Happy new tax year to all freelancers!
Last Updated on 6 April 2023
Income tax years in the UK run (bizarrely) from 6th April to 5th April. And the rules change every year. Sometimes it’s a tweak and sometimes, following a general election, it can be a radical new direction.
There can also be ‘interesting’ new directions when the Prime Minister is Liz Truss. That’s another story, so I’ll leave it between you and your mortgage lender.
This year there aren’t too many tax changes for most people I meet. This is because the government has been freezing the point at which people pay tax, with the effect that more of us pay more tax as our earnings go up, but the tax system looks the same.
Income tax changes
The changes that will come in this year affect the point at which the richest 2-ish% pay the top rate of tax. I’m going to assume that this is not you, so let’s keep it brief.
Up until 2022-23 the top rate of tax was 45%, and kicked in on any earnings over £150,000. In Scotland, where they’re allowed to do income tax differently, the top rate was 46% for people living north of the border.
From 2023-24 the point at which people pay the top rate will be lowered to £125,140. The rate doesn’t change, but the number of people paying it will increase.
In Scotland the top rate will also change, going up to 47%, because it’s Scotland.
National insurance changes
NI contributions were a complete mess in 2022-23. Boris Johnson and Chancellor Rishi Sunak put them up by 1.5 percentage points, then Liz Truss and Kwasi Kwarteng put them down again.
Then Richi Sunak became PM and decided to leave them well alone in case anyone noticed he’d changed his mind.
This year it looks like there will be relative calm with NI rates.
Corporation tax
Some people reading this might be running a small limited company (like I do), so it’s worth explaining what’s going on with tax on companies, ie corporation tax.
It was announced a number of years ago that corporation tax would increase from the relatively low 19%. It’s going up to where it used to be – 25%. This is nearer the international average for countries the size of the UK.
That’s a massive increase and you’ll hear some business people complaining about it.
For small companies (like mine) the increase won’t necessarily hurt, because there is still a small profits rate of 19% for companies with profits under £50K a year.
There’s a kind of sliding scale of corporation tax for profits between £50K and 250K in the year. this is called a ‘marginal rate’. Any company with annual profits more than £250K will be paying the full whack at 25%.
Dividend taxes
While talking about small companies, it’s worth mention that the increase in dividend taxes last year was not reduced once Boris Johnson was shown the door. This has been kept quiet because journalists don’t really understand how small companies work.
On top of this, the current chancellor, Jeremy Hunt, decided to decrease the amount of dividends that are tax free. Until 2022-23 the first £2,000 of dividends were not taxed. In 2023-24 it will be halved to £1,000. There are plans to drop it again to £500 in 2024-25.
Why do I explain all this every year?
I sometimes feel I’m on a one person mission to help normal people understand tax and NI. After all, we all pay them at some point.
I’ve lost count of the number of people who say we should be taught this in schools. Absolutely. In the mean time come on one of my training courses.
My personal view is that the tax system should be simple enough that it can be explained to a 12-year old.
This is not because 12 year olds should be paying tax (although under this government…?). It’s more that there are too many temptations for governments to pull the wool over our eyes if things are complex.
And they really don’t need to be.
Posted on 05 April 2023
