Understanding all of the rules and regulations of UK tax can be challenging because of its vastness. You might feel confused with so many different tax types, each with its own tax bands and thresholds, allowances, rates, and relief schemes!
The structure of a business also influences its tax reporting requirements and deadlines, adding to the already confusing situation. Thus depending on your business structure— whether it's sole proprietorship, limited company, partnership, or other — you pay taxes differently.
This blog will discuss in detail the different types of taxes applicable in the UK and the tax rates 2023/2024, including thresholds, allowances, and deductions.
What is the Tax-Free Personal Allowance?
Whether you are self-employed or an employer, the amount of income you earn in a tax year before you have to begin paying income tax on it is known as your personal tax allowance. You will only pay tax on the portion of your income that remains after the allowance is deducted from your annual income. You are only permitted to use the personal allowance once during a tax year.
For example, you may receive rental income from real estate, generate revenue from your own business or a mix of these. The personal allowance will be deducted from the overall amount rather than from each source individually.
For the 2023–2024 tax year, the personal allowance has remained at GBP 12,570 for individuals making less than GBP 100,000 annually. You will not receive a personal allowance if your income exceeds GBP 125,140.
Anything you earn above your personal allowance will be subject to income tax at the rate determined by your income under PAYE (Pay as you Earn) or self-employment.
Income Tax: Threshold, Rates, and Allowances
The percentage of income that must be taxed within a given range is known as the tax rate or tax band. The amount of your income that is subject to the applicable tax rate is limited to the portion that falls within each tax band because the tax rates 2023/204 are computed using a series of marginal bands.
Rates of Income Tax for 2023–2024
The income UK tax rates 2023/2024 are as follows if your income exceeds GBP 12,570.
- A base rate of 20% if the income is between GBP 12,571 to GBP 50,270
- A higher rate of 40% if the income is between GBP 50271 to GBP 125410
- An additional rate of 45% if the income exceeds GBP 125,140
There may be variations in Scotland's income tax bands. The following are the income tax rates 2023/2024 tax year:
- A starter rate of 19% if your income is between GBP 12571 - GBP 14732
- A basic rate of 20% if your income is between GBP 14733 – GBP 25688
- An intermediate rate of 21% if the income is between GBP 25689 - GBP 43662
- A higher rate of 42% if the income is between GBP 43663 – GBP 125410
- A top rate of 47% if the income exceeds GBP 125410
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is paid on any profit you make after disposing of a capital asset and the gains are subject to tax. CGT is charged based on what you disposed of to make the gain and whether you are a basic rate or higher rate taxpayer.
Rate on Gains from Residential Property
- Basic rate taxpayer: 18%
- Higher rate taxpayer: 28%
- Trustee: 28%
Rate on Gains from other chargeable assets
- Basic rate taxpayer: 10%
- Higher rate taxpayer: 20%
- Trustee: 30%
For any assets that meet the requirements, you might also be able to apply for Business Asset Disposal Relief, previously known as Entrepreneur's Relief.
2023/24 Capital Gains Tax Annual Exempt Amount (AEA)
You are required to pay CGT on the portion of your gains that exceed the annual threshold. Trustees and individuals have different exemption thresholds.
- Trustees: GBP 3000
- Individuals: GBP 6000
The rate of capital gains tax that you pay depends on what the gain results from (what you disposed of) and the income tax rate you pay.
The Annual Exempt Amount (AEA) is only available to individuals and trusts; businesses are not permitted to use it, which is why capital allowances are necessary. These allow companies to deduct large purchases (also referred to as capital items) from their taxes.
Corporation Tax Rates
In the UK, corporation tax is a corporate tax imposed on the yearly profits of UK resident companies as well as foreign subsidiaries. Companies subject to UK corporation tax will be able to deduct 100% of their first year's taxes from any expenditure they make on qualifying plant or machinery as of April 1, 2023.
Additionally, a 50% first-year allowance is available for assets (such as lighting, electrical, and long-life assets) that would otherwise qualify for the special rate pool; the remaining amount will be added to the special rate pool as usual. This is an important acceleration in comparison to the "normal" 6% writing down allowance for such expenditures.
Corporation tax rates 2023/2024
- Profits above GBP 250,000: 25%
- Profits up to GBP 50,000: 19%
- between GBP 50,000 and GBP 250,000: will pay the standard rate less a marginal relief, which will raise the average corporation tax rate gradually from 19% to 25%
Corporation tax is a mandatory annual expense for all taxable limited companies in the UK. However, unincorporated organisations such as co-ops, trade, and housing associations, and members' clubs or associations may also be liable for Corporation Tax.
A company's director, or directors, are in charge of ensuring that all taxes are paid by the due date and that the company files its corporation tax returns with HMRC. Although many businesses seek the assistance of reputable tax accountant services in London, the company directors are still legally liable.
Allowance for Dividends
The tax-free amount that you can earn from dividends is the dividend allowance. After you exceed it, you will have to pay a dividend tax on your remaining dividend income.
The dividend allowance was reduced by half in April 2023 and will do so again in April 2024, which means you will pay tax on more of your dividend income. The dividend allowance for 2023/2024 is GBP 1000.
You can claim both your personal tax allowance and the dividend allowance, as applicable.
Your income tax band determines the rate of dividend tax you must pay. To calculate this, add your total dividend income to your other sources of income and deduct your dividend and personal allowances!
Tax Rates on Dividends
The dividend tax rates 2023/2024 are as follows
- Personal allowance: 0%
- GBP 12571 – GBP 50270: 8.75% (basic rate taxpayers)
- GBP 50271 – to GBP 125140: 33.75% (higher rate taxpayers)
- Above GBP 125140: 39.35% (additional rate taxpayers)
Let Unicorn Accountants Help You
There are many different tax brackets, allowances, and earnings thresholds in the UK financial system that apply to both private individuals and businesses. To stay in compliance and prevent HMRC from taking enforcement action, businesses, in particular, need to be constantly aware of what the government expects of them. Seeking the help of tax accountant services in London can help you understand the complex tax structure.
Hiring our services will help you navigate the UK’s complex tax structure and understand the tax rates 2023/2024 to ensure that you meet all your tax obligations promptly.
At Unicorn Accountants, we provide a full range of accounting services to assist businesses and individuals in managing their finances while lowering their tax burdens. Experts in all facets of UK tax, our friendly staff can even take care of the hassle of liaising with HMRC on your behalf.