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Menu MenuHere’s our Q&A on Making Tax Digital (MTD) for Income Tax. It covers upcoming HMRC regulations, key questions you might ask, recommended software (with indicative costs), and how we can assist with fixed-fee support. Let’s dive right in:
MTD for Income Tax is HMRC’s initiative to digitise the way sole traders and landlords report their self-employment and property income. Instead of submitting a single end-of-year return, taxpayers must now keep digital records and send quarterly updates via HMRC-approved software, culminating in an annual final declaration.(totallandlordinsurance.co.uk, Quality Company Formations, British Business Bank, Xero)
If you’re impacted, you must:
HMRC requires commercial, approved software capable of:
Popular compatible solutions include:
Some key highlights:
MTD aims to:
We offer fixed-fee packages for both quarterly submissions and final annual declarations under MTD:
| Question | Answer |
|---|---|
| What is MTD for Income Tax? | Digital quarterly reporting & declaration for sole traders and landlords |
| Who is affected & when? | Income >£50k (Apr 2026), >£30k (Apr 2027), >£20k (Apr 2028) |
| Reporting requirements? | Digital records, 4 quarterly updates, 1 annual final declaration |
| Software options & costs? | £15–£35/month for accounting suites; GoSimpleTax ~£65/year |
| Penalties? | £200 on 4 or more missed deadlines |
| How we help? | Fixed-fee services for quarterly & annual MTD compliance |
MTD for Income Tax marks a significant shift—but you’re not alone. With the right software and our fixed-fee support, you can make the transition smoothly and confidently. Check our fixed-fee packages on our Pricing page.
The current tax year will end on 5th April 2025, so now is a good time for you to check that you’re not going to pay more tax than necessary this tax year and during the next tax year.
HIGHLIGHTS – FROM 6TH APRIL 2025:
Below are some suggestions to consider first for directors/shareholders only, then for everyone.
DIRECTORS/SHAREHOLDERS ONLY
Background information
A Recap
It’s important to remember that your company is a completely separate entity from you and is taxed differently. A company pays corporation tax on its profits and National Insurance Contributions (NIC) on salaries. You personally pay income tax and NIC on salaries received as a director or employee, and income tax on dividends received as a shareholder (owner) of a company. However, the way you take money from your company may affect the company’s tax, so it’s important to consider all taxes when you decide how to pay yourself. A company usually pays salaries to directors, and has the option of paying dividends (if there is any profit) to its shareholders. Your company’s taxable profit includes a deduction for salaries and most expenses but not for dividends. So salaries will reduce corporation tax but dividends don’t affect it.
Corporation Tax Rates
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 19% for companies with annual taxable profits that are less than a lower threshold. Companies with annual taxable profits of over an upper threshold will pay tax at 25%. Companies between these thresholds will pay a tapered rate of between 19% and 25%. The lower and upper thresholds are £50,000 and £250,000, however these thresholds are divided by the number of associated companies plus one. 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, or if there is a commercial relationship and adding close relatives’ shares means there is common control. Click on the links for more information on the new corporation tax rates and what is an associated company?
Tax on what you take from your company
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.
Small salary plus dividends
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%), employee NIC (8% then 2%), employer NIC (15%) 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 employee 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 2025 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:
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 following 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.
Double Cab Pick Up
If your business relies on the use of a Double-Cab Pick Up (DCPU) vehicle consider replacing it before 1st April 2025. DCPUs purchased after this date will be taxed as if it a car rather than a van, which means significantly less capital allowances and significantly more benefit in kind tax. The current tax treatment will apply to contracts entered into before 1st April 2025 and completed before 1st October 2025.
A DCPU purchased before 1st April 2025 will be taxed as a van until either: it is disposed, the lease expires, or April 2029 (whichever happens first). If you have a company owned Double-Cab Pick Up vehicle, consider selling it before then because it (and the fuel) will be taxed as if it is a car rather than a van. You could replace it with an actual van, a tax-efficient electric car, or use a personal car and claim 45p (or 25p) per business mile for up to 10,000 miles (or more) per tax year.
The Changes
The main changes on 6th April 2025 are:
So paying an employee £10,000pa could potentially cost an employer £625 more per year, however, the smallest employers won’t need to pay any Employer NIC due to the Employment Allowance of £10,500. So an employer with 14 employees each receiving £10,000pa wouldn’t pay any NIC. If employees are paid £20,000pa you’ll start paying NIC if you have 5 employees. The Employment Allowance is not available to an employer whose only employee earning over £5,000pa is a director. The Employment Allowance is shared between connected companies.
