The new tax year is upon us and so we thought we would take this opportunity to detail some of the things you may need to know for the 23/24 tax year ahead.
The tax year for 2023/24 started on April 6th, 2023. In this blog we will try to give you the main highlights and other tax issues that may affect you or your business.
All of the details below are for your information only. Your circumstance may be different and may need further analysis and so we always recommend speaking to an accountant for specialised advice. If you don't have an accountant or are looking to switch, give us a call on 07936 360324 or contact us below.
Personal tax thresholds and allowances
The Personal Allowance, which is the amount you can earn before paying any Income Tax, will remain at £12,570 for both the 2022/23 and 2023/24 tax years. The threshold for paying the Higher Rate of income tax (which is 40%) will also remain at £50,270. Both of these thresholds are frozen until 2026
Tax rates in the UK (excluding Scotland)
Tax year | 22/23 | 23/24 |
Tax Band | Tax rate and thresholds | Tax rate and thresholds |
Basic rate tax - The lowest level of Income Tax paid above the Personal Allowance. | 20% on income between £12,571 and £50,270 (you pay tax on £37,700) | 20% on income between £12,571 and £50,270 (you pay tax on £37,700) |
Higher rate tax - The middle tier of Income Tax. | 40% on income between £50,271 and £150,000 | 40% on income between £50,271 and £125,140 |
Additional rate tax - The top rate of Income Tax for high earners. | 45% on income above £150,000 | 45% on income above £125,140 |
Impact on director tax-efficient salary recommendations
We recommend a salary of £9,100 with dividends of up to £41,170 as a single company Director and Shareholder. This provides the maximum tax efficiency in the current tax year.
The reason for this is that, it allows you to use all of the basic rate band of tax at 20% assuming you have no other income. Your total personal tax bill would then be £3,211.25, on take-home pay of £47,058.75.
If you take more income in dividends you will pay tax on these at a rate of 33.75% since this would take you into the higher rate tax payer bracket.
If you have any questions about dividends or you’d like your limited company to pay you more in salary, then you should speak to an accountant for tailored advice. If you don’t have an accountant or are looking to switch, give our friendly team a call on 07936360324 or arrange a free consultation via email at david@send2cloud.co.uk.
Dividend allowance
The Tax-Free Dividend Allowance for the 2023/24 tax year is £1,000 (a change from the £2,000 for the 2022/23 tax year). Dividend tax rates increased by 1.25% for the 2022/23 tax year and have stayed the same for the 2023/24 tax year, as shown below.
Tax Band | 22/23 rates | 23/24 rates |
Basic rate | 8.75% | 8.75% |
Higher rate | 33.75% | 33.75% |
Additional rate | 39.35% | 39.35% |
The rate of tax to be paid on an overdrawn Directors Loan Accounts under s455 of the Corporation Tax Act 2010 is the dividend Higher Rate (33.75%).
National Minimum Wage and National Living Wage
National Minimum Wage and National Living Wage increased to £10.42 per hour from 1st April 2023 for workers aged over 23.
The National Living Wage (for those aged 23 and over) and the National Minimum Wage (school leavers) increased from 1st April 2023 as seen below.
Age | 23 and over | 21 to 22 | 18 to 20 | Under 18 | Apprentice |
April 23 | £10.42 | £10.18 | £7.49 | £5.28 | £5.28 |
April 22 | £9.50 | £9.18 | £6.83 | £4.81 | £4.81 |
Other tax relief and allowances of interest
Personal Savings Allowance (PSA)
The 0% starting tax rate remains at the current level of £5,000 in the 23/24 tax year.
The adult ISA annual subscription limit for the 2023/24 tax year and the Junior ISAs and Child Trust Funds also remain unchanged at £20,000 (Adult ISA) and £9,000 (JISA and Child Trust Funds).
Higher-income Child benefit charge threshold
The clawback charge on higher earning couples where one claims Child Benefit and either of them has an income over £50,000 has been in place since January 2013. This is referred to as the ‘High Income Child Benefit Charge’. Due to the increase in the higher rate threshold, this could now possibly apply to some basic rate tax payers as no increase has been announced for the earnings threshold for this clawback.
Personal pensions
The tax-free amount you can pay into a personal pension remains at £40,000 for the 2023/24 tax year. The lifetime allowance for most people is £1,073,100.
In previous tax years, you would have paid a lifetime allowance charge on any pensions savings over this amount. However from 6 April 2023 that charge has changed to 0%.
Certain lump sums payments which would have been subject to a lifetime allowance charge will instead be subject to income tax at the recipient’s marginal rate. The lifetime allowance is set to be abolished in April 2024.
Capital Gains Tax
The Capital Gains Tax annual exempt amount for individuals has dropped to £6,000 from April 2023 (this was £12,300 for 2022/23 tax year). It will be reduce again to £3,000 from April 2024.
Inheritance Tax
There is no change to the Inheritance Tax (IHT) nil rate band, the threshold remains at £325,000 and is frozen at that level until 2026.
Business Asset Disposal Relief
The Business Asset Disposal Relief lifetime allowance limit remains capped at £1 million.
Corporation Tax, workplace pensions and allowances
Corporation Tax
For companies with profits below £50,000 for the 2023/24 tax year, Corporation Tax remains at 19%. The top rate of Corporation Tax is set at 25% for those with profits in excess of £250,000. Companies with profits between £50,000 and £250,000 will have a marginal percentage rate applied.
Workplace pensions (auto-enrolment)
The minimum amount that needs to be paid into an employee's auto-enrolment workplace pension hasn't changed and remains at 8% of the employee's qualifying earnings.
Annual Investment Allowance (AIA)
The Annual Investment Allowance of £1 million is here to stay and has been made permanent.
Company Cars
Fully electric cars are charged at 1% of their list price in the 2021/22 tax year, and increased to 2% in 2022/23 and remain the same for 2023/24.
These percentages are applied to the list price of the car based on its CO2 emissions. HMRC has published a self-employed ready reckoner you can use to calculate your company car tax.
Company vans and fuel benefit for company cars
If your company pays for fuel you have used for a personal journey or allows you to have personal use of a company van, it is a benefit kind.
The tax paid on such benefits has been increased from 6th April 2023. The changes for vans is as follows for directors and employees:
The BiK on company vans increases to £3,960 (from £3,600)
The BiK on fuel for a van provided for personal use increases to £757 (from £688).
There are ways to reduce this charge:
you or your employee cannot use the van for 30 days in a row
you or your employee pays you to privately use the van
other employees use the van - divide £3,960 by the number of employees.
The fuel benefit calculation for cars is as follows.
If a director/employee is provided with a company car and uses fuel paid for by the company, it is taxed on the cash equivalent value of the benefit each tax year. The cash equivalent amount is fixed each year and increases to £27,800 (from £25,300) on 6th April 2023.
The BiK charge is calculated by using a percentage rate that is calculated by the amount of personal usage. The fixed amount is £27,800 and so if the benefit received is at 15% the BIK amount would be £4,170, which is 15% of the fixed amount.
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