The 2023/24 tax year ends on 5th April 2024, so now is a good time for you to check that you’re not going to pay more tax than necessary this year and next year.

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HIGHLIGHTS – FROM 6TH APRIL 2024:

Below are some suggestions to consider first for directors/shareholders only, then for everyone.

DIRECTORS/SHAREHOLDERS ONLY

Background information

As a recap, it’s important to remember that your company is a completely separate entity from you. A company pays tax on its profits. You pay tax on the wages and dividends received from a company. However, the way you take money from your company may affect the company’s tax, so it is important to consider all taxes when you decide how to pay yourself. A company usually pays a salary to directors, and has the option of paying out its profit (as dividends) to its shareholders. Your company’s taxable profit includes a deduction for salaries and expenses but not for dividends. So a salary will reduce corporation tax but dividends don’t affect it.

Your company will pay corporation tax on the profit it makes in its accounting year, which is usually different to the tax year. The corporation tax rate is currently 19% and will remain at 19% for companies with annual taxable profits of £50,000 or less. Companies with annual taxable profits of over £250,000 will pay tax at 25% from April 2024. Companies between these thresholds will pay a tapered rate between 19% and 25%. These thresholds are divided by the number of associated companies. A company is associated with another company if they are both owned 50% or more by the same person, or the same group of people – read more.

You will pay income tax on your total income in the tax year, including any salary and dividends taken from your company, but not on expenses or loans. See below for the various tax bands and rates.

Even if your corporation tax rate increases to 25%, the most tax-efficient way to take money from your company is still with a small salary and then dividends. That’s because the income tax (20% then 40%), employees NIC  (10% or 8% then 2%), employers NIC (13.8%) minus corporation tax relief (19-25%) is still more than the tax on dividends (8.75% then 33.75%). Even in the higher rate band when the employees NIC drops to 2%, it’s not enough to claw back the savings made in the basic rate band.

What to do this month

Check that you’ve received trivial benefits from the company of up to £50, up to 6 times per tax year for directors. Trivial benefits can be gifts or vouchers but not cash. The cost of each trivial benefit must not exceed £50.

On or before 5th April make sure you’ve used up your tax-free personal allowance of £12,570 with salary/earnings/dividends.

Last year we advised a salary of between £9,100 and £12,570, depending on whether your company is profitable and whether you would benefit from the Employment Allowance. If you have sufficient profit reserves in the company, you should also pay yourself dividends covering:

  1. Any remaining personal allowance after your salary (£12,570 minus your salary);
  2. Your tax-free dividend allowance of £1,000, then;
  3. Your remaining basic rate band of up to £36,700, taxed at 8.75% (above this dividends are taxed at at least 33.75%).

It’s best to have a similar amount of total income from year to year, rather than not using up your basic rate band one year, then going into your higher rate band in the other year. You will save tax of about £9k by declaring total dividends of £35k this year and £35k next year, instead of none this year and £70k next year.

Any extra salary and dividends don’t have to be paid – they can be credited to your directors loan account to draw out tax-free at a later date, or to repay what you’ve already taken out.


The company must have net profit reserves remaining after any dividends are declared. You must approve the dividend and pay or credit the dividend by 5th April for it to be taxed in the current tax year. As always, you must also prepare the meeting minutes and dividend voucher to support the dividend.

The Changes

The main changes on 6th April 2024 are that:

What to do from next month

Our general advice on extracting funds from your own company is set out below. However, due to the numerous scenarios, which could also change during the year, we may advise you differently on an individual basis.


From 6th April 2024, our advice is that each director/shareholder should take money from the company in the following order:

  1. If the company is not profitable or if you have other income:
    • Salary of £9,100pa or £758pcm, tax-free
  2. If the company is profitable or the employers NIC on your salary is covered by the Employment Allowance:
    • Additional salary of £3,470pa (£12,570pa or £1,047.50pcm)
  3. Stop here if the company does not have sufficient profit reserves to pay dividends
  4. Dividends of £500, tax-free
  5. Dividends of £37,200, taxed at 8.75%
  6. Dividends of £49,730, taxed at 33.75%
  7. The next £25,140 of dividends are taxed at 60% (see ‘Avoid’ sections below)
  8. The remaining dividends are taxed at 39.35%

This assumes you have no other income and there are sufficient profit reserves in the company to take dividends. Profit reserves are the net profits/losses since the company started, less dividends since the company started. The relevant amounts can be found on the company’s balance sheet within the capital and reserves section.

EVERYONE

Use up Income Tax allowances


To recap, everyone has a tax-free personal allowance. Income above that is taxed at different rates depending on the type of income it is and which band of your income (tax band) that income falls into. Earned income, such as a salary or self-employed profit, uses up your tax bands before investment income, such as interest and dividends. So if you have a £50,270 salary and £40,000 dividends, all of the salary exceeding your personal allowance uses up your basic (lower) rate band so will all be taxed at the basic (lower) rate of income tax  (except the first £12,570 which is tax-free). Consequently, all of the dividends fall into your higher rate band so will all be taxed at the higher tax rate for dividends (except the first £1,000 or £500 which is tax-free).

Unused personal allowances and tax bands are not available to be carried forward, so it is important to check that you are using them efficiently each year. If it’s possible to increase or decrease your income, it’s best to use up the lower rate bands and avoid the higher rate bands. Some tax planning can achieve this, such as changing ownership of assets (e.g. transferring shares of a company and therefore the amount of dividends paid out), or changing employment income or dividends. The bands and rates for Scottish residents are here, and for everyone else in the UK are currently as follows:

Other allowances and bands to consider:

The different tax rates for Income and Dividends are as follows:

from 2022/23from 2022/23
IncomeDividends
Basic rate20%8.75%
Higher rate40%33.75%
Additional rate45%39.35%

Use up National Insurance allowances

National Insurance (NI) is payable by employers, employees, and the self-employed. Each of whom have different bands and rates to consider. As with income tax above, it’s best to use up lower bands and avoid higher bands. You need to have a salary or self-employed profits that exceed the lower earnings limit for the tax year, or voluntarily pay sufficient NI in the tax year, for it to be a qualifying year for your state pension. You need 35 qualifying years for a full state pension. If self-employed profits exceed the main threshold (was the lower earnings limit), a fixed amount of NI is payable at £179.40pafor 2023/24, but this will only be for voluntary payments from April 2024. Credits for the state pension will still be gained if profits exceed the lower earnings limit.

Below are the national insurance thresholds and rates for the 2022/23 and 2023/24 tax years. During 2022/23 the NIC rates were increased, then the NIC thresholds were increased, then the NIC rates were reduced! So there are slightly higher thresholds and slightly different rates of NIC as originally advised this time last year.

Self-EmployedSelf-EmployedEmployeeEmployeeEmployerEmployer
2024/252023/242024/252023/242024/252023/24
Lower earnings limit£6,725£6,725£6,396£6,396n/an/a
Main threshold£12,570£12,570£12,570£12,570£9,100£9,100
Main rate6%9%8%12%/10%13.8%13.8%
Upper limit£50,270£50,270£50,270£50,270n/an/a
Upper rate2%2%2%2%13.8%13.8%

Check your National Insurance history now

As mentioned above, for a full state pension you need 35 qualifying years of employment or credits. You can check how many qualifying years you have on your personal HMRC online account. If it looks like you will fall short before your statutory retirement age, you may be able to make voluntary NI contributions to add missing years if they are recent enough. From 6th April 2025 the rules are restricted so you can only top up any missing years from just the previous 6 years. See here for more details.

Avoid earning over £50k
You pay higher tax rates on income over £50,270 (£43,663 in Scotland). So if your total income is around this level and you are able to control it, try to avoid going over this threshold. For example, your lower tax rate paying spouse could receive some dividends instead of those dividends taking you into the higher tax rates.