Even if you do have to pay Employer NIC, you will still pay less tax overall by taking a small salary plus dividends. With company profits of £50,000 (per director/shareholder) the saving from paying all of the profit out as salary and dividends instead of just salary is just under £5,000 if the corporation tax rate is 19%, or just under £3,000 if the corporation tax rate is 25%.
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 2025 our advice is that each director/shareholder should take money from the company in the following order:
This assumes you have no other income (excluding point 1) 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
A Recap
Everyone receives a tax-free personal allowance of £12,570. Income above that is taxed at different rates depending on the type of income it is and which tax band that income falls into, and whether you live in Scotland or the rest of the UK. Earned income, such as a salary or self-employed profit, use up your tax bands before investment income, such as interest and dividends. For example, if you have a £50,270 salary and £40,000 dividends all in one tax year, all of the salary uses up your basic rate band, so will all be taxed at the basic 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 £500 which is tax-free).
Tax Bands
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 Welsh 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:
| Income | Dividends | |
| Basic rate | 20% | 8.75% |
| Higher rate | 40% | 33.75% |
| Additional rate | 45% | 39.35% |
Employers beware
Please refer to The Changes section above for details of changes to Employer NIC rates and thresholds that affect you too.
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 are below the lower earnings limit you need to voluntarily pay class 2 NIC to make it a qualifying year for your state pension. Class 2 NI is £179.40pa for 2024/25 and £182.00pa for 2025/26.
Below are the national insurance thresholds and rates for the 2024/25 and 2025/26 tax years.
| Self-Employed | Self-Employed | Employee | Employee | Employer | Employer | |
| 2025/26 | 2024/25 | 2025/26 | 2024/25 | 2025/26 | 2024/25 | |
| Lower earnings limit | £6,725 | £6,725 | £6,396 | £6,396 | n/a | n/a |
| Main threshold | £12,570 | £12,570 | £12,570 | £12,570 | £5,000 | £9,100 |
| Main rate | 6% | 6% | 8% | 8% | 15% | 13.8% |
| Upper limit | £50,270 | £50,270 | £50,270 | £50,270 | n/a | n/a |
| Upper rate | 2% | 2% | 2% | 2% | 15% | 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.
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 now £60,000. Child benefit needs to be fully repaid if a parent’s income exceeds a higher HICBC threshold which is now £80,000. 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 it is repaid if his/her income is between the thresholds. This can result in high marginal tax rates e.g. 50% for 2 children and over 60% for 4 children (i.e. your tax bill increases by 50p or 60p 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 50% or more. The plan is to base the HICBC on total family income from 2026 to make it fairer.
Avoid earning over £100k
When your total income exceeds £100,000 the tax-free personal allowance is gradually removed until you receive 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% on earned income or 53.75% on dividend income (i.e. your tax bill increases by 60p or 54p 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.
Claim Tax-Free Childcare
Eligible parents can claim tax-free childcare by paying into a TFC account up to £8,000pa per child up to age 11 (£16,000pa per disabled child up to age 16). The government then adds 25% of what you pay in (i.e. up to £2,000pa or £4,000pa). That account can only be used to pay for approved childcare. You and your partner must be working at least 16 hours per week and must not earn over £100k.
Pay into savings
Savings 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 investment 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. The overall investment limits on ISAs mean that a couple could save a substantial amount in tax-efficient savings accounts. Any adult under the age of 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year (until the age of 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 reaches the age of 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 from all sources 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, £60k and £40k) can be brought forward and used in the current year if you exceed your annual limit, which could give a total allowance of £220,000 in 2025/26.
Consider paying into pensions for family members. The introduction of stakeholder pensions allows 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 a business – tax rates are increasing
The capital gains tax rate when selling most small businesses is increasing from 10% to 14% on 6th April 2025. These lower rates are available if you qualify for Business Asset Disposal Relief (formerly Entrepreneurs Relief). If you are in the process of selling a business or can sell one quickly, doing so before 6th April 2025 could save you 4% tax on the gain.
