Changes to 2023-24 Tax allowances: what to be aware of

The end of the 2023-24 tax year is fast approaching. This year, there are several key changes to be aware of that may affect your tax allowances and business. Here’s a look at the initiatives in place for the 2023-24 tax year and the ways in which you can maximise your allowances before the end of the financial year.

End of Super-Deduction scheme

The government’s two-year Super-Deduction scheme, which allowed companies to claim 130% capital allowances on qualifying plant and machinery investments from April 2021, ended on 31 March 2023. This means any investments made after 31 March last year are ineligible for Super-Deduction.

Instead, two capital allowance schemes have been brought in to replace it for 2023-24. These are a new Full Expensing scheme and an extension of the 50% First-Year allowance (FYA).

Full Expensing and Extension of FYA

The new Full Expensing initiative offers businesses 100% Capital allowances relief on qualifying plant and machinery investments in the year they incur the expenditure. This could reduce taxes by up to 25% for every pound invested.

The scheme was launched in April 2023 and will be available for businesses until the end of March 2026 with possible plans to make it permeant.

Introduced on 1 April 2021 as a temporary measure, the 50% FYA has been extended until March 2026. It allows businesses to claim 50% of the cost of eligible capital expenditure on special rate assets, which is then deducted from their tax bill in the year the expenditure is incurred. The remaining 50% of the cost can be claimed through Capital allowances over future years. The 50% FYA is only available to companies paying Corporation Tax.

Corporation Tax increase

In March 2021 the government announced its plans to increase Corporation Tax from the flat rate of 19% to a rate of up to 25% for companies with taxable profits over £250,000. These plans have gone ahead and could cause significant cost and disruption for those businesses affected. The new rates effective from April 2023 are:

• A higher rate of 25% for companies with taxable profits above £250,000
• The set rate of 19% for companies with profits below £50,000
• Companies with profits between £50,000 and £250,000 must pay tax at a reduced main rate, gradually increasing their effective corporation tax rate

New Business Rates Package

In the 2022 Budget Announcement the Chancellor unveiled a £13.6 billion initiative aimed at easing the burden of business rates in England. From April 2023, the 2023/24 Business Rates Relief Scheme for Retail, Hospitality, and Leisure entails a 75% relief for qualifying, occupied properties within these sectors, subject to a maximum cash cap of £110,000 per business.

VAT threshold frozen

The VAT registration threshold has been set at £85,000 until March 2026. This is due to high inflation rates that have meant an increasing number of businesses are now required to register for VAT. All businesses that meet the VAT threshold will have to:

• Charge VAT on sales
• Submit VAT returns using government-approved Making Tax Digital (MTD) software
• Pay the difference between input and output VAT to HMRC with the option for registered businesses to reclaim input VAT

If you are unsure whether you qualify for VAT registration or how to complete your VAT return digitally, CTT Accountancy can help.

Capital Gains Tax (CGT)

The capital gains tax (CGT) annual exempt amount (AEA) has undergone a reduction, decreasing from £6,000 to £3,000 starting April 2024.

This means companies will have a lower allowance for tax-free capital gains, potentially leading to increased tax liabilities on gains exceeding the revised AEA limits.

It’s important to consider the impact of these changes on your CGT obligations and adjust your financial planning accordingly. For advice on managing changes to CGT, contact a member of the CTT Accountancy team.

Additional Income Tax rate lowered

From April 2023, the additional 45% tax rate for taxable income over £150,000 has been lowered to £125,140. This comes after the additional rate was initially removed in the September 2022 mini budget but then later reinstated.

The other income tax thresholds are set to remain at their current rates until April 2028.

Dividends allowance cut by 50%

If you are an owner of a limited company and are used to taking dividends, it’s worth noting the allowance for dividends is changing. From April 2023, dividend allowance has been reduced from £2,000 to £1,000; this will be further reduced to just £500 as of April 2024.

Pension Planning

In an initiative that it hopes will encourage people to stay in work longer before they retire, the government has increased the annual pension allowance from £40k to £60k. This is the first increase in 9 years.

The pension lifetime allowance of £1.07m has also been scrapped, allowing investors to make unlimited pension contributions without incurring a tax charge. These changes are significant, particularly for those who fall into the higher taxable income brackets.

If you are trading as a sole trader or partnership and suffer higher rates of tax, making pension contributions pre-year-end can have notable tax benefits. If operating as a limited company, the contributions made are deductible for corporation tax purposes. Please seek advice from your financial adviser on available allowances for pension contributions.

The takeaway

Planning ahead and seeking professional advice are the best ways to maximise tax savings before the end of the current financial year on April 5 2024. For help with tax planning and changes to tax allowances that could affect your business, contact CTT Accountancy.