Tax Facts 2023/24

Personal Taxation

Main personal allowances

Notes

1. PA is reduced by £1 for every £2 by which Adjusted Net Income (ANI) exceeds £100,000, so PA is nil when ANI is £125,140.
2. ANI is total taxable income, less qualifying pension contributions and Gift Aid donations.
3. Marriage allowance is the transferable part of the PA and is available only to married couples and civil partners born after 5 April 1935. It can be transferred to their spouse or civil partner as long as the recipient is not a higher or additional rate taxpayer.
4. The rent-a-room exemption is available where the taxpayer lets out part of the home they live in as furnished residential accommodation.
5. The trading and property income allowances have various conditions that restrict their availability.
6. Where rent-a-room, trading or property income exceed the relevant limit above, that limit (rather than expenses) may be deducted from gross income.

Income tax bands

Notes

1. The BRB (Scotland: intermediate rate band) and additional rate threshold are extended by the grossed-up equivalent of personal pension contributions and Gift Aid donations paid by the taxpayer in the tax year, or treated as paid in the tax year.
2. Taxable income usually uses up the rate bands in the following order:
• G 'general income' (employment, pensions, business profits, rent)
• S 'savings income' (mainly interest)
• D 'dividends' (distributions from companies/most unit trusts)
3. The savings rate band is part of the basic rate band, meaning that to the extent that savings income falls in the first £5,000 of the basic rate band, it is taxed at nil rather than 20%.
4. Different bands and rates apply to general income in Scotland.

Income tax rates

Note

1. The PSA taxes interest at nil, where it would otherwise be taxable at 20% or 40%. It is not available to an additional rate taxpayer.
2. Dividends are usually taxed as the ‘top slice’ of income. The Dividend Allowance taxes the first £2,000 of dividend income at nil rather than the rate that would otherwise apply.

Income tax bands and rates - Scotland

Note

The Scottish rates and bands do not apply for savings and dividend income, which are taxed at normal UK rates.

Remittance basis charge

Note

1. The remittance basis charge (RBC) is payable by non-UK domiciled individuals who claim the remittance basis and who have been resident in the UK for the periods shown.
2. If remittance basis is claimed, foreign income or gains is only taxable in the UK when remitted to the UK.
3. Those persons domiciled or deemed domiciled in the UK are not eligible to claim remittance basis.

Residential landlords

Notes

1. Finance costs comprise mainly interest, but include related matters such as arrangement fees.
2. A tax reducer at 20% of the disallowed finance costs is available to reduce the landlord’s income tax liability, but is subject to certain restrictions.
3. These rules do not affect qualifying furnished holiday lets, commercial property or corporate landlords.

High Income Child Benefit charge (HICBC)

Notes

1. Only applicable to families who receive child benefit, where adjusted net income of higher earner is above lower threshold.
2. HICBC is equivalent to 1% of child benefit received by the family, for every £100 of adjusted net income over lower threshold.
3. The higher earner in the family must declare child benefit received by them or their partner on their tax return.
4. The recipient of child benefit can elect not to receive it in order to avoid the HICBC, without losing their right to accrue certain state benefits. Child benefit payments can subsequently be recommenced if the claimant chooses.