Child Benefit

The High Income Child Benefit Charge (HICBC) means that any child benefit received needs to be partly paid back if a parent’s income exceeds a lower HICBC threshold which is £50,000 for 2023/24, and £60,000 from 2024/25. Child benefit needs to be fully repaid if a parent’s income exceeds a higher HICBC threshold of £60,000 for 2023/24 and £80,000 for 2024/25. So if one parent or the other receives child benefit, and if one parent or the other has an income over the lower HICBC threshold, the higher earner will need to repay at least some of the child benefit.

A proportion of the child benefit is repaid if his/her income is between the thresholds. This can result in marginal tax rates of 60% for 2 children and over 70% for 4 children (i.e. your tax bill increases by 60p or 70p for every £1 your income increases between the thresholds). If the repayment can’t be avoided, consider stopping the child benefit, as this may spare any need to file a tax return.

To calculate the amount of child benefit to be repaid, your income is adjusted down for any personal pension contributions and charity contributions. So you could pay more of these contributions to reduce your adjusted income within the thresholds in order to save tax at 60% or more. The plan is to base the HICBC on total family income from 2026 to make it fairer.

Any parent who asked HMRC to stop paying child benefit who would now qualify for some child benefit will need to ask HMRC to start paying it again.


Avoid earning over £100k


When your total income exceeds £100,000 the tax-free personal allowance is gradually removed until you get no personal allowance when your income reaches £125,140 or more. In this band of total income, you have a marginal tax rate of 60% (i.e. your tax bill increases by 60p for every £1 your total income increases between £100k and £125k). Also, more benefits are removed such as tax-free childcare. As with the child benefit above, you could pay personal pension or charitable contributions to reduce your adjusted total income within the £100k – £125k band and save tax at 60%.

Claim Marriage Allowance

A spouse or civil partner who does not pay income tax above the basic rate for a tax year, can transfer £1,260 of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer does not pay income tax above the basic rate. This can potentially mean a reduction in tax liability of £252. 

Transfer assets to a spouse

If a spouse or civil partner pays tax at a different rate, consider transferring income-producing assets (e.g. savings, company shares, investment property) to give the income to the person paying at the lower rate. Ideally, both you and your spouse should aim to have a total income of £50,270 or less.

Check your bank

If you have large sums of cash in ordinary accounts paying very little interest, consider moving cash to other accounts earning a higher interest rate. An Individual Savings Account (ISA) is tax free so make sure that ISA allowances have been fully utilised for all the family, where applicable.

Pay into savings

Saving Allowances

£5,000pa of taxable interest received is tax-free if your total other income is £12,570pa or less. The £5,000pa is gradually reduced to £0 as your other income increases from £12,570pa to £17,570pa. There is also a personal savings allowance which means you don’t pay tax on taxable interest of £1,000pa for basic rate taxpayers, £500pa for higher rate taxpayers, and £0 for additional rate taxpayers.

ISAs

The ISA maximum subscription limit is currently £20,000, which can be split across the different types of ISAs. These are: Cash, Stocks and Shares, Innovative Finance, and Lifetime ISAs. This investment limit will increase to £25,000 but £5,000 of this needs to be invested in a new British ISA that only invests in British companies. The overall investment limits on ISAs mean that a couple could save a substantial amount in tax-efficient savings accounts. Any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year (until 50) and savers will receive a 25% bonus from the government on this money. Broadly, money invested in this type of account can be saved until the investor is 60 and used as retirement income, or it can be withdrawn to help buy a first home.

Junior ISAs

Junior ISAs are available to UK resident children (under-18s). Junior ISAs are tax-relieved and have many features in common with existing ISA products. The maximum annual subscription is currently £9,000. Investments may be made in any combination of qualifying cash or stocks and shares investments. Withdrawals are not permitted until the named child has reached the age of 18, except in cases of terminal illness. It’s possible to transfer Child Trust Funds (CTFs) to Junior ISAs.

Other savings

Regular sums can be invested in National Savings (some products offer a tax-free return, which is particularly attractive to 40% and 45% taxpayers), banks and building societies. Those willing to accept the possibility of greater risk perhaps equaling greater reward might consider the stock market, stock market-linked investments or buy-to-let property.

Pay into pensions

Paying personal pension contributions can currently give tax relief at the individual’s highest income tax rate. Personal pension contributions are limited to your earnings. Employer pension contributions are not limited to earnings but give tax relief to the employer not the employee. Pension contributions are taxable if the total contributions into all of your pension schemes exceed an annual limit of £60,000 (or less if your total income exceeds £200,000). Unused allowances from the previous 3 years (at £60k, £40k and £40k) can be brought forward and used in the current year if required, which would give a total allowance of £200,000 in 2024/25. The lifetime pension limit of £1,073,100 was abolished from 6th April 2023.


Consider paying into pensions for family members. The introduction of stakeholder pensions allow contributions to be made for all UK residents, even children, as there is no requirement to have any earnings. Consider making payments of up to £3,600 for family members, as the fund will grow in a tax-free environment. The net cost is only £2,880.

Sell some chargeable assets – allowances are reducing

Everyone has an annual capital gains exemption. The exemption is currently £6,000 for 2023/24 and is reducing to £3,000 for 2024/25. You are only taxed on total capital gains that exceed the annual allowance. Taxpayers should therefore consider selling taxable assets to make a capital gain up to this figure. Gifts between spouses and civil partners are tax free, so it is possible to double the yearly exemptions available by giving shares or other investments to a spouse or civil partner.


Realise losses

If you have shares standing at a loss, you should consider selling them so that the loss can be set against any gains made over and above the capital gains annual exemption. If you want to retain the investment, it could be bought back by the spouse or partner, within an ISA. It will not be tax effective for them to buy back the investment within 30 days of you selling it. In addition, care must be taken not to fall foul of anti-avoidance legislation which prevents loss relief being claimed where certain arrangements exist, the main purpose, or one of the main purposes, of which is to secure a tax advantage.


Capital gains tax may be deferred through the use of an Enterprise Investment Scheme investment.

Give to charity

Making charitable donations via the Gift Aid scheme is an effective way to reduce taxable income. If donations have been made, it is important that you ticked Gift Aid so that the charity can benefit from the basic rate tax relief. Higher rate taxpayers should make the necessary claim on their tax return for further relief. If future donations are planned, you may wish to bring these forward to on or before 5th April to ensure the tax relief is obtained at an earlier date.

Check your PAYE code

Employees should check that their PAYE tax code is correct and contact HMRC if it needs to be amended. The standard PAYE tax code is 1257L which means you are receiving the full personal allowance of £12,570. If your PAYE tax code is different, you should receive a notice from HMRC to explain why.

Don’t get fined!

There are penalties and surcharges for submitting your tax returns late and for paying any tax due late. These penalties increase substantially over time so if you’re already late for the previous tax year, further delays will cost you more – see here

Your tax return for the year ending 5th April 2024 can usually be submitted from early in May 2024, and must be submitted by 31st January 2025. Look out for our Tax Return Due emails which will be sent late in April 2024. The balance of tax owed for the year ending 5th April 2024 will be due by 31st January 2025. If applicable, a 50% payment on account is also due by 31st January 2025. The other 50% payment on account will be due by 31st July 2025.

On 06 March 2024 the chancellor, Jeremy Hunt, announced the Spring Budget 2024. Read how the 2024 Spring Budget affects you and your taxes. Our clients can ask us what it means to them, all included in our low fixed-fees.

