Relevant to those sitting TX-UK in June, September or December 2024 or March 2025
This article looks at the changes made by the Finance Act 2023 (which is the legislation as it relates to the tax year 2023–24) and should be read by those of you who are taking TX-UK in an exam in the period 1 June 2024 to 31 March 2025.
The Finance (No. 2) Act 2023 did not receive Royal Assent by the exam cut-off date of 31 May 2023, and is therefore not examinable as regards exams falling in the period 1 June 2024 to 31 March 2025.
The aim of the article is to summarise the changes made by the Finance Act 2023 and to look at the more important changes in greater detail. The article also includes details of legislation which was enacted prior to 31 May 2023 but has only come into effect from 6 April 2023.
The article does not refer to any amendments to the TX-UK syllabus coverage unless they directly relate to legislative changes and candidates should therefore consult the TX-UK Syllabus and Study Guide for the period 1 June 2024 to 31 March 2025 for details of such amendments.
Please note that if you are sitting TX-UK in the period 1 June 2023 to 31 March 2024, you will be examined on the Finance Act 2022, which is the legislation as it relates to the tax year 2022-23. Therefore, this article is not relevant to you, and you should instead refer to the Finance Act 2022 article published on the ACCA website (See ‘Related links’).
You are reminded that none of the current or impending devolved taxes for Scotland, Wales, and Northern Ireland are, or will be, examinable.
The higher rate threshold has been reduced from £150,000 to £125,140. This is the point at which the personal allowance is fully withdrawn (see the following section on the personal allowance).
Also, the dividend income nil rate band has been cut from £2,000 to £1,000.
The rates of income tax for the tax year 2023-24 are therefore:
| Normal rates | Dividend rates | ||
|---|---|---|---|
| Basic rate | £1 to £37,700 | 20% | 8.75% |
| Higher rate | £37,701 to £125,140 | 40% | 33.75% |
| Additional rate | £125,141 and over | 45% | 39.35% |
| Savings income nil rate band - Basic rate taxpayers - Higher rate taxpayers | |||
| Dividend nil rate band | |||
A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable income.
The personal allowance for the tax year 2023-24 is £12,570.
This is gradually reduced to nil where a person’s adjusted net income exceeds £100,000. Adjusted net income is net income (total income less deductions for gross pension contributions to an employer’s occupational pension scheme, loss relief and deductible interest payments) less the gross amount of personal pension contributions and gift aid donations.
The personal allowance is reduced by £1 for every £2 by which a person’s adjusted net income exceeds £100,000. Therefore, a person with adjusted net income of £125,140 or more is not entitled to any personal allowance ((125,140 – 100,000)/2 = £12,570). Where a person has adjusted net income of between £100,000 and £125,140, then the effective marginal rate of income tax is 60%. This is the higher rate of 40% on income plus an additional 20% as a result of the withdrawal of the personal allowance. In this situation, it may be beneficial to make additional personal pension contributions or gift aid donations.
Interest received from bank and building societies is paid gross without any tax being suffered at source. Certain types of savings income are paid net of basic rate tax, but these are not examinable. Therefore, as far as TX-UK is concerned, all savings income is treated as paid gross.
Savings income benefits from a 0% rate. For basic rate taxpayers, the savings income nil rate band for the tax year 2023-24 is £1,000, and for higher rate taxpayers it is £500. Additional rate taxpayers do not benefit from any savings income nil rate band. Savings income in excess of the savings income nil rate band is taxed at the basic rate of 20% if it falls below the basic rate threshold of £37,700, at the higher rate of 40% if it falls between the basic rate threshold of £37,700 and the higher rate threshold of £125,140, and at the additional rate of 45% if it exceeds the higher rate threshold of £125,140.
When it comes to tax planning for a married couple, or a couple in a civil partnership, the availability of the savings income nil rate band means that transferring income from the partner paying tax at a higher rate to the partner paying tax at a lower rate is not necessarily the most beneficial option.
The first £1,000 of dividend income for the tax year 2023-24 benefits from a 0% rate. This £1,000 nil rate band is available to all taxpayers, regardless of whether they pay tax at the basic, higher or additional rate. However, the dividend nil rate band counts towards the basic rate and higher rate bands.
Dividend income in excess of the £1,000 nil rate band is taxed at 8.75% if it falls below the basic rate threshold of £37,700, at 33.75% if it falls between the basic rate threshold of £37,700 and the higher rate threshold of £125,140, and at 39.35% if it exceeds the higher rate threshold of £125,140.