Pensions

Registered pensions

Notes

1. Tax relief is generally obtained on pension contributions in one of three ways:
1. Under “net pay arrangements” i.e. contributions come out of gross pay;
2. By “relief at source” (RAS) i.e. contributions are made net of basic rate tax (which the fund claims back from HMRC);
3. Salary sacrifice (see note 14).
2. Tax relief at the taxpayer’s marginal income tax rate is given on the individual’s pension contributions up to 100% of earnings, capped by the AA.
3. Those with little or no UK relevant earnings can make pension contributions up to £3,600 gross (£2,880 net) per year.
4. AA can be increased by unused allowance brought forward from the previous three tax years.
5. AA is usually tapered down by £1 for every £2 of adjusted income over £260,000 (2022/23: £240,000), to a minimum of £10,000 (2022/23: £4,000).
6. Annual allowance charge (for pension inputs exceeding the annual allowance) is levied at the individual’s highest marginal tax rate.
7. Employers can contribute to the employee’s pension fund up to the AA per year, less any contributions made by the individual. Employer will enjoy tax relief on those contributions under the normal rules for business expenses.
8. Investors in personal and other defined contribution pension schemes can currently access all of their pension savings once they reach age 55.
9. When the investor takes benefits from such pension schemes under flexiaccess drawdown, up to 25% of the accumulated fund can be drawn as a tax-free lump sum. The balance is taxed at the investor’s marginal rate of tax that applies in the year those benefits are drawn.
10. LTA is measured against the capital value of the pension benefits at the time they are first taken and on certain other occasions.
11. Until 5 April 2023, LTA charge is 55% if funds exceeding the LA are taken as a lump sum, or 25% if the benefits are taken as income.
12. For 2023/24, the LTA charge is abolished, but the maximum tax-free pension commencement lump sum remains capped at 25% of LTA (i.e. £268,275).
13. MPAA replaces AA where taxpayer has started to take taxable income from a defined contribution scheme (other than via an annuity) and has further pension inputs. There is no carry forward of unused MPAA.
14. Salary sacrifice for pension contributions is very tax-efficient. An employee agrees to give up some of their salary in exchange for pension contributions by the employer, which are are exempt from income tax and National Insurance.
15. The amount that must be paid to the employee for National Minimum Wage (NMW) purposes will be the post salary sacrifice amount, so a salary sacrifice can’t generally take an employee below the NMW. There is an exception where an employee is provided with work-related accommodation under a salary sacrifice arrangement.
16. The post-salary sacrifice amount will apply for all tax, NIC and benefits purposes, including tax credits, pension net relevant earnings and statutory redundancy.
17. ‘Auto enrolment’ (AE) makes it a legal requirement for all employers to automatically enrol their eligible employees into a workplace pension and make contributions to that pension.
18. Under AE, the total minimum contribution is 8% of salary, of which the employer must fund a minimum of 3% of salary.
19. Employees can opt out of AE but those that do will need to be re-enrolled every three years.
20. Self-invested Personal Pensions (SIPPs) are a form of personal pension fund that can invest in a wider range of assets than other pension funds, where the investment is restricted to insurance-backed funds.
21. In particular, the permitted investments include direct holdings of quoted investments and commercial property. The latter is often owned by SIPPs of business owners, with the property being rented to the business as premises from which to operate. The rental payments are tax-deductible for the business and tax-exempt receipts for the SIPP.
22. Unlike other pension schemes, SIPPs are allowed to take on debt. They can (broadly) borrow up to 50% of their net asset value to invest in permitted investments.

State pension

Notes

1. An individual is eligible to draw the state retirement pension when he or she reaches State Pension Age (SPA). State Pension age is increasing for both men and women; it will be 66 by October 2020. Thereafter, it will gradually increase to 68.
2. Individuals who reach SPA after 5 April 2016 receive the new state pension, which replaced the old state pension, the second state pension and pension credit.
3. An individual who qualifies for the state pension may choose to defer claiming it. Any deferred pension will be paid at a higher rate than the normal pension.
4. The state pension is taxable.

Investment Reliefs

Notes

1. ISA investors can invest in any combination of cash or shares, up to the overall limits shown. The £4,000 LISA limit is part of the general ISA limit of £20,000, not additional to it.
2. Taxpayers aged between 18 and 40 may open a LISA and invest up to £4,000 each year, which qualifies for a 25% Government bonus on amounts invested up to the age of 50.
3. This benefit is retained as long as the money is either
• put towards a first home costing up to £450,000, or
• kept in the account until reaching age 60, or
• withdrawn after being diagnosed with a terminal illness when having less than 12 months to live.
4. If the money in a LISA is withdrawn in other circumstances, the bonus is clawed back, with an additional 5% charge (i.e. total charge of 25% of amount withdrawn).
5. Junior ISAs are available to those aged under 18 and who don’t have a Child Trust Fund account. At age 18, their junior ISA becomes an adult ISA.
6. EIS and VCT investments attract 30% Income Tax relief, but those schemes all have different qualifying rules.
7. SEIS investments attract 50% Income Tax relief.
8. Where the disposal proceeds from any capital gain are reinvested under EIS in the four-year period that starts one year before the date of the gain, all or part of the original gain can be deferred.
9. Gains reinvested under SEIS, within the same tax year, up to the investment limit attract 50% exemption from CGT.
10. Investments made under EIS and SEIS can be carried back to be treated as made in the previous tax year, subject to the investment limits.
11. Gains on disposals of investments acquired under EIS and SEIS are exempt from CGT if investment conditions have not been broken. Disposals of VCT shares are exempt CGT (i.e. no gain or loss arises).
12. Dividends from investments in VCTs do not attract income tax provided the original investment was made within the permitted maximum of £200,000 per year. Dividends received from EIS and SEIS schemes are taxable as normal.