Highlights of the Spring Budget 2024

Businesses:

Other:

And for the creative industry:

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Welcome
To Spring Statement 2024, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice on your own specific circumstances. We’re here to help!

 
Spring Statement 2024
· Introduction
· National Insurance contributions (NICs) to be cut
· Non-dom tax breaks to be abolished
· VAT registration threshold increase
· Cut to property capital gains tax
· New British ISA and British Savings Bonds
· Chancellor takes ‘further steps’ on Full Expensing
· Furnished Holiday Lettings regime scrapped
· Oil companies windfall tax extended
· Raising child benefit threshold
· Childcare support expanded
· Fuel duty freeze extended
· Alcohol duty frozen until next year
· Pension pots for life
· Tax credits for film industry to rise
· Research and Development funding
· New tax on vaping and tobacco duty rise
· Updates on the economy and Government spending
Introductiontop
Cuts to National Insurance contributions and the abolition of so-called ‘non-dom’ tax breaks were among the headline announcements in Wednesday’s Budget.

The Chancellor delivered his speech in the House of Commons, unveiling a range of tax and spending measures.

However, there was no cut to income tax, despite much speculation in recent weeks that one might come due to the General Election, set to be held this year.

Aside from the headlines mentioned above, some of the other most significant announcements included:

–     Cut to property capital gains tax
–     Rise in VAT registration threshold
–     Full expensing to apply to leased assets
–     New British ISA
–     Rise in child benefit threshold
–     Freeze on fuel duty

Below, we delve into more of the details and summarise the biggest changes that were unveiled this afternoon.

 
National Insurance contributions (NICs) to be cuttop
As expected, Mr Hunt’s main announcement surrounded NICs. In line with prior media reports, he went even further than the changes he made on NICs in the Autumn Statement last November.

He announced a 2p cut in NICs. From April 6 employee NICS will be cut from 10% to 8%. Meanwhile, self-employed NICS will go from 8% to 6% (a 1% cut from 9% to 8% was already announced last year).

Mr Hunt said: “It means an additional £450 a year for the average employee or £350 for someone self-employed. When combined with the autumn reductions, it means 27 million employees will get an average tax cut of £900 a year and 2 million self-employed will get a tax cut averaging £650.”

The move is estimated to be worth over £10 billion a year for workers across the UK. Combined with the abolition of the requirement to pay Class 2 NICs, an average self-employed person on £28,000 will save £650 a year from April 6, the Treasury estimated.

Mr Hunt had already announced a reduction in employees’ National Insurance (NI) by two percentage points from 12% to 10% (for Primary Class 1 contributions) in November – a change affecting an estimated 27 million people.

 
Non-dom tax breaks to be abolishedtop
As had been trailed in many of the newspapers in the week leading up to the Budget, the contentious ‘non-dom’ scheme will be scrapped.

Mirroring what has been one of the higher profile policies of the Labour Party, Mr Hunt said the tax breaks for wealthy foreign residents in the UK will be abolished and replaced with a new scheme.

So-called non-doms are UK residents but not domiciled here for tax purposes.

Mr Hunt said the Government would “introduce a system which is both fairer and remains competitive with other countries.”

“The Government will abolish the current tax system for non-doms, get rid of the outdated concept of domicile and the remittance basis in the tax system, and replace it with a modern, simpler and fairer residency-based system,” he told Parliament.

The plan is that, from April 2025, new arrivals to the UK will not be required to pay any tax on foreign income and gains for their first four years of UK residency. Those who stay after four years will then pay the same tax as other UK residents.

The Treasury described the new scheme as the 4-year foreign income and gains (FIG) regime.

The Treasury stated: “Individuals who on 6 April 2025 have been tax resident in the UK for less than 4 years (after 10 years of non-UK tax residence) will be able to use this new regime for any tax year of UK residence in the remainder of those 4 years.”

Officials also revealed (in the documents released after the Budget speech) that Overseas Workday Relief for the first 3 tax years of UK residence will be “retained and simplified”.

 
VAT registration threshold increasetop
In a move designed to cut the burden of admin and the financial impact of VAT, the VAT registration threshold is to increase from £85,000 to £90,000 from April. Although this was not as high as some commentators had hoped, it is the first increase in 7 years and will bring “tens of thousands of businesses out of paying VAT altogether and encourage many more to invest and grow”, Mr Hunt told MPs.
 
Cut to property capital gains taxtop
The higher rate of property capital gains tax is to be reduced from 28% to 24%.

The Government said that it had concluded, following a review of costs by the Treasury and the OBR, the change would increase revenues because there would be more transactions.

However, the lower rate will remain at 18% for any gains that fall within an individual’s basic rate band.

On that point, the official Budget papers stated: “This will encourage landlords and second homeowners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time, while also raising revenue over the forecast period.”

 
New British ISA and British Savings Bondstop
The Government will create a “British ISA” to encourage the public to invest exclusively in the UK. This will allow people to save an extra £5,000 tax-free per year by investing in UK equity. It will carry “all the tax advantages of other ISAs”.

This would be in addition to the £20,000 that can be subscribed into an ISA. The government will consult on the details.

Some commentators immediately raised doubts on the merits of the new ISA. They say that geographic diversity is key for having a diversified portfolio – being invested in a variety of markets around the world in case one falls short or even crashes. However, Mr Hunt said he had listened to calls from 200 professionals in the British stock market, who will see this as good news.

He also trailed a new British Savings Bonds. Watch this space for more news on that.

 
Chancellor takes ‘further steps’ on Full Expensingtop
In a move he described as a tax cut for businesses, Mr Hunt confirmed the Government will introduce permanent Full Expensing. He said it was worth £10bn a year for companies.

A capital allowance tax scheme, the move enables businesses to write off 100% of the cost of investment on qualifying items such as new or improved technology, equipment, machinery or buildings.

Having announced it as a temporary measure in March 2023, the Treasury will shortly publish draft legislation for Full Expensing to apply to leased assets. This will be implemented “when fiscal conditions allow”, the Treasury said.

 
Furnished Holiday Lettings regime scrappedtop
Tax breaks for second homeowners letting to holiday makers are to be axed. The Furnished Holiday Lettings regime is to be disbanded, Mr Hunt revealed. Currently, the tax breaks make it more profitable for second homeowners to let out their properties to holiday makers rather than to residential tenants to rent, raising concerns over the availability of long-term rental housing for local people. Multiple Dwellings Relief is also being abolished.
 
Oil companies windfall tax extendedtop
The UK’s windfall tax on the profits of oil and gas companies will be extended to 2029. Officially titled The Energy Profits Levy, it was introduced in 2022 to ensure that oil and gas producers in the UK “pay their fair share of tax from extraordinary profits”. The Government said the extension was motivated by the forecasts of gas prices to “remain abnormally high until at least 2028-29”. Mr Hunt told MPs it would raise a further £1.5bn.
Raising child benefit thresholdtop
The Chancellor revealed the High Income Child Benefit Charge (HICBC) threshold will rise. Instead of kicking in at a total adjusted income of £50,000, from April 2024 it will move up to £60,000. Also, the HICBC will increase at a lower rate, so instead of it being fully repaid at £60,000, from April 2024 it will be fully repaid at £80,000.

And a consultation is set to get underway on moving the charge to a household-based system in time to start by April 2026.

The Government said there was an unfairness in the current system – the fact it’s charged on an individual basis. The example it gave was two parents earning £49,000 each (with a household income of £98,000) wouldn’t reach the threshold, but a single parent earning over £50,000 would.