The order in which tax rates are applied to taxable income is firstly non-savings income, then savings income and finally dividend income. Deductible interest, trade losses and the personal allowance should initially be set against non-savings income and then savings income.
The savings income and dividend nil rate bands will mean that many taxpayers do not have any tax liability in respect of savings and dividend income.
The availability of the dividend nil rate band (together with the savings income nil rate band) may reduce overall tax for married couples and couples in civil partnerships.
The transferable amount of personal allowance (also known as the marriage allowance or marriage tax allowance) is £1,260 for the tax year 2023-24. This fixed amount can be transferred between spouses (or registered civil partners) provided neither is a higher rate or additional rate taxpayer.
The benefit is given to the recipient as a reduction from their income tax liability at the basic rate of tax, so the tax reduction is therefore £252 (1,260 at 20%). If the recipient’s tax liability is less than £252, then the tax reduction is restricted so that the recipient’s tax liability is not reduced below zero.
Company car benefit
The company car percentages are unchanged for the tax year 2023-24.
| Electric range | ||
| 130 miles or more | 2% | |
| 70 to 129 miles | 5% | |
| 40 to 69 miles | 8% | |
| 30 to 39 miles | 12% | |
| Less than 30 miles | 14% |
The company car benefit information which will be given in the tax rates and allowances section of the examination for exams in the period 1 June 2024 to 31 March 2025 is:
Car benefit percentage
The relevant base level of CO2 emissions is 55 grams per kilometre. The percentage rates applying to petrol cars (and diesel cars meeting the RDE2 standard) with CO2 emissions up to this level are:
| 51 grams to 54 grams per kilometre | 15% | |
| 55 grams per kilometre | 16% |
The percentage for electric cars with zero CO2 emissions is 2%.
For hybrid-electric cars with CO2 emissions between 1 and 50 grams per kilometre, the electric range of a car is relevant:
| Electric range | ||
| 130 miles or more | 2% | |
| 70 to 129 miles | 5% | |
| 40 to 69 miles | 8% | |
| 30 to 39 miles | 12% | |
| Less than 30 miles | 14% |
Company van benefit
The annual scale charge used to calculate the benefit where an employee is provided with a company van has been increased from £3,600 to £3,960.
Vans producing zero CO2 emissions (zero emission vans) have a zero-benefit charge.
Company car fuel benefit
The fuel benefit is calculated as a percentage of a base figure which is announced each year. For the tax year 2023-24, the base figure has been increased from £25,300 to £27,800.
The percentage used in the calculation is exactly the same as that used for calculating the related company car benefit.
Company van fuel benefit
The fuel benefit where private fuel is provided for a company van has been increased from £688 to £757.
There is no fuel benefit for a company van which produces zero CO2 emissions (a zero-emission van).
Approved mileage allowances
Approved mileage allowances rates are unchanged, with a rate of 45p per mile for the first 10,000 business miles, and 25p per mile for business mileage in excess of 10,000 miles.
Official rate of interest
The official rate of interest is used when calculating the taxable benefit arising from a beneficial loan or from the provision of living accommodation costing in excess of £75,000.
For exams in the period 1 June 2024 to 31 March 2025, the actual official rate of interest of 2.25% for the tax year 2023-24 will be used.
From the tax year 2024-25 onwards, the current year basis of assessment for sole traders and partnerships is to be replaced by a tax year basis. This will simplify the basis period rules.
The tax year 2023-24 is the transitional year, and special rules apply for any unincorporated business which does not have an accounting period ending on 5 April (or 31 March).
For exams in the period 1 June 2024 to 31 March 2025, the transitional rules applicable to the tax year 2023-24 and the new tax year basis applicable from the tax year 2024-25 onwards are not examinable.
This means that for exams in the period 1 June 2024 to 31 March 2025, an unincorporated business will always have an accounting period ending on 5 April (or 31 March) if the basis of assessment is in point.
The current year basis opening and closing year rules, along with overlap profits, are no longer examinable.
There are no longer any tax advantages when it comes to the choice of different accounting date (for example, 5 April compared to a date early in the tax year such as 30 April), although an accounting date of 5 April (or 31 March) is more straightforward given it ties in with the tax year.
