A couple of weeks after Budget 2023 we are ushering in the the start of the 2023 tax year - the fiscal period between April 6th 2023 and April 5th 2024.
The Budget did not bring any surprises or giveaways for the tax year that were not already disclosed in the previous special emergency Autumn Statement from November last year.
Personal allowances and tax bands (for 99 percent of the population) are yet again frozen (so a tax rise when inflation is taken into account). This freeze in allowances and bands will continue for all tax regions (aside from the tax devolved Scotland) until 2028 - and the fiscal drag effect will be real terms tax rises for everyone.
Those lucky to be earning over £125,140 will also be hit with a 45 percent tax rate - the band is now lowered from last year's £150,000. The NIC threshold kicks in later now and the rate is lowered for the entire year rather than the multiple changes seen in 2022.
You can use the following calculator to see how the tax changes affect your wages this year:
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If you have multiple incomes use our multiple income tax estimate for 2023 as the dividend allowance has been reduced and the capital gains exempt amount halved.
Corporation tax sees a large hike from 19 percent to 25 percent. This rise will hit any company with profits over £50,000 in the 2023 tax year, as even though the small profits rate will remain at last year's 19 percent, the limit before marginal relief is applied is £50,000. The marginal relief is completely removed at £250,000 at which point companies with profits over that level pay the full 25 percent CT rate. You can use our corporation tax calculator to get a fast calculation for any profit level, including marginal reliefs.
Considering the changes to rise in Corporation Taxes, coupled with the lowering of the small profits limit - and the lowering of the dividend tax allowance - you can compare your options for dividend vs salary using our specialised calculator.
Outside of taxation there are numerous other financial changes that will affect you over the new fiscal year.
There is an continuation of the upward trend in both the national minimum wage and the national living wage. The national minimum wage, a mandatory rise, meaning that employers are obligated to pay their employees a minimum set amount versus the national living wage, higher than the minimum wage and is only applicable to workers aged 23 or above.
The living wage for workers aged 23 and above is set to increase by 92 pence per hour, resulting in a new hourly rate of £10.42. The largest annual monetary boost in the history of the living wage, itself now over two decades old. The changes will impact 1.7 million employees who were previously earning just 5p more than the minimum wage.
Minimum wage changes in 2023:
- The 2023 National Living Wage (people aged 23 and above) is £10.42 (up £0.92)
- The 2023 Minimum Wage (people aged 21 and 22) is £10.18 (up £1.00)
- The 2023 Minimum Wage (people aged 18 to 20) is £7.49 (up £0.66)
- The 2023 Minimum Wage (people aged 16 and 17) is £5.28 (up £0.47)
However, do these increases keep up with inflation? According to the inflation calculator at NiceAreas.co.uk, which tracks inflation based on CPI and the Salary Index, shows £100 today has the buying power of £92 from last April - a devaluation of 8 percent.
According to the Trades Union Congress, the surge in the minimum wage is insufficient to match the inflation rate, which has been hovering around 10% in recent times - and those paying the wage, the businesses will have other higher costs to contend with due to this.
The government's energy bill relief scheme comes to an end and businesses will be bracing for a surge in their energy bills - with near half of all firms struggling to meet their financial obligations.
Households are not going to find it easy either and will also see a hike in energy bills. While most households received £400 in energy bill discounts from the government late last year, the support ceased in March. Although some support is still available for the most vulnerable, it's no longer universal. Despite the introduction of the government's energy price guarantee last year, which acted as a price cap, households will still be paying more due to the loss of government support. Moreover, from today, standing charges, which are daily fees paid for the energy supply, will also increase - even though the price cap will continue at £2,500 until the end of June.
The Chancellor thinks energy prices will lower naturally from July due to a drop in wholesale prices since earlier in the year. Let's hope his forecast is correct.
Councils are also hiking their charges, with many local councils increasing council tax by 5 percent starting today. As a result, a band D household should anticipate paying approximately £100 more per year, causing the average bill to exceed £2,000 for the first time.
Households in England and Wales are set to face a 7.5 percent increase in their average annual water bill, rising to £448 - an added cost of £31. Additionally, mobile and broadband prices will follow suit with an anticipated increase of 14 percent to 17 percent, which could lead to an average additional expense of £90 per year for households.
Food prices are continuing to rise and mortgage rates are up too for those not on fixed interest rates - the Bank of England just raised the base rate to 4.25 percent, so here's something to buck the trend so far...
It is expected that the price at the pump will witness a decline - across the board unleaded, super and diesel are all falling, with almost 40 pence per litre shaved off in the nine month period up to today.