National Insurance Contributions (NIC)

Class 1 NIC thresholds 2023/24

Notes

1. Employers and employees both contribute at rates dependent on the level of earnings during a weekly, monthly or annual earnings period.
2. No employee NIC are payable on earnings between the LEL and the PT but, when reported by the employer, the employee accesses entitlement to contributory benefits.

Class 1 NIC rates 2023/24

Notes

1. No employee NIC are payable once the employee reaches state retirement age, but employer NIC continue to be payable.
2. No employer NIC are payable on earnings up to the UST for:
• employees aged under 21;
• apprentices aged under 25;
• armed services veterans in the first 12 months of civilian employment.
3. Employers with physical premises in a Freeport tax site (‘Freeport employers’) are eligible for some relief from employers’ Class 1 NIC. See Freeport
4. A person with more than one employment can defer the payment of some employee NIC until after the end of the tax year. The total amount payable is then checked and limited, so the full 12% rate is only applied to income between the PT and the UEL.
5. An 'employment allowance' of £5,000 (2022/23 £5,000) per qualifying business gives exemption from Class 1 Employer NIC. Some businesses are excluded, including certain sole director companies and employers that had an employer’s Class 1 NIC liability of £100,000 or more for 2022/23. Employee NIC are unaffected.
6. Employer contributions (at 13.80%) are also due on most taxable benefits (Class 1A) and on the amount chargeable to income tax under a PAYE settlement agreement (Class 1B).
7. When an employer reimburses non-deductible expenses to an employee, who has paid the initial cost themselves, the reimbursed amount is treated as earnings and is subject to PAYE and Class 1 NIC.

Class 2 NIC

Note

1. Self-employed people pay Class 2 NIC if their profits exceed the LPL.
2. Those with profits above the SPT access entitlement to contributory benefits, while those whose profits are less than the SPT can pay Class 2 NIC voluntarily to maintain this access.

Class 3 NIC

Note

Anyone who wants to maintain State Pension rights may pay voluntary Class 3 NIC, but there are restrictions on paying Class 3 (or voluntarily paying Class 2) where the individual lives abroad.

Class 4 NIC

Notes

1. Class 4 NIC are payable on profits from UK trades or professions that exceed the lower profits limit.
2. Both Class 2 and Class 4 NIC are collected through self assessment.
3. An individual who is both employed and self-employed may pay Class 1, Class 2 and Class 4 NIC, subject to the maximum limit for the year.

Employee Benefits

Employer-provided car benefit

Cars: Taxable benefit: List price multiplied by chargeable percentage

Then a further 1% for each 5g/km CO2 emissions, up to a maximum of 37%.

Notes

1. The employee is taxed on the ‘cash equivalent’, calculated as a percentage (see table) of the vehicle’s chargeable value.
2. Chargeable value is the list price when new, plus the cost of most accessories added, less any capital contribution (up to £5,000) by the employee.
3. The employer must pay Class 1A NIC at 13.80% (2022/23: 14.53%) on the benefit.
4. Diesel cars (with some exceptions, including cars featuring 48V mild-hybrid technology) suffer a 4% supplement on the table's figures, but are still capped at 37%.

Car fuel benefit

Notes

1. Where fuel is provided by the employer for private use in a company car, the percentage used to calculate the car benefit is applied to the benefit multiplier in order to determine the taxable benefit.
2. The benefit is charged without reduction for contributions by the employee, unless all private fuel is paid for (in which case there is no benefit). This reimbursement by the employee must be done by 6 July following the end of the tax year, unless the fuel benefit is "payrolled", in which case the deadline is 1 June following the end of the tax year.
3. There is no taxable benefit where an employer provides free charging points for electric vehicles at their premises.
4. Where the employer provides the car and the employee provides the fuel, HMRC’s advisory fuel mileage rates can be used to reimburse the cost of fuel used on business journeys. This includes reimbursement of 9p/mile for electric cars. Those rates are updated each quarter and published at www.gov.uk/government/publications/advisory-fuel-rates.

Employer-provided van benefits

Note

If the private use of a van is restricted to home-to-work travel, there is no taxable benefit, unlike for company cars.

Employment-related loans

Notes

1. Where a director or employee receives one or more loans from an employer that in total exceed £10,000 at any point in the tax year, interest of at least the ORI must be paid to avoid a benefit charge. There must also be a contractual obligation to pay that interest.
2. Where a benefit arises, the excess of the ORI over the actual interest paid must be applied to the value of the loan to calculate the benefit.
3. Loans from a close company to shareholders of the company may also generate a tax charge for the company. A close company is (broadly) one under the control of 5 or fewer shareholders.