Annual investment allowance
The current annual investment allowance (AIA) limit of £1,000,000 will continue to apply for exams in the period 1 June 2024 to 31 March 2025.
The AIA provides an allowance of 100% for the first £1,000,000 of expenditure on plant and machinery in a 12-month period. Any expenditure in excess of the £1,000,000 limit qualifies for writing down allowances (WDA) as normal. The AIA applies to all expenditure on plant and machinery with the exception of cars. The £1,000,000 limit is proportionally reduced or increased where a period of account is shorter or longer than 12 months. For example, for the three-month period ended 31 December 2023, the AIA limit would be £250,000 (1,000,000 x 3/12).
Zero-emission cars
New cars with zero CO2 emissions qualify for the 100% first year allowance, so the cost is effectively deducted as an expense in the year of purchase.
If provided as company cars and the 2% car benefit percentage is available, there are minimal income tax implications for the employee and only a very small amount of class 1A national insurance contributions (NICs) payable for the employer.
Providing low-emission cars as company cars is therefore very beneficial, especially for directors who are also 100% shareholders in their own companies.
Structures and buildings allowance
The annual straight-line allowance is unchanged at 3%, with relief being given over a 33⅓ year period (33 years and four months).
The structures and buildings allowance (SBA) is only available where a building (or structure) has been constructed on or after 29 October 2018 (the date of the 2018 Budget). However, a question will only be set where construction is on or after 6 April 2020 (1 April 2020 for limited companies).
Relief is also given for the cost of subsequent improvements, or where a building is renovated or converted.
Unlike plant and machinery, there is no balancing charge or balancing allowance when a building (or structure) that has qualified for the SBA is sold. Instead, the purchaser simply continues to claim the 3% allowance for the remainder of the 33⅓ year period based on original cost.
However, on a disposal, the allowances that have been claimed are effectively clawed back by adding them to the sales proceeds in order to determine the chargeable gain or allowable loss arising.
You should assume that for any question involving the purchase (as opposed to a new construction) of a building, the SBA is not available unless stated otherwise.
Enhanced capital allowances for companies only, are covered in more detail in the corporation tax section of this article.
The capital allowances information which will be given in the tax rates and allowances section of the examination for exams in the period 1 June 2024 to 31 March 2025 is:
Capital allowances: rates of allowance
| Plant and machinery | |
|---|---|
| Main pool | 18% |
| Special rate pool | 6% |
| Cars | |
|---|---|
| New cars with zero CO2 emissions | 100% |
| Second-hand cars with zero CO2 emissions | 18% |
| CO₂ emissions between 1 and 50 grams per kilometre | 18% |
| CO₂ emissions over 50 grams per kilometre | 6% |
| Annual investment allowance | |
|---|---|
| Rate of allowance | 100% |
| Expenditure limit | £1,000,000 |
| Structures and buildings allowance | |
|---|---|
| Straight-line allowance | 3% |
The individual savings account (ISA) investment limit for the tax year 2023-24 is unchanged at £20,000. The £20,000 limit is completely flexible, so a person can invest £20,000 in a cash ISA, or they can invest £20,000 in a stocks and shares ISA, or in any combination of the two – such as £10,000 in a cash ISA and £10,000 in a stocks and shares ISA.
The availability of the savings income nil rate band for basic and higher rate taxpayers means that there is no tax benefit to investing in cash ISAs for many individuals. However, cash ISAs are advantageous for additional rate taxpayers and for other individuals where their savings income nil rate band is already utilised.
The availability of the dividend nil rate band means that there is no tax advantage to receiving dividend income within a stocks and shares ISA for individuals with dividend income of £1,000 or less. However, chargeable gains made within a stocks and shares ISA are exempt from capital gains tax. Stocks and shares ISAs are therefore advantageous where chargeable gains are made in excess of the annual exempt amount.
Health and social care levy
The Government’s intention was to introduce a separate 1.25% health and social care levy from the tax year 2023-24 onwards. This plan has now been dropped, so, as a result of this, the rates of class 1, class 1A and class 4 NIC for the tax year 2023-24 are all reduced by 1.25%.
Class 1 and class 1A NIC
For the tax year 2023-24, the rates of employee class 1 NIC have been reduced by 1.25% to 12% and 2%. The rate of 12% will be paid on earnings between £12,570 per year and £50,270 per year, and the rate of 2% is paid on all earnings over £50,270 per year.
