Date posted: 19th Apr 2023
You may have missed it, but we are in a new year.
There were no celebrations, no fireworks and no sight of Jools Holland but at midnight on 5th April 2023, the UK entered a new year. A new tax year……..
A new tax year brings changes to tax rates and allowances for individual taxpayers and another chance to save tax efficiently into pensions, ISA’s etc.
Key changes
A summary of the key changes for English taxpayers is below:
- The dividend allowance (essentially the amount of dividend income taxed at 0%) decreased from £2,000 to £1,000. It will further decrease to £500 from 6th April 2024.
- The capital gains allowance (essentially the amount of capital gain taxed at 0%) decreased from £12,300 to £6,000. It will further decrease to £3,000 from 6th April 2024.
- The point at which “additional rate” tax is due decreases from £150,000 to £125,140. The additional rates of tax for most income is 45% (compared to the higher rate at 40%) apart from dividend income which is taxed at 39.35% (33.75% for higher rate).
- The standard annual allowance for pensions savings increases from £40,000 to £60,000, although advice is critical in this area as the allowance can be less for high earners and those that have already accessed pension savings.
The rest of the personal tax “bands” and allowances are frozen until at least April 2028.
Whilst the savings allowance has not decreased, those earning over £125,140 will now not have any entitlement to the allowance. This together with the rising interest rates producing more interest income for savers, will likely mean that tax is payable on interest income (which no longer has any tax deducted at source) for 2023/24 for those that have received little interest in the past, as it may have been covered by the savings allowance.
What about companies?
Of course, there were also big changes for companies, including the end of the super deduction, changes to R&D and the increased corporate tax rates from 1st April 2023 (not 5th April….) which was the start of the new financial year for companies (rather than tax year).
This brings up a frequently asked question.
Why does the UK tax year end on 5 April?
The UK tax year originally began on Lady Day (25th March). The change essentially, goes back hundreds of years to medieval times when calendars were aligned.
Until 1582, Europe had used the Julian calendar established by Julius Caesar. Under the Julian calendar, the year had 11 months of 30 or 31 days, with one month, February, consisting usually of 28 days but with 29 every fourth or “leap” year. This had worked well for centuries, but because it did not align exactly with the solar calendar, problems developed over time.
Whilst the Julian year was only 11.5 minutes different to a solar year, by the late 1500’s, this had left the Julian calendar ten days adrift from the solar calendar. The Gregorian calendar was then adopted to solved the problem. However, whilst it was adopted by most of Europe, the UK did not adopt the calendar. By the mid 1700’s, the UK accepted that it would need to make a change and dropped 11 days from September to catch up – so September 2nd was followed by September 14th. To ensure that there was no loss of tax, 11 days were added to the end of the tax year, so instead of starting on 25th March, it started on 5th April.
In 1800, which would have been a leap year under the Julian calendar but not the Gregorian calendar, the Government treated 1800 as a Leap year and to get a further days tax revenue, a further adjustment was made which resulted in the UK tax year starting on 6th April.
There was a recent consultation in respect of changing the UK tax year end to 31 March, so it at least aligns with some other countries who have a 31 March year end – a lot also have a nice 31 December year end – but this is unlikely to happen in the near future.
Resolution
A lot of people will make a resolution for a new calendar year – why not make a resolution for the new tax year – the team would really appreciate you completing your tax return checklist by September 2023 but concentrating on more achievable resolutions, how about make 2023/24 the year that you focus on tax planning – particularly your inheritance tax planning?
If you have any questions regarding the end of the tax year, then please speak to a member of our team.