Tax-free mileage allowances

Notes

1. The above mileage rates also apply to employees completing business journeys in their own electric vehicle, as long as the employee is charging the vehicle themself.
2. Passenger must be completing the same business journey.
3. For all except the business passengers' allowance, if the employer does not pay the full mileage rate, the employee can claim tax relief on any shortfall from HMRC.

Employee share schemes

Notes

1. Generally, employees are charged to Income Tax on the value of shares that they are given or are issued to them by their employer, less any amount paid for the shares. NIC are also charged if the company is quoted, or the shares can be easily sold. If the employer operates one of the above tax-advantage schemes, the tax charges may be eliminated, reduced or deferred.
2. The employer must register the share scheme with HMRC, using the online Employment Related Securities (ERS) system, by 6 July following the end of the tax year in which the scheme is implemented.
3. Employers must file an annual return for each share scheme online through ERS by 6 July each year.
4. The above is a very brief summary of the main tax-advantaged share schemes; other conditions apply.

Tax-free Childcare (TFC)

Notes

1. Tax-free Childcare (TFC) accounts are available to all eligible parents. You cannot use TFC if you are receiving childcare vouchers, a scheme that is closed to new entrants.
2. Under TFC, where both parents work and earn a specified minimum income (but neither has income of more than £100,000 per year), they are able to put up to £8,000 a year per child into an account, which the Government will top up with 25p for every £1 contributed by the parents.
3. A TFC account can be used to pay for childcare for a child aged 11 and under, except for disabled children, where the limits are doubled and contributions can continue up to the age of 17.
4. Unlike the voucher scheme, TFC is available to the self-employed.
5. You cannot get TFC at the same time as claiming Working Tax Credit, Child Tax Credit or Universal Credit.
6. Parents of 3 and 4 year-olds may be eligible for up to 30 hours of government-funded childcare, for up to 38 weeks a year, subject to various qualifying condtions.

Main exempt benefits

Capital Gains Tax

Annual Exempt Amount (AEA)

Notes

1. Each individual is entitled to an AEA, but that exemption may be denied if they claim the remittance basis (see Personal Taxation ).
2. The AEA cannot be transferred, nor carried forward or back to another tax year.

Tax rate

Notes

1. CGT is payable on capital gains made in the tax year, after deduction of capital losses, available reliefs and the AEA.
2. There is no CGT on gains accrued to the date of a taxpayer’s death.
3. There is no charge on disposals between spouses. On such disposals, the transferee takes over the transferor’s CGT cost.
4. When a chargeable asset is given away, the donor is treated as receiving the full market value and is thus liable for CGT, unless a gift relief claim is made. This relief is only available on certain types of assets and, if a claim is made, the recipient is deemed to take over the donor’s CGT cost.
5. CGT is normally payable on 31 January following the end of the tax year of disposal (e.g. 31 January 2025 for 2023/24) as part of the self assessment process. However, for disposals of UK residential property, any CGT is due within 60 days of completion of sale.
6. Non-residents disposing of any UK land and buildings must report the disposal and pay any CGT within 60 days of completion.

Business Asset Disposal Relief (BADR)

Notes

1. Disposals made by individuals or certain trustees can qualify for BADR.
2. The asset disposed of must have been owned for at least two years and be one of:
• a business or an interest in a business
• business assets sold within three years of the business ceasing
• shares in a trading company, of which the individual is an officer or employee and either holds at least 5% of the ordinary share capital or acquired the shares under an EMI scheme; other detailed conditions apply
• assets used by the shareholder’s ‘personal company’ or partnership and disposed of as an ‘associated disposal’ of 5% or more of either the company’s shares or the partnership interest.

Certain other CGT reliefs and exemptions

Corporation Tax (CT)

Notes

1. From 1 April 2023, where profits are £250,000 or more, all of the company’s profits are taxed at 25%.
2. Where profits are between £50,000 and £250,000, ’marginal relief’ reduces the average rate to somewhere between 19% and 25%. The effect of this calculation is that the first £50,000 of profits are taxed at 19% and the balance at 26.5%.
3. These limits are split between the number of ‘associated companies’, which are (broadly) companies under common control plus any company exercising that control (subject to exceptions).
4. Unless there is no substantial commercial interdependence between the companies, holdings of certain ‘associates’ (e.g. spouse, parents, siblings and children) may be attributed to an individual. The “substantial commercial interdependence” test considers financial, economic and organisational ties between the companies.
5. Most companies must pay their Corporation Tax within nine months and a day after the end of the accounting period.
6. Large companies or groups generally make four quarterly payments on account of Corporation Tax, starting in either the third or seventh month after the start of a 12-month accounting period, depending on level of profits. Interest runs on any underpayments until final settlement of the period’s liability.
7. All companies must file Corporation Tax returns online within 12 months of the end of the accounting period.