The rate of employer’s class 1 NIC has been reduced by 1.25% to 13.8%, and is paid on all earnings over £9,100 per year. Note that this limit is not aligned with the employee limit.
The rate of class 1A NIC which employers pay on taxable benefits provided to employees has been reduced by 1.25% to 13.8%.
Employment allowance
The annual employment allowance for the tax year 2023-24 is unchanged at £5,000. This can be used by businesses to reduce the amount of employer’s class 1 NIC which is paid to HM Revenue and Customs (HMRC). For example, if a business’s total employer’s class 1 NIC for the tax year 2023-24 is £5,600, then only £600 (5,600 – 5,000) will be paid to HMRC. If total employer’s class 1 NIC is £5,000 or less, then the liability will be nil. The employment allowance is not available:
The class 1 and class 1A NIC information which will be given in the tax rates and allowances section of the examination for exams in the period 1 June 2024 to 31 March 2025 is:
National insurance contributions
| Class 1 employee | £1 – £12,570 per year | Nil |
| £12,571 – £50,270 per year | 12% | |
| £50,271 and above per year | 2% | |
| Class 1 employer | £1 – £9,100 per year | Nil |
| £9,101 and above per year | 13.8% |
|
| Employment allowance | £5,000 | |
| Class 1A | 13.8% |
Class 2 NIC
For the tax year 2023-24, the rate of class 2 NIC has been increased to £3.45 per week.
Class 2 NIC is payable where profits exceed a lower profits limit of £12,570.
Class 4 NIC
The rates of class 4 NIC have been reduced by 1.25% to 9% and 2%. The rate of 9% will be paid on profits between £12,570 and £50,270, and the rate of 2% is paid on all profits over £50,270.
The class 2 and 4 NIC information which will be given in the tax rates and allowances section of the examination for exams in the period 1 June 2024 to 31 March 2025 is:
National insurance contributions
| Class 2 | £3.45 per week Lower profits limit | £12,570 |
| Class 4 | £1 – £12,570 per year £12,571 – £50,270 per year £50,271 and above per year | Nil 9% 2% |
Annual allowance
The annual allowance for the tax year 2023-24 is unchanged at £40,000.
For the tax year 2023-24, the annual allowance is reduced by £1 for every £2 by which a person’s adjusted income exceeds £240,000, down to a minimum tapered annual allowance of £4,000. Therefore, a person with adjusted income of £312,000 or more, will only be entitled to an annual allowance of £4,000 (40,000 – ((312,000 – 240,000)/2) = £4,000).
Tapering applies on a tax year basis, so a taxpayer with variable income might find themselves entitled to the full £40,000 annual allowance in some years, and a tapered annual allowance in other years.
The definition of adjusted income is net income plus any employee contributions to occupational pension schemes (these will have been deducted in calculating net income) plus any employer contributions to either occupational or personal pension schemes. For the self-employed, adjusted income will simply be net income.
Carry forward
If the annual allowance is not fully used in any tax year, then it is possible to carry forward any unused allowance for up to three years.
It is possible to use brought forward unused annual allowances in the tax year 2023-24 if a tapered annual allowance applies for this year. However, it is the tapered annual allowance for 2023-24 which is used to establish whether any carried forward is available from this year to future tax years.
Carry forward is only possible if a person is a member of a pension scheme for a particular tax year. Therefore, for any year in which a person is not a member of a pension scheme the annual allowance is lost.
The annual allowance for the tax year 2023-24 is utilised first, then any unused allowances from earlier years with those from the earliest year used first.
Although tax relief is available on personal pension contributions up to the amount of earnings for a particular tax year, the annual allowance acts as an effective annual limit. Where tax relieved contributions are paid in excess of the annual allowance (including any brought forward unused allowances), then there will be an annual allowance charge. This charge is subject to income tax at a person’s marginal rates.
Lifetime allowance
The lifetime allowance for the tax year 2023-24 is unchanged at £1,073,100.
The lifetime allowance applies to the total funds which can be built up within a person’s pension schemes. Where the limit is exceeded, there will be an additional tax charge when that person subsequently withdraws the funds in the form of a pension.
The pension scheme information which will be given in the tax rates and allowances section of the examination for exams in the period 1 June 2024 to 31 March 2025 is:
Pension scheme limits
| Annual allowance | £40,000 | |
| Minimum allowance | £4,000 | |
| Income limit | £240,000 | |
| Lifetime allowance | £1,073,100 |
The maximum contribution which can qualify for tax relief without any earnings is £3,600.
