Tax e-News January 2023

At this time of year we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5^th April.

An obvious tax planning point would be to maximise your ISA allowances for the 2022/23 tax year (currently £20,000 each).

You might also want to consider increasing your pension savings before 5 April 2023 as the unused annual pension allowance from 2019/20 lapses after three years.

Many of us get together with the family at Christmas and that prompts us to think about making or updating our Will.

For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and by their employer.

Under the current rules, the government adds to your pension contributions at the 20% basic rate. For instance, if you save £4,000 in a personal pension the government tops this up to £5,000. If you are a higher rate taxpayer there is a further £1,000 tax relief when your tax liability is calculated, reducing the net cost to £3,000. This can be even more effective if your income is between £100,000 and £125,140 where the effective tax rate is 60%. Remember that pension fund investments can go down as well as up.

Top of the New Year to do list for many individuals is to make or update their Will. Many think this is something to leave until later in life but it is important to get things in place once property is acquired or when children come along.

In the absence of a will there are statutory rules which dictate how your assets are distributed on death. Those statutory intestacy rules may not be tax efficient and you might want to make specific provision in your Will for your unmarried partner or for the guardianship of your children.

When considering the wording of your Will you should note that the inheritance tax (IHT) nil rate band continues to be frozen at £325,000 until 2028. There is an additional nil rate band of up to £175,000 for passing on the family home to direct descendants on death. We will be happy to review your current Wills to ensure that they are tax efficient or to advise you on putting a tax efficient Will in place.

Where the nil bands are unused on the death of the first spouse the balance is available on the death of the surviving spouse, potentially allowing a married couple (or civil partners) to pass on assets of up to £1 million without paying IHT.

The residence nil band is even available when you downsize to a cheaper property. For example if a married couple currently live In a large house worth £500,000 and downsize to a flat worth £300,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property.  They could even sell the house and move into a rental property or a care home and still benefit from this additional relief. In these circumstances, certain conditions must be met, so please speak to us if you think it may affect you.

The CGT annual exempt amount reduces from £12,300 to just £6,000 for gains made in 2023/24. Remember that the 2022/23 allowance is lost if not used by 5 April 2023 and you might want to consider bringing forward disposals of chargeable assets where possible. Where a married couple who are higher rate taxpayers own a buy to let property, bringing forward the disposal from 2023/24 could potentially save £3,528 CGT (£24,600 – £12,000 @ 28%). It would be important to exchange contracts before 6 April 2023 as that is the critical date for CGT.

The 130% super-deduction for the investment in plant and machinery was introduced in the March 2021 Budget.

The enhanced tax deduction is available to limited companies that acquire new plant and machinery between 1 April 2021 and 31 March 2023. Companies should consider bringing forward plans to acquire new plant to benefit from this generous tax allowance. Note that the expenditure must be incurred before the 31 March 2023 deadline.  If you are thinking about investing in plant and machinery to take advantage of the super-deduction we will be happy to discuss this with you further.

The 130% super-deduction referred to above only applies to limited companies, however the Annual Investment Allowance (AIA) is available to unincorporated businesses as well as limited companies.

In the recent Autumn Statement the Chancellor announced that the AIA for expenditure on plant and machinery would become a permanent £1 million allowance.

The annual limit was originally scheduled to revert to just £200,000 from 1 January 2021 and has been extended twice to 31 March 2023. Businesses will welcome the certainty that this provides.

A new points-based system for late VAT returns starts for return periods commencing on or after 1 January 2023. A financial penalty will apply when a number of points have been accumulated, which will depend on how frequently the returns should be submitted. For a trader preparing quarterly returns a penalty will be charged when four points have been accumulated.

The table below sets out the HMRC advisory reimbursement rates for employees’ private mileage using their company car from 1 December 2022. Where full reimbursement is made there is no taxable fuel benefit. The rates for the previous quarter, if different, are in brackets.

Note that for hybrid cars you must use the petrol or diesel rate and for fully electric cars the rate is now 8p per mile (previously 5p per mile)

You can continue to use the previous rates for up to 1 month from the date the new rates apply.

The Scottish Parliament has the power to set income tax rates on non-savings and non-dividend income for Scottish taxpayers.

In the Scottish Budget of 15 December 2022, it has been confirmed that the 5-band structure will remain for 2023/24 and most of the thresholds are unchanged. Like the rest of the UK the top rate threshold has been reduced to £125,140. However, unlike the rest of the UK, the Scottish higher rate and top rates have been increased by 1%.

The 19% Scottish starter rate will continue to apply to income between £12,571 and £14,732 (as in 2022/23).

The Scottish basic rate of 20% will continue to apply to income between £14,733 and £25,688 (as in 2022/23).

The Scottish intermediate rate of 21% will continue to apply to income between £25,689 and £43,662 (again, as in 2022/23).

The increased 42% Scottish higher rate will apply to income between £43,663 and £125,140 (in 2022/23 it is 41%).

The increased 47% Scottish top rate will apply to income in excess of £125,140 (in 2022/23 it is 46% and applies to income over £150,000).

1 January 2023 – Corporation tax for the year to 31 March 2022 unless quarterly instalments apply

19 January 2023 – PAYE & NIC deductions, and CIS return and tax, for month to 5 January 2023 (due 22 January if you pay electronically)

31 January 2023 – Deadline for filing 2021/22 self-assessment tax return online and paying your outstanding tax for 2021/22 and first payment on account of 2022/23 tax.

1 February 2023 – Corporation tax for the year to 30 April 2022 unless quarterly instalments apply

19 February 2023 – PAYE & NIC deductions, and CIS return and tax, for month to 5 February 2023 (due 22 February if you pay electronically)