Childcare support expandedtop
Further information was set out on plans to extend the 30-hour free childcare offer to all children of working parents from 9 months. Mr Hunt gave more details today, saying he would be guaranteeing rates paid to childcare providers. The impact of the plans overall will mean an extra 60,000 parents entering the workforce in the next four years, Mr Hunt said.
Fuel duty freeze extendedtop
A 5p cut to fuel duty will be maintained – with a freeze extended for another 12 months until February 2025. Mr Hunt said this will save the average motorist around £50 next year. It will also “bring total savings since the 5p cut was introduced to around £250”, Mr Hunt added.
Alcohol duty frozen until next yeartop
The Government will freeze alcohol duty from 1 August 2024 until 1 February 2025, lengthening the six-month freeze announced at Autumn Statement 2023, with the intention to “support the hospitality sector and help consumers with the cost of living”.
Pension pots for lifetop
There was a brief mention for the idea of giving people one ‘pension pot for life’. The Chancellor said the Government will continue to explore previously trailed plans, with a consultation already underway.

The reforms would give workers the right to nominate the pension scheme they want their employer to pay into, which it’s claimed could help solve the problem of lost pension pots as workers move jobs. He announced the plan in the Autumn Statement.

Tax credits for film industry to risetop
Some film studios are set to benefit from 40% gross business rates relief until 2034. The UK has become “Europe’s largest film and TV production centre”, Mr Hunt said, before announcing the rate of tax credit available to the industry will rise by 5%. Furthermore, an 80% cap for visual effects costs will be removed.

Orchestras, museums, galleries and theatres will also benefit from a permanent 45% tax relief for touring productions and 40% relief for non-touring productions. The UK’s creative industries will be backed by over £1 billion overall, the Treasury said.

Research and Development fundingtop
The Budget includes an additional £45 million to “accelerate medical research” into common diseases like cancer, dementia and epilepsy. It’s part of a £360 million package to support innovative R&D and manufacturing projects across the life sciences, automotive and aerospace sectors.

The Green Industries Growth Accelerator will be allocated an extra £120 million to build supply chains for offshore wind and carbon capture and storage, officials added.

New tax on vaping and tobacco duty risetop
A duty on vapes will be introduced from October 2026. Officials said the move was designed to “protect young people and children from the harm of vaping”. The existing tax on tobacco will increase, to maintain the “financial incentive to choose vaping over smoking”. This will raise a combined £1.3 billion by 2028/29.
Updates on the economy and Government spendingtop
Inflation
Inflation should fall below the 2% target set by the Government in a few months, according to the Office for Budget Responsibility report, Mr Hunt announced. When he came to office inflation was at 11%, he said, whilst the latest figures show that it is now at 4%. Mr Hunt told MPs: “We have turned the corner on inflation.”

Debt and borrowing figures announced
Following OBR forecasts back in 2022 that headline debt would rise to above 100% of GDP, the Chancellor updated the Commons on projections for the next five years.

The OBR now says it will fall in every year to just 94.3% by 2028-29.

Mr Hunt said: “Underlying debt, which excludes Bank of England debt, will be 91.7% in 2024-25 according to the OBR, then 92.8%, 93.2%, 93.2% before falling to 92.9% in 2028-29 with final year headroom against debt falling of £8.9bn.”

Growth figures revealed
MPs also heard the latest forecasts from the OBR on economic growth. These were:

2024 – 0.8%
2025 – 1.9%
2026 – 2%
2027 – 1.8%

Government spending
Day-to-day public spending will stay at 1% growth in real terms but “we are going to spend it better,” Mr Hunt pledged.

He added: “It’s not fair to ask taxpayers to pay for more when public service productivity has fallen. Nor would it be wise to reduce that funding given the pressures that public services face.”

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The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

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On 15 March 2023 the chancellor, Jeremy Hunt, announced the Spring Budget 2023. Read how the 2023 Spring Budget affects you and your taxes. Our clients can ask us what it means to them, all included in our low fixed-fees.

Spring Budget 2023
Spring Budget 2023

Highlights of the Spring Budget 2023

More details will follow here soon.

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Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

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Corporation tax rates increase on 1st April 2023 for many companies. We will explain how your corporation tax rate changes from April 2023. You will need to know your expected annual net profit and the number of companies associated with yours.

corporation tax rates
Photo by Nataliya Vaitkevich: https://www.pexels.com/photo/april-calendar-6863515/

Corporation Tax Rate Changes

From 1st April 2023 the UK main corporation tax rate increases from 19% to 25%. However, some companies will pay between 19% and 25%, depending on the profit for the year and the number of associated companies.

Profit

The relevant profit to use is the company’s taxable profit for the year. To find this you need to start with the company’s net profit. This is its sales, plus other income, minus costs like salaries and depreciation but not dividends and not corporation tax itself. Then you add back onto the net profit any costs that are not tax deductible such as depreciation and entertainment. Deduct any income that is not taxable such as dividend income. You can also usually deduct the cost of equipment purchased during the year, which is called a capital allowance. Now you should be close to the taxable profit, which is relevant to work out your tax rate.

Associated Companies

You also need to know the number of companies associated with yours. For this you’ll need to read our separate post: what is an associated company? If you have associated companies you’ll need to read the Reducing The Corporation Tax Thresholds section below.

Corporation Tax Thresholds

The lower limit is £50,000 and the upper limit is £250,000. So if you have no associated companies, you’ll pay corporation tax at 19% if your profits are less than £50,000. You’ll pay 25% corporation tax if your profits are over £250,000. If your profits are between these thresholds, you’ll pay a total rate on all of the profits somewhere between 19% and 25%. It’s tapered so that if you’re just over £50,000 you’ll pay just over 19%. Similarly if you’re just under £250,000 you’ll pay just under 25%.

Reducing The Corporation Tax Thresholds

The tax thresholds need to be divided by one plus the number of associated companies. So if you have one associated company, add one (for your own company) to make two. Then divide the thresholds by two so the lower one is £25,000 and the upper one is £125,000. So if your profits are £25,000 or less you will pay 19% corporation tax. Or if your profits are over £125,000 you’ll pay 25%.

Also, if your accounting period is shorter or longer than 1 year, you’ll need to proportionally reduce or increase the thresholds. So if you have a 9 month accounting period, the thresholds become £37,500 and £187,500.

The examples below assume that you don’t need to reduce the thresholds. If you have to reduce the thresholds, you will need to reduce the £50,000 and £250,000 referred to below e.g. in the marginal relief formulas.

Corporation Tax Rates Between The Thresholds

If your profits are between the thresholds, you use the main rate of 25% on all of your profits. Then there is a marginal relief formula to work out how much to reduce this by. Ignoring dividends received, the formula is (£250,000 – taxable profits) x 3 / 200. So profits of £100,000 would be taxed at 25% which is £25,000 minus marginal relief. Entering £100,000 into the formula makes it £150,000 x 3 / 200, which is £2,250. So the corporation tax is £22,750 which is 22.75%.

Marginal Rates of Corporation Tax

Another simpler way to work out the corporation tax is to use the marginal rate of 26.5%. The first £50,000 of profits are taxed at 19%, then the next £200,000 of profits are taxed at 26.5%. Then you add them together. So with £100,000, £50,000 at 19% is £9,500, then the remaining £50,000 is taxed at 26.5% which is £13,250. Added together this gives a total of £22,750.

Save Tax At Marginal Rates

As the marginal rate between the thresholds is 26.5%, that is the rate of tax you will pay or save on any increase or decrease to your taxable profits within the thresholds. So if it looks like you will have taxable profits of £60,000, paying pension or charitable contributions of £10,000 will save you tax at 26.5% which is £2,650. Wages or a bonus could also work but you will need to consider whether any PAYE and NIC payable will outweigh any corporation tax savings.