Research and Development

Notes

1. The above enhanced deduction is for qualifying revenue expenditure on qualifying R&D projects; various conditions apply to both terms.
2. Where an SME makes a loss attributable to R&D expenditure, it can surrender that loss for a payable tax credit worth 10% (pre 1.4.23: 14.5%) of the loss. This payment is capped at £20,000 plus 300% of the company’s total PAYE and NIC liability for the period, subject to some exclusions.
3. From 1.4.23, the payable tax credit will still be 14.5% if R&D expenditure constitutes at least 40% of total expenditure.
4. RDEC is a taxable expenditure credit for qualifying R&D.

Special reliefs

Notes

1. Special restrictions apply to relief for amortisation of goodwill and customer-related intangibles:
• No deduction if arising from incorporations from 3.12.14.
• No deduction if arising from acquistions from 8.7.15 to 31.3.19.
• Deduction at 6.5% pa if a purchase from 1.4.19, but qualifying amount limited to 6 x qualifying intellectual property purchased at the same time.
2. The above is a brief summary of selected reliefs available to companies; other conditions apply in each case.

Capital Allowances

Plant and machinery

Notes

1. Neither capital expenditure nor depreciation is generally allowed as an expense, but 100% First-year allowance (FYA) effectively allows qualifying expenditure to be expensed in the accounting period of purchase.
2. The writing down allowance (WDA) spreads the cost over several years, and is not related to the accounting depreciation.
3. Special rate pool includes plant integral to buildings and thermal insulation.
4. The Super-deduction provides a tax deduction of 130% on new P&M investment that would qualify for 18% WDAs in the main capital allowance pool;
5. The special rate pool FYA provides an initial 50% relief on new plant and machinery that would qualify for 6% WDAs in the special rate pool.
6. Where the accounting period of acquisition straddles 31 March 2023, the rate of Super-deduction will be restricted.
7. Cars are not usually eligible for the Super-deduction, FYA or AIA. Exceptions include dual-control driving instructors’ cars and hackney carriages.
8. In general terms, plant and machinery comprises items that perform a function in the business, rather than providing the setting within which the trade is conducted.

Motor cars purchased

Notes

Unincorporated businesses: the allowance is reduced for private use of the car.

Structures and buildings allowances (SBA)

Notes

1. The SBA is available on commercial buildings and structures purchased new or constructed on/after 29 October 2018 and used for a qualifying purpose.
2. It is not available on residences or buildings situated in residences (e.g. garden offices), nor on the cost of land itself.
3. On disposal of a qualifying structure or building, the acquirer continues to claim the allowances that would have been available to the previous owner.

Unincorporated Business Tax

Basis of assessment

Notes

1. Under current year basis, the profits assessable for a tax year are those arising in the 12-month accounting period ending in the tax year (e.g. y/e 30 April 2022 is assessed in 2022/23).
2. Special assessment rules apply on commencement of trade, cessation of trade and a change of accounting date.
3. The commencement of trade rules may involve some profits being assessed more than once (‘overlap profits’). Credit is given for them on eventual cessation of trade or (sometimes) on a change of accounting date.
4. Under tax year basis, the profits assessable for a tax year will be those arising in the tax year.
5. 2023/24 is a transition year where businesses will move from the old system of assessment to the new one.
6. The transition year rules (for those businesses that do not have a 31 March or 5 April year-end) will involve:
• up to 23 months’ worth of profits being assessed; and
• the set-off of any overlap profits brought forward.
7. In the transition year, any additional profits over and above those that would have been assessable under the current year basis rules will be
• spread over 5 years for tax purposes; and
• ignored when determining the income level for personal allowance abatement or the High Income Child Benefit Charge (see Personal Taxation )
8. The above rules apply also for partnerships and limited liability partnerships (LLPs).

Cash basis

Notes

1. Unincorporated trading businesses with annual turnover within the above limits can choose to calculate taxable profits on the ‘cash basis’ – income received and expenditure paid, rather than invoiced or accrued.
2. Deduction for loan interest is limited to £500 per year.
3. Losses can only be carried forward.
4. Certain businesses are not permitted to use the cash basis, including: farmers using the herd basis, persons using profit averaging, and LLPs.
5. Unincorporated property businesses can use the cash basis. The key differences to the rules for trading businesses are:
• the entry and exit thresholds are both £150,000;
• cash basis is the default position for such businesses, but they can elect to use accrual accounting;
• The £500 limit on interest costs does not apply but finance costs of residential landlords are dealt with under the rules covered in Personal Taxation.