The annual exempt amount for the tax year 2023-24 has been reduced from £12,300 to £6,000.
The lower rate and the higher rate of capital gains tax for the tax year 2023-24 are unchanged at 10% and 20%. The residential property rates are also unchanged at 18% and 28%. These apply where a gain arising from the disposal of residential property is not fully covered by private residence relief.
Taxable gains are taxed at the lower rate of 10% (or 18%) where they fall within the basic rate band of £37,700, and at the higher rate of 20% (or 28%) where they exceed this threshold. The basic rate band is extended if a person pays personal pension contributions or makes a gift aid donation.
Where a person has both residential property gains and other gains, then the annual exempt amount and any capital losses should initially be deducted from the residential property gains. This approach will save capital gains tax at either 18% or 28%, compared to either 10% or 20% if used against the other gains.
However, how any unused basic rate tax band is allocated between chargeable gains does not make any difference to the overall capital gains tax liability (since the differential is 10% in both cases).
Business asset disposal relief can be claimed when an individual disposes of a business or a part of a business. For the tax year 2023-24, the lifetime qualifying limit is unchanged at £1 million.
Gains qualifying for business asset disposal relief are taxed at a rate of 10% regardless of the level of a person’s taxable income.
Although chargeable gains which qualify for business asset disposal relief are always taxed at a rate of 10%, they must be taken into account when establishing the rate which applies to other chargeable gains. Chargeable gains qualifying for business asset disposal relief therefore reduce the amount of any unused basic rate tax band.
The annual exempt amount and any capital losses should initially be deducted from those chargeable gains which do not qualify for business asset disposal relief (giving preference to any residential property gains). This approach could save capital gains tax at 20% (18% or 28% if residential property gains are involved), compared to just 10% if used against chargeable gains which do qualify for relief.
There are several ways of presenting computations involving such a mix of chargeable gains, but the simplest approach is to keep chargeable gains qualifying for business asset disposal relief and other chargeable gains separate.
Where the £1 million lifetime limit is exceeded, gains in excess of the limit will be subject to the normal rates of capital gains tax.
Investors’ relief effectively extends business asset disposal relief to external investors in trading companies which are not listed (unquoted) on a stock exchange.
However, investors’ relief has its own separate £10 million lifetime limit (compared to the business asset disposal relief lifetime limit of £1 million). Qualifying gains are taxed at a rate of 10%. To qualify for investors’ relief, shares must be:
With certain exceptions (such as being an unremunerated director) the investor must not be an employee or a director of the company whilst owning the shares.
The capital gains tax information which will be given in the tax rates and allowances section of the examination for exams in the period 1 June 2024 to 31 March 2025 is:
Capital gains tax: tax rates
| Normal rates | Residential property | |
|---|---|---|
| Lower rate | 10% | 18% |
| Higher rate | 20% | 28% |
| Annual exempt amount | £6,000 |
Capital gains tax: Business asset disposal relief and investors’ relief
| Lifetime limit Business asset disposal relief Investors' relief | £1,000,000 £10,000,000 | |
| Rate of tax | 10% |
The nil rate band for the tax year 2023-24 is unchanged at £325,000.
A residence nil rate band applies where a main residence is inherited on death by direct descendants (children and grandchildren). For the tax year 2023-24, the residence nil rate band is also unchanged at £175,000.
The residence nil rate band is only relevant where an individual dies on or after 6 April 2017 and their estate includes a main residence. Any other type of property, such as a property which has been let out, does not qualify for the residence nil rate band.
In the same way in which any unused normal nil rate band can be transferred to a surviving spouse (or registered civil partner), the residence nil rate band is also transferable. It does not matter when the first spouse died.
The value of the main residence is after deducting any repayment mortgage or interest-only mortgage secured on that property.
If a main residence is valued at less than the available residence nil rate band, then the residence nil rate band is reduced to the value of the residence.
The residence nil rate band does not apply to lifetime transfers becoming chargeable as a result of the donor’s death within seven years.
Given that the residence nil rate band is only available where inheritance is by direct descendants, rearranging the terms of a will can save IHT.
A question will make it clear if the residence nil rate band is available. Therefore, you should assume that the residence nil rate band is not available if there is no mention of a main residence.