Dividends Received

If your company receives dividends, these are not taxable but they may affect the corporation tax rate. Dividends received are effectively added to profits when calculating the marginal relief formula. So if your company receives a substantial amount of dividends it could end up paying 25% tax even if its taxable profits are less than £250,000. The full marginal relief formula is (£250,000 – (profits + dividends)) x (profits / (profits + dividends)) x 3 / 200. Or ask your accountant!

Our clients can ask us to estimate what their corporation tax rate from April 2023 is likely to be, all included in our low-cost fixed monthly fees.

The current tax year will end on 5th April, so now is a good time for you to check that you’re not going to pay more tax than necessary this year and next year.

tax planning

HIGHLIGHTS – FROM 6TH APRIL 2023:

Below are some suggestions to consider first for directors/shareholders only, then for everyone.

DIRECTORS/SHAREHOLDERS ONLY

Background information

As a recap, it’s important to remember that your company is a completely separate entity from you. A company pays tax on its profits. You pay tax on the wages and dividends received from a company. However, the way you take money from your company may affect the company’s tax, so it is important to consider all taxes when you decide how to pay yourself. A company usually pays a salary to directors, and has the option of paying out its profit (as dividends) to its shareholders. Your company’s taxable profit includes a deduction for salaries and expenses but not for dividends. So a salary will reduce corporation tax but dividends don’t affect it.

Your company will pay corporation tax on the profit it makes in its accounting year, which is usually different to the tax year. The corporation tax rate is currently 19% and will remain at 19% for companies with annual taxable profits of £50,000 or less. Companies with annual taxable profits of over £250,000 will pay tax at 25% from April 2023. Companies between these thresholds will pay a tapered rate between 19% and 25%. These thresholds are divided by the number of associated companies. A company is associated with another company if they are both owned 50% or more by the same person, or the same group of people – read more.

You will pay income tax on your total income in the tax year, including any salary and dividends taken from your company, but not on expenses or loans. See below for the various tax bands and rates.

Even if your corporation tax rate increases to 25%, the most tax-efficient way to take money from your company is still with a small salary and then dividends. That’s because the income tax (20% then 40%), employees NIC (12% then 2%), employers NIC (13.8%) minus corporation tax relief (19-25%) is still more than the tax on dividends (8.75% then 33.75%). Even in the higher rate band when the employees NIC drops to 2%, it’s not enough to claw back the savings made in the basic rate band.

What to do this month

Check that you’ve received trivial benefits from the company of up to £50, up to 6 times per tax year for directors. Trivial benefits can be gifts or vouchers but not cash. The cost of each trivial benefit must not exceed £50.

On or before 5th April make sure you’ve used up your tax-free personal allowance of £12,570 with salary/earnings/dividends.

Last year we advised a salary of between £9,100 and £12,570, depending on whether your company is profitable and whether you would benefit from the Employment Allowance. If you have sufficient profit reserves in the company, you should also pay yourself dividends covering:

  1. Any remaining personal allowance after your salary (£12,570 minus your salary);
  2. Your tax-free dividend allowance of £2,000, then;
  3. Your remaining basic rate band of up to £35,700, taxed at 8.75% (above this dividends are taxed at at least 33.75%).

It’s best to have a similar amount of total income from year to year, rather than not using up your basic rate band one year, then going into your higher rate band in the other year. You will save tax of about £9k by declaring total dividends of £35k this year and £35k next year, instead of none this year and £70k next year.

Any extra salary and dividends don’t have to be paid – they can be credited to your directors loan account to draw out tax-free at a later date, or to repay what you’ve already taken out.


The company must have net profit reserves remaining after any dividends are declared. You must approve the dividend and pay or credit the dividend by 5th April for it to be taxed in the current tax year. As always, you must also prepare the meeting minutes and dividend voucher to support the dividend.

The Changes

The main changes on 6th April 2023 are that: the NIC threshold where employees start to pay NIC increases to £12,570; the dividend allowance reduces from £2,000 to £1,000; and the Additional Rate threshold reduces from £150,000 to £125,140. 

What to do from next month

Our general advice on extracting funds from your own company is set out below. However, due to the numerous scenarios, which could also change during the year, we may advise you differently on an individual basis.


From 6th April 2023, our advice is that each director/shareholder should take money from the company in the following order:

  1. If the company is not profitable or if you have other income:
    • Salary of £9,100pa or £758pcm, tax-free
  2. If the company is profitable or the employers NIC on your salary is covered by the Employment Allowance:
    • Additional salary of £3,470pa (£12,570pa or £1,047.50pcm)
  3. Stop here if the company does not have sufficient profit reserves to pay dividends
  4. Dividends of £1,000, tax-free
  5. Dividends of £36,700, taxed at up to 8.75%
  6. Dividends of £49,730, taxed at 33.75%
  7. The next £25,140 of dividends are taxed at 60% (see ‘Avoid’ sections below)
  8. The remaining dividends are taxed at 39.35%

This assumes you have no other income and there are sufficient profit reserves in the company to take dividends. Profit reserves are the net profits/losses since the company started, less dividends since the company started. The relevant amounts can be found on the company’s balance sheet within the capital and reserves section.

EVERYONE

Use up Income Tax allowances


To recap, everyone has a tax-free personal allowance. Income above that is taxed at different rates depending on the type of income it is and which band of your income (tax band) that income falls into. Earned income, such as a salary or self-employed profit, use up your tax bands before investment income, such as interest and dividends. So if you have a £50,270 salary and £40,000 dividends, all of the salary exceeding your personal allowance uses up your basic (lower) rate band so will all be taxed at the basic (lower) rate of income tax, then all of the dividends fall into your higher rate band so will all be taxed at the higher tax rate for dividends (except any covered by the dividend allowance so are taxed at 0%).

Unused personal allowances and tax bands are not available to be carried forward, so it is important to check that you are using them efficiently each year. If it’s possible to increase or decrease your income, it’s best to use up the lower rate bands and avoid the higher rate bands. Some tax planning can achieve this, such as changing ownership of assets (e.g. transferring shares of a company and therefore the amount of dividends paid out), or changing employment income or dividends. The bands and rates for Scottish residents are here, and for everyone else in the UK are currently as follows:

Other allowances and bands to consider:

The different tax rates for Income and Dividends are as follows:

from 2022/23from 2022/23
IncomeDividends
Basic rate20%8.75%
Higher rate40%33.75%
Additional rate45%39.35%

Use up National Insurance allowances

National Insurance (NI) is payable by employers, employees, and the self-employed. Each of whom have different bands and rates to consider. As with income tax above, it’s best to use up lower bands and avoid higher bands. You need to have a salary or self-employed profits that exceed the lower earnings limit for the tax year, or voluntarily pay sufficient NI in the tax year, for it to be a qualifying year for your state pension. You need 35 qualifying years for a full state pension. If self-employed profits exceed the main threshold (was the lower earnings limit), a fixed amount of NI is payable at £163.80pa (was £158.60pa). Credits for the state pension will still be gained if profits exceed the lower earnings limit.

Below are the national insurance thresholds and rates for the 2022/23 and 2023/24 tax years. During 2022/23 the NIC rates were increased, then the NIC thresholds were increased, then the NIC rates were reduced! So there are slightly higher thresholds and slightly different rates of NIC as originally advised this time last year.

Self-EmployedSelf-EmployedEmployeeEmployeeEmployerEmployer
2023/242022/232023/242022/232023/242022/23
Lower earnings limit£6,725£6,725£6,396£6,396n/an/a
Main threshold£12,570£11,908£12,570£11,908£9,100£9,100
Main rate9%9.73%12%12.73%13.8%14.53%
Upper limit£50,270£50,270£50,270£50,270n/an/a
Upper rate2%2.73%2%2.73%13.8%14.53%

Check your National Insurance history now

As mentioned above, for a full state pension you need 35 qualifying years of employment or credits. You can check how many qualifying years you have on your personal HMRC online account. If it looks like you will fall short before your statutory retirement age, you may be able to make voluntary NI contributions to add missing years if they are recent enough. From 6th April 2023 the rules are restricted so you can only top up any missing years from just the previous 6 years. See here for more details.