Flat rate deductions

Notes

1. Unincorporated businesses can choose the above fixed rate deductions to use instead of calculating the business proportion of actual expenditure.
2. Use of home deduction covers rent, utilities other similar costs. It does not cover internet or telephone expenses.
3. Use of vehicle does not cover finance element of lease or hire purchase.
4. Use of business premises amounts are deducted from the actual expenses of running the building.

Property Taxes

Annual Tax on Enveloped Dwellings (ATED)

Notes

1. The ATED applies to 'high value' residential properties owned via a corporate structure, unless the property is used for a qualifying purpose.
2. There are many reliefs that can remove or reduce the charge, but in order to claim a relief, a Relief Declaration Return (RDR) must be submitted.
3. The ATED return, RDR and any tax due must generally reach HMRC by 30 April within the relevant year.

Stamp Duty Land Tax (SDLT)

Residential property

Notes

1. A supplement of 3% of the total purchase price applies where someone owning one or more residences acquires an additional residence for more than £40,000, unless they are replacing their main residence. It also applies to all corporate purchasers. A supplement also applies to Land & Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT). For LBTT it is 6%, but LTT has specific higher rates applying in different bands. These taxes are covered below.
2. First-time buyers purchasing a property for up to £625,000 pay SDLT at a nil rate on the first £425,000 of the price.
3. Where purchaser is a company (or partnership including a corporate member) and price is over £500,000, SDLT is 15% of total purchase price, if ATED exemptions or reliefs do not apply.
4. Non-residents are subject to a 2% supplement on the above rates.
5. New leases with a net present value of rents exceeding £125,000 attract SDLT of 1% of that excess.

Commercial property

Note

New leases with an NPV of rents exceeding £150,000 attract SDLT of 1% up to an NPV of £5m, when the rate increases to 2%.

Land and Buildings Transaction Tax (LBTT) - Scotland

Residential property

Note

1. For first-time buyers, the nil band is to be extended to £175,000.
2. The additional residence supplement is 6% of total purchase price.

Commercial property

Notes

1. The above rates of LBTT also apply to any lease premium on commercial properties.
2. New Leases with an NPV of rents exceeding £150,000 attract LBTT of 1% up to an NPV of £2m, when the rate increases to 2%.

Land Transaction Tax (LTT) - Wales

Residential property

Commercial property

Value Added Tax

VAT rates

Notes

1. Reduced rate applies to a small range of supplies, including domestic fuel and power and some conversions and renovations of residential property.
2. Zero rate applies to a range of supplies, including some types of food, books and newspapers, new houses and children’s clothes. VAT is charged at a zero rate to the customer, but the supplier can recover VAT on costs.
3. Exempt supplies include many land-related supplies, insurance, finance, education, health and welfare, and non-profit sports clubs. No VAT is charged to the customer, but the supplier cannot recover VAT on costs.

VAT thresholds

Notes

1. An unregistered business must register for VAT if it has made taxable supplies that equal or exceed the registration threshold in the last 12 months, up to any month-end, or if it expects to exceed that threshold in the next 30 days alone. Taxable supplies include reduced rate and zerorated sales but not exempt sales. Businesses with taxable supplies below the registration limit can register voluntarily.
2. A VAT-registered business can apply to deregister if it can satisfy HMRC that taxable supplies in the next year will not exceed the deregistration threshold.
3. Businesses that are VAT-registered must comply with the Making Tax Digital (MTD) provisions. These mean that businesses will have to keep their records digitally for VAT and provide VAT return information through MTD functional compatible software.
4. Most VAT returns are prepared for three-month periods, and must be filed electronically within seven days of the end of the month following the return period.
5. Payment of VAT must be made electronically, and must be received by HMRC by the same deadline as the return or be paid by direct debit.
6. A construction industry business making a supply to another such business will not usually charge output tax. Instead, the customer will account for the output tax itself through the reverse charge mechanism.
7. The VAT rules on imports and exports are complex and have changed since the UK left the EU. Specialist advice should be sought in this area, as it should for transactions in goods between Great Britain and Northern Ireland.

