As the costs of running your small business continue to rise, it’s crucial that you understand the changes coming up in the new tax year and what impact they could have on your business.
In this blog, we’ll walk you through some of the key tax changes for limited companies and sole traders for the 2023/24 tax year.
The changes to how much corporation tax you’ll pay as a limited company depends on your level of profit. For limited companies with profits of £250,000 and over, the corporation tax rate is set to rise from the current 19% rate to 25%, effective from 1 April 2023.
However, if you are a small business with profits of up to £50,000 there will be no change. Instead, a Small Profits Rate (SPR) will be introduced, set at the current 19% rate.
If your profits are between £50,000 and £250,000, the rate of tax you pay on the profits in that gap will steadily increase from 19 to 25%. To achieve this you will be able to claim an amount of marginal relief that bridges the gap between the two limits.
If you are self-employed and have been paying Class 4 National Insurance, the introduction of the new ‘Health and Social Care Levy’ in April 2023 is no longer going ahead, and the rise of 1.25% has been reversed. Instead, the National Insurance employee rate has been put back down to 12% where it is expected to remain for the upcoming tax year.
From 6 April 2023, the Class 2 National insurance rate will increase to £3.45 per week.
Business tax relief
If you're a sole trader or limited company, it’s important to be aware of the different tax reliefs and financial allowances that are available from HMRC.
In the Autumn Statement 2022, the government announced the following changes:
For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%
The SME additional deduction will decrease from 130% to 86%
The SME credit rate will decrease from 14.5% to 10%
HMRC has introduced a new VAT penalty regime starting from 1 January 2023 for late submissions and payments. Under the new changes, registered businesses will receive 1 penalty point for each late submission, with the ‘point threshold’ depending on how often you submit VAT returns. Businesses that exceed this threshold will have to pay fines.
These changes will affect everyone who submits VAT returns, including nil or repayment return customers, and replaces the default surcharge.
Making Tax Digital (MTD)
The government has delayed the compliance date for MTD for Income Tax – previously set for the upcoming 2024 tax year – until April 2026.
Businesses, self-employed individuals, and landlords with income over £50,000 will be mandated to join first, whilst those with income over £30,000 will be mandated from April 2027.