Avoid earning over £50k


As well as paying higher tax rates on income over £50,270, any child benefit received needs to be paid back if income exceeds £50,000 for the year. If one parent or the other receives child benefit, and if one or the other parent has a total income of £50,000 or more, the higher earner will need to repay some or all of the child benefit. A proportion of it is repaid if the total adjusted income is between £50k and £60k. This can result in marginal tax rates of 60% for 2 children and over 70% for 4 children. If the repayment can’t be avoided, consider stopping the child benefit, as this may spare any need to file a tax return. To calculate the amount of child benefit to be repaid, your total income is adjusted down for any personal pension contributions and charity contributions. So you could pay more of these contributions to reduce your adjusted total income within the £50k – £60k band to save tax.


Avoid earning over £100k


When your total income exceeds £100,000 the tax-free personal allowance is gradually removed until you get no personal allowance when your income reaches £125,140 or more. In this band of total income, you have a marginal tax rate of 60% (i.e. your tax bill increases by 60p for every £1 your total income increases between £100k and £125k). Also, more benefits are removed such as tax-free childcare. As with the child benefit above, you could pay personal pension or charitable contributions to reduce your adjusted total income within the £100k – £125k band and save tax at 60%.

Claim Marriage Allowance


A spouse or civil partner who does not pay income tax above the basic rate for a tax year, can transfer £1,260 of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer does not pay income tax above the basic rate. This can potentially mean a reduction in tax liability of £252. 

Transfer assets to a spouse


If a spouse, or civil partner, pays tax at a different rate, consider transferring income-producing assets (e.g. savings, company shares, investment property) to give the income to the person paying at the lower rate.

Check your bank


If you have large sums of cash in ordinary accounts paying very little interest, consider moving cash to other accounts earning a higher interest rate. An Individual Savings Account (ISA) is tax free so make sure that ISA allowances have been fully utilised for all the family, where applicable.

Pay into savings


The ISA maximum subscription limit is currently £20,000 and there is no longer a restriction on the amount that may be invested in a cash ISA. The overall investment limits on ISAs mean that a couple could save a substantial amount in tax-efficient savings accounts. Any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year (until 50) and savers will receive a 25% bonus from the government on this money. Broadly, money invested in this type of account can be saved until the investor is 60 and used as retirement income, or it can be withdrawn to help buy a first home.


Junior ISAs are available to UK resident children (under-18s). Junior ISAs are tax-relieved and have many features in common with existing ISA products. The maximum annual subscription is currently £9,000. Investments may be made in any combination of qualifying cash or stocks and shares investments. Withdrawals are not permitted until the named child has reached the age of 18, except in cases of terminal illness. It’s possible to transfer Child Trust Funds (CTFs) to Junior ISAs.


Regular sums can be invested in National Savings (some products offer a tax-free return, which is particularly attractive to 40% and 45% taxpayers), banks and building societies. Those willing to accept the possibility of greater risk perhaps equalling greater reward might consider the stock market, stock market-linked investments or buy-to-let property.

Pay into pensions


Paying personal pension contributions can currently give tax relief at the individual’s highest income tax rate. Personal pension contributions are limited to your earnings. Employer pension contributions are not limited to earnings but give tax relief to the employer not the employee. Pension contributions are taxable if the total contributions into all of your pension schemes exceed an annual limit of £40,000 (or less if your total income exceeds £200,000). Unused £40,000 allowances from the previous 3 years can be brought forward and used in the current year if required, which would give a total allowance of £160,000 in one tax year. There is a lifetime pension limit of £1,073,100.


Consider paying into pensions for family members. The introduction of stakeholder pensions allow contributions to be made for all UK residents, even children, as there is no requirement to have any earnings. Consider making payments of up to £3,600 for family members, as the fund will grow in a tax-free environment. The net cost is only £2,880.

Sell some chargeable assets – allowances are reducing


Everyone has an annual capital gains exemption. The exemption is currently £12,300, however this is reducing to £6,000 for 2023/24 and to £3,000 for 2024/25. You are only taxed on total capital gains that exceed the annual allowance. Taxpayers should therefore consider selling taxable assets to make a capital gain up to this figure. Gifts between spouses and civil partners are tax free, so it is possible to double the yearly exemptions available by giving shares or other investments to a spouse or civil partner.


Realise losses

If you have shares standing at a loss, you should consider selling them so that the loss can be set against any gains made over and above the capital gains annual exemption. If you want to retain the investment, it could be bought back by the spouse or partner, within an ISA. It will not be tax effective for them to buy back the investment within 30 days of you selling it. In addition, care must be taken not to fall foul of anti-avoidance legislation which prevents loss relief being claimed where certain arrangements exist, the main purpose, or one of the main purposes, of which is to secure a tax advantage.


Capital gains tax may be deferred through the use of an Enterprise Investment Scheme investment.

Give to charity


Making charitable donations via the Gift Aid scheme is an effective way to reduce taxable income. If donations have been made, it is important that you ticked Gift Aid so that the charity can benefit from the basic rate tax relief. Higher rate taxpayers should make the necessary claim on their tax return for further relief. If future donations are planned, you may wish to bring these forward to on or before 5th April to ensure the tax relief is obtained at an earlier date.

Check your PAYE code


Employees should check that their PAYE tax code number for the following tax year is correct and ensure that any inaccuracies are amended.

Don’t get fined!


There are penalties and surcharges for submitting your tax returns late and for paying any tax due late. These penalties increase substantially over time so if you’re already late for the previous tax year, further delays will cost you more – see here.  If you have a second payment on account to pay as a result of the previous year’s tax return, that payment is due by this 31st July.


Your tax return for the year ending 5th April can be submitted soon after 5th April, so provide your details to us as soon as possible. Look out for our Tax Return Due emails later next month. The balance of tax due for the year ending 5th April plus potentially an extra 50% first payment on account will be due by 31st January. 

On the 17th of November 2022 the Chancellor Jeremy Hunt announced important changes to tax and spending. Most of this Autumn Statement 2022 was about increasing tax to reduce the amount the government needs to borrow. Here we explain how those tax increases could affect small businesses and individuals.

Autumn Statement 2022

Income Tax Thresholds

The Autumn Statement 2022 reduced the income threshold at which the additional rate of tax applies, from £150,000 to £125,140. This applies from April 2023. Anyone with total income over £125,140 will pay more tax of up £1,392 per year. It means that the higher rates of tax will apply to income between £37,700 and £100,000. A marginal rate of tax (20% higher than the applicable rate e.g. 60%) will apply to income between £100,000 and £125,140. That’s because the tax-free personal allowance is taken away in that band. Then the additional rate applies to income over £125,140.

Apart from dividend allowances, the other income tax thresholds have been frozen until 2028. So the tax-free personal allowance will remain at £12,570. Plus the basic rate of tax will apply to income above the personal allowances, up to a total income of £50,270.

Freezing the personal allowance and the higher rate threshold acts like a stealth tax. Effectively a tax increase without increasing the rates. As an individual’s income increases over time due to pay rises, but the tax thresholds don’t increase, they will be paying more tax and potentially move up to higher rates of tax.

National Insurance

The national insurance thresholds are also being frozen until 2028. So that’s another stealth tax. From April 2023 the class 2 rate paid by the self-employed will increase to £3.45 per week from £3.15. As previously announced, the 1.25% increase from July 2022 will end in November 2022.