Small business schemes

Notes

1. When using the FRS, the VAT paid to HMRC by the business is a fixed percentage (based on business category) of ‘FRS turnover’ rather than the net of output tax over input tax.
2. Businesses in their first year of VAT registration are entitled to a 1% discount on the normal FRS percentage for their business category.
3. Under FRS, input VAT is not recoverable, unless it relates to the purchase of a capital asset costing £2,000 or more (including VAT).
4. The special rules for ‘limited cost traders’ mean that they are likely to be worse off by using the FRS. These are businesses that spend an amount (including VAT) on relevant goods that is either:
• less than 2% of their VAT flat rate turnover; or
• greater than 2% of their VAT flat rate turnover but less than £1,000 per year.
5. ‘Relevant goods’ excludes many items, for example food or drink for the trader or staff, capital expenditure goods of any value and (for most businesses) vehicle costs.
6. Under annual accounting, the business files a single VAT return each year instead of one every three months.
7. Under annual accounting, businesses will pay their VAT in nine monthly instalments of 10% of the previous year’s liability. The instalments are payable at the end of months 4-12 of the current annual accounting period. Alternatively, businesses may choose to pay their VAT in three quarterly instalments of 25% of the previous year’s liability (if there was one) falling due at the end of months 4, 7 and 10.
8. The balance of VAT for the year is then due, together with the annual VAT return, two months after the end of the annual accounting period.
9. When using the cash accounting scheme, the business only pays VAT to HMRC when its customers have paid the business, but it can only recover VAT on expenses actually paid for, rather than accrued.

Option to tax

1. Supplies of land and buildings, such as freehold sales or renting, are normally exempt from VAT. This means that no VAT is payable, but the person making the supply cannot normally recover any of the VAT incurred on their own expenses related to the supply.
2. You can ‘opt to tax’ non-residential land; this will include any buildings or structures permanently affixed to the land. Once you have opted to tax, all the supplies you make of your interest in the land will normally be standard-rated (e.g. you will have to charge VAT on disposal proceeds or rents). As a result, you will normally be able to recover any VAT you incur in making those supplies.
3. You must notify HMRC within 30 days of opting to tax, although in some circumstances they will accept late notification.
4. There are limited circumstances in which an option to tax may be revoked, including:
• Within 6 months of the option taking effect, providing no VAT has become chargeable on a supply of the land as a result of the option;
• 20 years after the option first took effect.

Inheritance Tax (IHT)

Notes

1. RNRB is available for transfers on death of a main residence (or assets of an equivalent value if the main residence has been sold) to direct descendents. It tapers away at the rate of £1 for every £2 of estate value (before reliefs and exemptions) above £2m.
2. Up to 100% of the proportion of a deceased spouse’s/civil partner’s unused NRB and RNRB may be claimed to increment the current NRB and RNRB (before reliefs and exemptions) when the survivor dies.
3. Gifts or legacies to charities are not charged to IHT.
4. IHT due on a deceased’s estate and on gifts within seven years of death is generally due six months after the month of death, but in practice it must be paid before probate is granted.
5. If the donor pays the IHT due on a chargeable lifetime transfer to a trust, the effective rate is 25%.
6. IHT on chargeable lifetime transfers to trusts is payable within 6 months from the end of the month of transfer.

Lifetime gifts

Note

Lifetime gifts between individuals (‘potentially exempt transfers’) are only charged to IHT if the donor dies within seven years of the gift.

Exempt gifts

Note

Exemptions for gifts on marriage apply also to civil partnerships.

Business and agricultural property

Note

In all cases the property must have been owned for at least two years; and other conditions apply.

Trusts

Notes

1. Trustees are liable to Income Tax on the trust income, CGT on the trust gains and, in some circumstances, IHT.
2. Discretionary trusts pay tax at 8.75% or 20% on income used to pay trust expenses on another £1,000 of income, before paying at the main rates (39.35% or 45%).
3. For 2024/25 the £1,000 band will be removed, but trusts with income up to £500 will not pay tax.
4. Trusts for vulnerable beneficiaries (such as disabled people) may reduce their effective tax rates if an election is made.
5. The CGT AEA is divided between trusts established by the same settlor since 6.6.1978, to a minimum of £600 (2022/23: £1,230), as is the £1,000 band (to a minimum of £200).
6. Trustees are liable to pay IHT in a variety of circumstances; appropriate professional advice is essential.
7. Income beneficiaries of life interest trusts (‘liferent’ trusts in Scotland) are treated as entitled to the income of the trustees, and pay tax on it in the year it arises to the trust, with a credit for tax paid by the trustees. These beneficiaries are called life tenants of the trust (‘life renters’ in Scotland).
8. Beneficiaries of discretionary trusts pay tax on income distributed to them by the trustees, which is treated as paid with a tax credit of 9/11 of the cash received (i.e. a £45 tax credit for every £55 of income distributed).
9. Any beneficiary receiving income from a trust is given an R185 form showing the income received and the appropriate tax credit. For life interest trusts, this will reflect the underlying income that has been distributed by the trustees.
10. The beneficiary will declare the income on their own tax return and pay tax at their own marginal rate on it, with credit given for the tax on the R185.