The inheritance tax information which will be given in the tax rates and allowances section of the examination for exams in the period 1 June 2024 to 31 March 2025 is:
| Inheritance tax: tax rates | ||
|---|---|---|
| Nil rate band | £325,000 | |
| Residence nil rate band | £175,000 | |
| Rates of tax on excess Lifetime rate Death rate | 20% 40% | |
| Inheritance tax: taper relief |
|
|---|---|
| Years before death | Percentage reduction |
| More than 3 but less than 4 years | 20% |
| More than 4 but less than 5 years | 40% |
| More than 5 but less than 6 years | 60% |
| More than 6 but less than 7 years | 80% |
Where earlier nil rate bands may be relevant, they will be given to you within the question.
For the financial years 2021 and 2022, the rate of corporation tax was 19%. This single rate applied regardless of the level of a company’s profits.
For the financial year 2023, there are two rates of corporation tax:
The lower and upper limits are proportionately reduced for short accounting periods and also according to the number of associated companies (see later for an explanation of associated companies).
Augmented profits are a company’s taxable total profits plus dividends received. However, dividends from 51% group companies are excluded.
Marginal relief eases the transition from the small profits rate to the main rate of corporation tax where augmented profits fall between £50,000 and £250,000.
Corporation tax is calculated at the main rate of 25%, with this figure then reduced by marginal relief. The formula for calculating marginal relief is:
| (Upper limit – Augmented profits) | x | Standard fraction | x | Taxable total profits Augmented profits |
The standard fraction for the financial year 2023 is 3/200.
If no dividends are received, the final part of the formula (Taxable total profits/Augmented profits) can be omitted since both taxable total profits and augmented profits are the same amount.
The lower and upper limits are proportionately reduced if a company’s accounting period is less than 12 months in length.
Separate calculations are required (on a time-apportioned basis) if a company’s accounting period falls partly into the financial year 2022 and partly into the financial year 2023.
Only the 19% single rate of corporation tax is applicable to profits apportioned to the financial year 2022.
Where a marginal relief calculation is required for the financial year 2023, it is easier to time apportion the overall marginal relief calculation rather than time apportioning each separate figure. However, a fully time apportioned approach is safer when dealing with a short accounting period.
The lower and upper corporation tax limits are effectively shared if a company has associated companies.
Do not forget to include the parent company in the number of associated companies.
With the introduction of a two-tier corporation tax system, the most important factor to be taken into account when considering loss relief and group relief claims will generally be the rate at which relief can be obtained.
Other, generally less important, factors are the timing and cash flow in relation to the relief obtained (an earlier claim is normally preferable) and the extent to which relief for qualifying charitable donations will be lost.
There are two important considerations for exams in the period 1 June 2024 to 31 March 2025:
If relief can be restricted, claim initially against profits subject to the marginal rate of 26.5% (the rate will vary slightly if a company has dividends that are not from 51% group companies). The amount relieved should be sufficient to bring augmented profits down to the lower limit. The next tranche of relief should be against profits subject to the full rate of corporation tax of 25%.
If relief cannot be restricted, the order of set off will be more difficult to establish. Obtaining relief at the full rate of 25% may be preferable given that the overall corporation tax rate where marginal relief applies will always be less than 25%.
Given the increased rates of corporation tax and the tax rates which apply to dividend income, incorporating the business of a sole trader or partnership will not necessarily result in a tax saving. These tax rates also impact on the decision whether to extract profits from a company either as director’s remuneration or as dividends.
Incorporation can, however, provide other tax advantages. For example, the corporation tax rate on profits remaining undrawn within a company is a maximum of 26.5% (the rate will vary slightly if a company has dividends). This compares to the higher and additional rates of 40% and 45% which are payable by a sole trader or partners.
When it comes to deciding whether to extract a bonus as additional director’s remuneration or by taking dividends, the dividend route has traditionally been optimal (due to the lower rates of tax on dividends, the nil rate band and the fact that dividends are not subject to NIC). However, this may no longer be the case.
A company is required to make quarterly instalment payments in respect of its corporation tax liability if augmented profits exceed a profit threshold of £1,500,000. Such companies being classed as large.
Previously, the profit threshold was divided by the number of 51% group companies at the end of the immediately preceding accounting period.
From 1 April 2023, the profit threshold is instead divided by the number of associated companies as at the end of the immediately preceding accounting period. For any question involving quarterly instalment payments, the number of associated companies will be given.