Dividends

The dividend allowance means that an individual can receive a tax-free amount of dividends each year. This is being reduced in April 2023 from £2,000 to £1,000. In April 2024 it will reduce to £500. Despite the end of the 1.25% increase in NIC, there is no similar reduction to dividend tax rates. The dividend tax rates will continue with the 1.25% increase at 8.75%, 33.75% and 39.35%. For whether it is still worth trading as a company to save tax, see here.

Capital Gains Tax

Everyone has an annual exempt amount for capital gains. If you make any capital gains in a tax year you pay tax on the total gains that exceed the exempt amount. From April 2023 the capital gains annual exempt amount reduces from £12,300 to £6,000. Then from April 2024 it reduces to £3,000 for individuals or £1,500 for trustees.

Stamp Duty Land Tax

From April 2025 the recent changes to stamp duty, the tax paid when purchasing residential property, will revert back to their previous levels. So the nil-rate threshold will reduce from £250,000 to £125,000. The first-time buyers nil-rate threshold will reduce from £425,000 to £300,000. The maximum price for first-time buyers will reduce from £625,000 to £500,000.

Car Tax

From April 2025, electric vehicles will no longer be exempt from vehicle excise duty. The expensive car supplement will also start applying to new zero-emission cars.

The benefit-in-kind percentages for private use of company vehicles are increasing by 1% per year. Electric vehicles will reach 5%, ultra-low emission cars will reach 21%, and all other vehicles will go up to a maximum of 37%. These percentages are applied to the list prices to calculate the taxable value.

Research and Development

Various incentives are available for companies that incur qualifying expenditure on qualifying research and development projects. These include tax credits, and an extra deduction when calculating taxable profits/losses. From April 2023 the Research and Development Expenditure Credit will increase from 13% to 20%. The additional deduction for R&D expenditure will decrease from 130% to 86%. Also, the R&D credit for surrendering losses will decrease from 14.5% to 10%.

Other Business Taxes

The Autumn Statement 2022 also announced other measures that will affect large companies. Banks will pay an additional 3% tax on profits over £100m. The windfall tax on energy companies will increase from 25% to 30%. A temporary tax of 45% will be charged on certain low-carbon electricity generation, affecting those with high outputs and returns exceeding £10m.

Other Announcements

As well as changes that affect taxes, the Autumn Statement 2022 announced other measures that are likely to affect small businesses and individuals.

The national living/minimum wage rates will increase from April 2023 for the following ages:

The energy price guarantee which currently limits a typical household bill to £2,500 per year, will increase to £3,000 from April 2023. It will end in March 2024.

Import tariff’s for over 100 types of goods are being removed for 2 years.

Pensions and benefits will increase by the rate of inflation.

Here are the autumn statement 2022 headlines regarding tax from the chancellor’s statement on 17th November 2022. More details will be added in another blog post.

There was a mini budget in September that shocked the markets. The mini budget announced major tax cuts as well as confirming the energy price cap. The markets were not expecting such radical changes and reacted badly. For example the value of the pound dropped to record lows. As a result, the Prime Minister Liz Truss and the most recently appointed Chancellor, Jeremy Hunt, announced major u-turns to the mini budget. We explain what those u-turns are, what is staying, and whether you can still save tax as a company.

mini budget

Income Tax

The basic rate of income tax was going to be reduced from 20% to 19% from April 2023. This has been cancelled indefinitely, so the same reduction that was originally planned for April 2024 has also been cancelled.

Additional Tax Rates

The mini budget planned to abolish the additional tax rates on income over £150,000. For example the 45% income tax rates. This was cancelled so the additional rates will continue.

Corporation Tax

The mini budget cancelled plans to increase corporation tax in April 2023 from 19% to between 19% and 25% depending on profits. The increase will now go ahead. Companies with annual profits (divided by associated companies) of under £50,000 or over £250,000 will pay 19% or 25% corporation tax respectively. Companies inbetween those thresholds will pay a marginal rate somewhere between 19% and 25%.

Dividend Tax

Dividend tax rates increased in April 2022 by 1.25% in line with the increase to National Insurance rates. The mini budget proposed to reverse this increase from April 2023. However, this was cancelled so they will stay at the increased rates.

Energy Price Caps

This isn’t a tax but it affects everyone. The energy price cap for all domestic accounts was going to last for 2 years from October 2022 until September 2024. However, this will only be for the most needy from April 2023. We await an announcement about who or how the new price cap will apply.

IR35 Reforms

The IR35 rules for subcontractors were reverting to pre-2017 rules. This would mean that all subcontractors would decide for themselves whether or not the IR35 rules apply to them. However, this was cancelled so medium and large companies will determine whether IR35 applies to subcontractors.

Is anything staying?

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**PLEASE NOTE THAT MOST OF THE CHANGES BELOW HAVE BEEN CANCELLED**

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Following the chancellors mini budget on 23rd September 2022, you can save tax by delaying bonuses and dividends. You could also save tax by delaying loans, income, and IR35 contracts. Read below to find out what to do.

save tax by delaying bonuses and dividends

Save NIC by delaying bonuses

National Insurance Contribution (NIC) rates were increased on 6th April 2022 by 1.25%. This applied to employees, employers and self employed profits. It was actually a healthcare levy which was supposed to go directly to the NHS. But due to the short timescale to set up the levy NIC was increased temporarily. It affected the lowest earners the most, so it was controversial. As a consequence the threshold at which you start paying NIC was increased on 6th July 2022. The threshold is now equal to the income tax threshold of £12,570. This meant that the lowest paid were better off overall.

However, the mini-budget will reverse the NIC increase from 6th November 2022. So NIC is reduced by 1.25% for employees, employers and self employed profits. The increase to the threshold will not change, otherwise the lowest paid would end up worse off.

If you are planning on paying bonuses to employees soon, you should delay the bonus until after 6th November 2022. As a result, both the employee and the employer will pay less NIC on the bonus by 1.25%. So a bonus of £10,000 postponed from October to November will save an employee £125. Also, it will save the employer £125.

Delay dividends to save tax

Business owners save tax by trading as a company, compared to being self employed or an employee. They do this by paying: a low rate of corporation tax; a small tax-free salary; and dividends with either no tax or a low tax rate. Company owners effectively avoided paying any NIC, so saved tax overall. A few years ago the tax rates on dividends was increased by 7.5% to close the gap between company owners and the self employed. There is still a tax saving by using a company but not as much. When the government increased NIC rates in April 2022 by 1.25%, they also increased dividend tax by 1.25%. So the dividends rates increased from 7.5%/32.5%/38.1% to 8.75%/33.75%/39.35%. The reason for this was to maintain the gap between the tax paid by company owners and the self employed.

In the mini budget, the chancellor cut the tax rate on dividends back to old rates of 7.5% etc. Again this was to maintain the gap in the tax paid by company owners and the self employed. However, this change will not take affect until the new tax year starts on 6th April 2023.

So if you can save tax by delaying dividends from the year ending 5th April 2023 to the year starting 6th April 2023. Similar to the NIC savings, a shareholder delaying dividends of £10,000 will save £125.

Directors loans

One way to save tax by delaying dividends, is to take money from your company as a short term loan instead. If the company already owes you that money, it won’t affect your tax by repaying that loan to you. If you end up owing the company money, you can repay that loan by declaring a dividend at a later date and not physically paying that dividend. Instead of physically paying the dividend, you are repaying the loan you took.