Key Deadlines

Payment deadlines

Notes

1. Payments on account for 2023/24 are based on 2022/23 self-assessed Income Tax and Class 4 NIC. The balancing payment includes Class 2 NIC.
2. Missing any payment dates leads to interest being charged at (currently) 3%.
3. Missing the balancing payment date by 30 days will lead to a 5% penalty.
4. When the balancing payment is 6 and 12 months late, further 5% penalties apply on each occasion.
5. Employment income is charged to both Income Tax and to Class 1 NIC.
6. Tax and NIC are normally paid by the employer through the PAYE system, under which the PAYE code makes adjustments for tax reliefs due and some tax due on other income.
7. Where a payment date is the 19th of the month, any cheque must reach HMRC by that date, or the business day preceding it (if the 19th falls on a week-end or Bank Holiday). Online payments can reach HMRC by 22nd of the month without incurring interest.
8. An employee who has overpaid or underpaid tax at the end of the year will normally receive a tax calculation from HMRC on form P800 and shortly afterwards receive a tax repayment, or be asked to pay any tax due.
9. Where taxpayers submit their self assessment tax return by 30 December following the tax year, they can request that underpaid tax of up to £3,000 is collected through their PAYE code in the subsequent tax year.
10. CGT payment deadlines for UK land and buildings have special rules. See Capital Gains Tax

Filing deadlines

Notes

1. A late filing penalty of £100 will be issued if the self assessment return is not submitted within the deadlines indicated above. This applies even if no tax is due.
2. Further late filing penalties are due if the self assessment return is more than 3, 6 and 12 months late.
3. CGT filing deadlines for UK land and buildings have special rules. See Capital Gains Tax

Freeports

Freeports are special areas within the UK’s borders where different economic regulations apply, including important tax breaks. Freeports in England are centred around one or more ports (air, rail or sea), but can extend up to 45km beyond the port(s). In England they are:

1. East Midlands Airport
2. Felixstowe & Harwich including the Port of Felixstowe and Harwich International Port
3. Humber including parts of Port of Immingham
4. Liverpool City Region including the Port of Liverpool
5. Plymouth & South Devon including the Port of Plymouth
6. Solent including the ports of Southampton, Portsmouth and Portsmouth International Port
7. Thames including the ports at London Gateway and Tilbury
8. Teesside including Teesside International Airport, the Port of Middlesbrough and the Port of Hartlepool

The freeport sites in Scotland are:

• Forth Green
• Inverness and Cromarty Firth.

Notes

1. In Wales and Northern Ireland, freeport sites have not yet been designated.
2. Until 31 March 2026, there is SDLT relief on land purchases within Freeport tax sites in England, where that property is to be used for qualifying commercial activity.
3. When companies invest in qualifying new plant and machinery, Freeport tax sites provide 100% tax relief in the same tax period that the cost was incurred. The qualifying investments must be made from 1 October 2021 until 30 September 2026.
4. Enhanced Structures and Buildings Allowance (SBA) @ 10% p.a. (rather than the normal 3% p.a.) is available for firms constructing or renovating structures and buildings for non-residential use within Freeport tax sites.
5. Employers operating in a Freeport tax site will pay 0% employer NIC on the salaries of any new employee working in that Freeport site. This 0% rate applies for up to three years per employee on earnings up to £25,000 per annum. An employee will be deemed to be working in the Freeport tax site if they spend 60% or more of their working hours in that tax site. The NIC relief will be available until at least April 2026.
6. Up to 100% relief from business rates on qualifying business premises is available to new and certain existing businesses in Freeport tax sites in England from 1 October 2021. This applies for 5 years from the point at which the beneficiary first receives relief, which must be by 30 September 2026.
7. Businesses operating within Freeport customs sites receive tariff benefits, including duty deferral while the goods remain on site and duty inversion if the finished goods exiting the Freeport attract a lower tariff than their component parts.
8. The government is also planning to set up 12 “investment zones”, which are expected to have similar tax breaks.