equipment, which includes most business assets except buildings and passenger cars, where different rules apply, companies can claim Annual Investment Allowance on assets purchased during the year. This continues to be £1m for qualifying plant and machinery and we see the introduction of 100% First Year Allowance for incorporation companies only for new and unused main rate assets until 31st March 2026. Both of these methods achieve full tax relief on the purchase of qualifying assets.
There will also be an increase to Diverted Profits Tax effective from 1st April 2023. This tax applies to large multinational enterprises with business activities in the UK which enter into arrangements to divert profit from the UK. The rate is increasing from 25% to 31%. There are exclusions for small and medium (SME) sized companies in the UK and therefore this does not apply to most of our clients. Please ask us if you think you might be affected.
It is important to remember that dividends between companies will continue to be exempt from Corporation Tax. However, dividends will now count as turnover for deciding on the rate of Corporation Tax a company must pay. We have always advised that separate trading companies should be formed if a client will have both Holding and trading activities in the UK, and keeping these activities separate is even more important now.
Research and Development
Changes are being made to Research and Development for SME’s to avoid abuse. A company making profits can continue to make claims and obtain 230% tax relief on the eligible sources. However, for those companies making a loss and claiming a cash payment, only 10% can be claimed from 1st August 2023, compared with 14.5% previously. Claims will need to be made online and an advance notification must be applied for within 6 months of the end of the accounting period.
SME companies with at least 40% research and development expenditure will continue to be entitled to 14.5% cash repayment on losses.
RDEC (Research and Development Expenditure Credit) and SME schemes are expected to merge from April 2024.
Dividends
The personal Dividends Allowance is set to decrease from £2,000 to £1,000 from 6th April 2023. It is anticipated to reduced further to £500 for the tax year 2024/25. This will not affect most of our clients.
Personal Tax
There will be no changes to personal allowance for 2023/24 of £12,570 tax free allowance. Income tax rates will remain the same and there will be no change to the basic rate band for the tax year 2023/24. The rates and bands are as follows:
| Bands | Income Tax | Dividends | |
| Basic rate | £1 to £37,700 | 20% | 8.75% |
| Higher rate | £37,701 to £125,140 | 40% | 33.75% |
| Additional rate | Over £125,140 | 45% | 39.35% |
Please note, bands and rates differ in Scotland.
Social costs
Social costs for both companies and employees have not changed.
You should obtain specific advice before taking any actions in respect of this information.
