Now the dust is settling after the recent announcements, Government U-turns and further announcements, it is time to draw breath and focus on the changes (although we may see more in the March 2023 budget)!
An attention-grabbing headline appearing around the place is that everyone will be paying more tax over the next few years. This is subject to interpretation; if a salary goes up, there will be more tax and NI to be paid – this has always been the case. However, if the salary stays the same, the tax and NI over the next few years will be exactly the same as it is now, as the personal tax allowance and NI rates are being “frozen” meaning they will not increase until April 2028 at the earliest. There is an exception and that is, from 6.4.2023, those earning over £125,140 p.a. will start to pay 45% tax when their income exceeds this figure. Previously 45% tax started at £150,000 – so someone earning £150,000 will pay an additional £1243 p.a. from April 2023. (£150000-125140 = 24860 @ 5%). This also assumes that there is no other income e.g., from savings, which might affect the tax payable.
For those company directors paying a salary and dividends, there will however be some additional tax to pay due to the above change, and the reduction in the tax-free dividend allowances- currently £2000 p.a. dropping to £1000 from April 2023 and £500 from April 2024.
This does get quite complex – so please contact us before the new tax year if you believe you are affected. We can help you “crunch your numbers” and offer recommendations for salary levels from April 2023.
These changes may mean it makes sense to consider ISAs once again to shelter the tax effects.
There are other changes affecting capital gains in that the current £12300 annual tax-free allowance is being reduced to £6000 from April 2023 and £3000 from April 2024 – will we see it abolished in due course? This is likely to lead to more people having to complete tax returns and pay CGT.
Please contact us if you want to discuss any of the aspects above in more detail.