For example, let’s say you planned to take a dividend of £10,000 in March 2023. It could cost you tax of £875. Instead, you could take a loan from the company of £10,000 in March 2023. Then from 6th April 2023, declare a dividend of £10,000 which will cost you £750. But don’t pay that dividend, just prepare the meeting minutes/resolution and the dividend voucher. That unpaid dividend will repay the loan taken.

However, if you end up owing the company more than £10,000, you will need to pay interest on the loan at the beneficial loan interest rates. Also, if you owe the company money at the end of its financial year, and it is not repaid within 9 months of that date, it will be taxable. The tax is paid by the company, and eventually repaid to the company after the loan is repaid. The tax payable on loans to directors/shareholders is at the higher rate on dividends at the time the loan was taken. So loans taken in the year ending 5th April 2023 will be taxed at 33.75%. Loans taken after that date are taxed at 32.5%.

So you could also save tax by delaying a loan taken from company from the 2022/23 tax year until the 2023/24 tax year.

Delay profits or income

In the mini budget the chancellor scrapped the planned corporation tax increase from 19% to 25%. So companies trying to increase profit in the 2022/23 tax year, no longer need to. For example, companies may have delayed investment expenditure until 2023/24 to save tax at 25% rather than 19%. Or they could have moved their most profitable work forward from 2023/24 to 2022/23 to pay tax on that work at the lower rate. This is no longer necessary.

However, the reduction of the basic rate of income tax from 20% to 19% means that non-companies could save tax by delaying income. Perhaps employee bonuses planned for March 2023 could be delayed until April 2023 to save 1% of tax. This change also affects self employed profits. So shifting profit from 2022/23 to 2023/24 will save tax at 1%. This could be done by bringing forward any investment in equipment. Or by delaying profitable work.

Delay IR35 contracts to save tax

Since 2017 (public sector) and 2021 (non-small private sector), contractors have determined whether a subcontractor is caught by IR35. That is the Off-Payroll Working rules, which meant the contractor and subcontractor had to pay the same taxes as if the subcontractor was an employee. Many organisations erred on the side of caution with this to ensure they met the regulations. As a result, many genuine subcontractors were taxed as employees despite having more risks and less benefits.

In the mini-budget, the chancellor proposed scrapping the new reformed IR35 rules. This means that from April 2023 all subcontractors can determine for themselves, whether or not they are caught by the rules.

It is unclear at the moment how the transition will work in practice, as many contracts will straddle the 5th April 2023. However, there could be an opportunity to delay a new contract until 6th April 2023 to ensure the subcontractor decides whether IR35 applies. A genuine subcontractor will pay less tax than an employee. This is to reflect the fact they have all the risks of running their own business, and none of the benefits of being an employee. So subcontractors could save tax by delaying a contract.

Other ways to save

As well as keeping our accountancy fees low – see how much you could save – we’re always looking for ways our clients can save tax. Get in touch with us so you can save too.

tax changes from mini budget

**PLEASE NOTE THAT MOST OF THE CHANGES BELOW HAVE BEEN CANCELLED**

SEE HERE FOR MORE DETAILS

Mini Budget Summary

We knew that the new Prime Minister wanted to cut income tax rates. She told us repeatedly. We did not expect action so soon after the appointment of the new Chancellor. We certainly did not expect the scrapping of the 45% ‘additional rate’ tax band for those earning over £150,000. In the ‘mini budget’ the new Chancellor, Kwasi Kwarteng, delivered a package of more than 30 measures. The intention is to tackle high energy bills, drive down inflation and cut taxes to drive growth. You can read full details on the mini budget here.

Income Tax changes

In April 2010 the government introduced an ‘additional’ tax rate of 50%. The additional rate reduced to 45% three years later. From 6 April 2023 it will be no more. The 40% band will now be the highest tax rate. The 13.7% ‘additional’ rate taxpayers will pay less tax. Also, now everyone will benefit from the £500 personal savings allowance. The level of personal allowances remains, meaning taxpayers earning more than £125,140 will still have no personal allowances.

The government also reversed the increase in dividend rates from 6 April 2023. So the tax rates of income tax in England and Northern Ireland will be:

Earnings band (after allowances)On earnings and profitsOn dividends
Basic rate (0 to £37,700)19%7.5%
Higher rate (above £37,701)40%32.5%
Additional rateAbolishedAbolished

This reduction/cancellation in tax rates is pleasing for the individual taxpayer. But it will affect tax relief given at source (currently at 20%) on pension contributions and Gift Aid donations. The government has confirmed that there will be a four-year transition period for Gift Aid relief. This is to maintain the income tax basic rate relief at 20% until April 2027. There is also a one-year transitional period for ‘Relief at Source’ pension schemes.

NIC changes

The rates of class 1 NIC will be back to the levels in place on 5 April 2022. But the rates imposed from 6 April 2022 to 6 November 2022 remain so there are two periods in the tax year. Firstly, for the first seven months (6 April to 5 November 2022). Secondly, for the remaining five months (6 November 2022 to 5 April 2023). The calculation means that over the year the main Primary rate payable by the employee will be 12.73%. That’s seven months at 13.25% and five months at 12%. The main Secondary rate payable by the employer will be 14.53% (15.05% and 13.8%). Corresponding rates of Class 4 NIC for the full tax year 2022/23 will be 9.73% and 2.73%. A reduction from 10.25% and 3.25% to 9% and 2% respectively.

The figures are as follows:

Employees’ class 1 NIC

12% on earnings in the band: £1,048 to £4,189 per month (£12,570 to £50,270 per year)

2% on earnings above £4,189 per month (£50,270 per year)

Employers’ class 1 NIC

13.8% on earning above £758 per month (£9,100 per year)

The employment allowance remains at £5,000.

Take care if payroll occurs around the changeover date. Depending on when software updates occur, the software could deduct too much NIC. Any net pay underpayment should be sorted out in the following payroll run.

Other key tax announcements

The statement included the reversal of a string of planned tax rises. Including the intended increase to 25% in the corporation tax rate originally set for 6 April 2023. This remains at 19%. The government also cancelled planned beer, wine, cider, and spirits duty rate increases. Overseas shoppers can now shop sales- tax free in the UK.

The Annual Investment Allowance provides a 100% tax deduction for up to £1m of equipment purchased in a year until 1 April 2023. But the government cancelled the cap reduction to £200,000 on 1 April 2023, keeping it at £1m indefinitely.

Queries remain over the application of the ‘super relief’. This is where qualifying expenditure on new plants and machinery incurred from 1/4/2021 to 31/3/2023 receives 130% tax relief. Thus creating an effective 24.7% tax relief on expenditure (130% x 19%). As the corporation tax rate remains at 19% from 1/4/2023, we emphatically await confirmation that this relief will remain.

The Enterprise Investment Scheme provides tax incentives for individuals to subscribe for shares in unquoted trading companies. It was due to end in 2025 but this will now continue for an undefined period. Similarly, Seed Enterprise Investment Scheme provides tax relief for investment in small trading companies. This also remains in place with increases in the annual investment caps of £100,000 per investor, £150,000 per company.

IR35 reversal

IR35 never really went away – the rules just changed. Now from 6 April 2023, another change means we are back to the original 2017 rules. So the government has scrapped the off-payroll working rules for public sector (from 6/4/2017) and for large private sector (from 6/4/2021). Consequently, it will now be up to the subcontractors to decide whether the IR35 rules apply. I.e. is there an employment relationship between the worker and the engager?

Stamp Duty Land Tax

From 23 September 2022, the SDLT threshold (on residential property) has doubled from £125,000 to £250,000. Consequently, there is no longer a 2% tax rate, saving purchasers a potential £2,500.

Our clients can get advice on any of the mini budget changes for no extra charge. That’s because we include advice in our monthly fixed fees which you can see on the Pricing page. You can also tailor an instant quote.