Income Tax and NICs

Income tax rates and allowances

As previously announced, the basic rate of income tax will remain at 20%. Other rates will also remain unchanged. The personal allowance and higher rate threshold are fixed at their current levels until April 2028. The income tax additional rate threshold will be lowered from £150,000 to £125,140 from 6 April 2023.

The government has previously announced that it would reduce the dividend allowance from £2,000 to £1,000 from April 2023, and to £500 from April 2024. The 1.25% increase in rates of tax on dividends will be maintained (despite the scrapping of the Health and Social Care Levy which was its justification) so that the ordinary rate will continue to be 8.75%, the upper rate 33.75% and the additional rate 39.35% from April 2023.

For a table of the main tax rates and allowances for 2023/2024, click here.

National insurance contributions

From July 2022 the NICs Primary Threshold (PT) and Lower Profits Limit (LPL) were increased to align with the personal allowance at £12,570 and will be maintained at this level from April 2023 until April 2028. The Class 2 Lower Profits Threshold (LPT) will also be fixed from April 2023 until April 2028 to align with the LPL. The NICs Upper Earnings Limit (UEL) will remain at £50,270.

The government has also previously announced that it will fix the level at which employers start to pay Class 1 Secondary NICs for their employees at £9,100 from April 2023 until April 2028.

Low income trusts and estates

Following a consultation on low income trusts and estates, the government has announced that it will introduce legislation to:

• provide that trusts and estates with income up to £500 do not pay tax on that income as it arises;
• remove the default basic rate and dividend ordinary rate of tax that apply to the first £1,000 slice of discretionary trust income;
• provide that beneficiaries of UK estates do not pay tax on income distributed to them that was within the £500 limit for the personal representatives; and
• make technical amendments to ensure for beneficiaries of estates that their tax credits and savings allowance continue to operate correctly.

The substantive changes will have effect for tax years 2024/25 onwards. They should hopefully provide greater certainty and simpler tax administration for low income trusts and estates by legislating and extending an existing HMRC concession.

Expanding the cash basis

The government has launched a consultation seeking views on options to extend the cash basis for the self-employed. The cash basis is a simplified regime for calculating taxable profits for income tax purposes for businesses with straightforward tax affairs. The regime allows businesses to calculate their taxable profit as the difference between income and expenditure when money is actually received or paid out. This eliminates accounting and tax complexities such as accruals and most capital allowances, and simplifies reporting. The government wants to ensure as many businesses as possible are able to benefit from this simplified regime.

The consultation focuses on the following four policy proposals but welcomes other ideas:

• increasing the turnover thresholds for businesses to use the cash basis;
• setting the cash basis as the default, with an opt-out for accruals;
• increasing the £500 limit on interest deductions in the cash basis; and
• relaxing restrictions on using relief for losses made in the cash basis.

The consultation closes on 7 June 2023.