The old 51% group company restriction is no longer examinable.
Therefore, for any question involving quarterly instalment payments, it should be assumed that the new associated company rules apply throughout.
The corporation tax information which will be given in the tax rates and allowances section of the examination for exams in the period 1 June 2024 to 31 March 2025 is:
Corporation tax
| Financial year | 2021 | 2022 | 2023 |
|---|---|---|---|
| Small profits rate | N/A | N/A | 19% |
| Main rate | 19% | 19% | 25% |
| Lower limit | N/A | N/A | £50,000 |
| Upper limit | N/A | N/A | £250,000 |
| Standard fraction | N/A | N/A | 3/200 |
Marginal relief
| (Upper limit – Augmented profits) | x | Standard fraction | x | Taxable total profits Augmented profits |
Quarterly instaments
| Profit threshold | £1,500,000 |
Enhanced capital allowances are no longer available from 1 April 2023, with the two-year qualifying period having ended on 31 March 2023. Therefore, a question will no longer be set involving an initial claim for enhanced capital allowances.
However, a disposal of plant and machinery on which enhanced capital allowances (including the 130% super deduction)have been claimed could be examined. Any disposal will be set in an accounting period commencing on or after 1 April 2023.
The relevant rate(s) of allowance will be given in any exam question where there is a disposal of plant and machinery on which enhanced capital allowances have been claimed.
There is a further restriction if plant and machinery is sold and enhanced capital allowances were not claimed on the full amount of initial expenditure. This restriction will not be examined in regard to the 130% super deduction as in most cases 130% super deduction will have been claimed on the full amount of expenditure.
However, when it comes to plant and machinery qualifying for the 50% first year allowance, it may have been beneficial to have claimed the 100% annual investment allowance in preference to the 50% first year allowance. A further restriction could therefore apply.
Although HMRC is restricting the options available to taxpayers who wish to file their self-assessment tax returns on paper (it is now normally necessary to telephone HMRC and request a paper return), there is no change to the examinability of this filing option.
The assumed rates of late payment interest and repayment interest on underpaid and overpaid income tax, class 4 NIC, capital gains tax and corporation tax are based on the actual rates in force (for income tax purposes) at 6 April 2023. For exams in the period 1 June 2024 to 31 March 2025, the assumed rate of late payment interest will therefore be 6.5% and the assumed rate of repayment interest will be 3%. Note that the rate of late payment interest (6.5%) is not the same as the official rate of interest (2.25%).
The limit of annual turnover above which VAT registration is compulsory is unchanged at £85,000. The deregistration limit is also unchanged at £83,000.
The standard rate of VAT is unchanged at 20%.
New penalties for the late payment of VAT and the late filing (submission) of VAT returns have been introduced.
The new penalties for VAT replace the default surcharge system, and will only be examined in the context of quarterly VAT returns.
Default surcharges are no longer examinable.
The default surcharge system applied to both late payments of VAT liabilities and late filing (submission) of VAT returns. There are now two separate sets of penalties for each type of lateness.
There is also
Late filing (submission) penalties
Under a points-based system, a business incurs a penalty point each time a quarterly VAT return is submitted late.
Late payment penalties
Each late payment is considered separately.
These late payment penalties can be summarised as follows:
|
Up to 15 days late |
16 to 30 days late |
More than 30 days late |
Penalty |
None |
2% |
4% |
Daily penalty |
No |
No |
Yes |
Interest |
Yes |
Yes |
Yes |
Two aspects of the new late payment penalty regime are not examinable. These are time to pay arrangements, and the soft touch approach applied by HM Revenue and Customs during the first year of the new regime.
Late payment interest
Late payment interest for VAT has been aligned with the way interest is charged on other taxes.
Late payment and late submission penalties will not be charged if a business has a reasonable excuse for the late payment or the late submission. For example, an unexpected stay in hospital should count as a reasonable excuse for either late payment or late submission. However, having insufficient funds will not normally be accepted by HM Revenue and Customs as a reasonable excuse for late payment.
The following late VAT payment penalty information will be given in the tax rates and allowances section of the examination:
Penalties for late VAT payments
| Days late | Penalty |
| Up to 15 days | None |
| 16 to 30 days | 2% |
| More than 30 days | 4% plus a 4% daily penalty |
Written by a member of the TX-UK examining team