Sell some assets – tax rates have increased
The capital gains tax rates were increased immediately following the budget in October 2024 from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. So you can save even more tax by selling some assets each year rather than waiting to sell them all at once. Everyone has an annual capital gains exemption of £3,000 and you are only taxed on total capital gains that exceed that 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 but only if you pay any income tax. If donations have been made and you pay income tax, tick the Gift Aid box 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.
Gift early or small to avoid Inheritance Tax
Inheritance tax is charged at 40% on the value of an estate exceeding the nil-rate band. Lifetime gifts are taxed at 20% if the donor dies within 7 years of the gift. Lifetime gifts can be tax-free if the donor lives at least 7 years after the gift. Small gifts can also be tax-free because each person also has an annual exemption on gifts which is £3,000. So gifts totalling up to £3,000 per year (plus any allowance not used in the previous year) will not be treated as a lifetime gift. In addition each person can give as many gifts as they like of up to £250 per person each tax year without it affecting their annual exemption or lifetime gifts. Birthday and Christmas gifts out of normal income are exempt.
Get married to avoid £200k Inheritance Tax
Each person has a nil-rate band of £325,000 plus a further £175,000 on home, which means there’s no inheritance tax (IHT) to pay if that person’s estate is worth £500,000 or less. However, any assets left to a spouse/civil partner are exempt from IHT. Also, any unused nil-rate band is passed onto a surviving spouse/civil partner. So a couple with an estate of £1m can leave £0 IHT to be paid if they were married, or if they were not married IHT of £200,000 would be payable (£1m estate minus £0.5m nil-rate band at 40%).
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 2025 can usually be submitted from early in May 2025, and must be submitted by 31st January 2026. Look out for our Tax Return Due emails which will be sent by the end of April 2025. The amount of tax owed for the year ending 5th April 2025 (minus any payments on account and PAYE) will be due by 31st January 2026. If applicable, 50% of the amount of tax owed is payable as a payment on account which is also due by 31st January 2026. The other 50% payment on account will be due by 31st July 2026.
Feedback
As always, we welcome any feedback about this email or anything else. Did you find this email useful? Is there anything that could be made clearer? Do you think we could add anything useful? Thanks for your time reading it.
See our 2025 tax planning post here.
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.
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:
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:
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 2022/23 | from 2022/23 | |
| Income | Dividends | |
| Basic rate | 20% | 8.75% |
| Higher rate | 40% | 33.75% |
| Additional rate | 45% | 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-Employed | Self-Employed | Employee | Employee | Employer | Employer | |
| 2024/25 | 2023/24 | 2024/25 | 2023/24 | 2024/25 | 2023/24 | |
| Lower earnings limit | £6,725 | £6,725 | £6,396 | £6,396 | n/a | n/a |
| Main threshold | £12,570 | £12,570 | £12,570 | £12,570 | £9,100 | £9,100 |
| Main rate | 6% | 9% | 8% | 12%/10% | 13.8% | 13.8% |
| Upper limit | £50,270 | £50,270 | £50,270 | £50,270 | n/a | n/a |
| Upper rate | 2% | 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.
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.
£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.
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 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 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.
About Us Our Prices Instant QuoteOn 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.
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Copyright © CloudBook Accountants. All rights reserved.
44 Ruskin Drive, Newcastle Upon Tyne, NE7 7FL
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.
More details will follow here soon.
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Copyright © CloudBook Accountants. All rights reserved.
44 Ruskin Drive, Newcastle Upon Tyne, NE7 7FL
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.
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.
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.
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.
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%.
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.
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%.
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.
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.
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.
About Us Our Prices Instant QuoteThe 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.
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:
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:
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 2022/23 | from 2022/23 | |
| Income | Dividends | |
| Basic rate | 20% | 8.75% |
| Higher rate | 40% | 33.75% |
| Additional rate | 45% | 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-Employed | Self-Employed | Employee | Employee | Employer | Employer | |
| 2023/24 | 2022/23 | 2023/24 | 2022/23 | 2023/24 | 2022/23 | |
| Lower earnings limit | £6,725 | £6,725 | £6,396 | £6,396 | n/a | n/a |
| Main threshold | £12,570 | £11,908 | £12,570 | £11,908 | £9,100 | £9,100 |
| Main rate | 9% | 9.73% | 12% | 12.73% | 13.8% | 14.53% |
| Upper limit | £50,270 | £50,270 | £50,270 | £50,270 | n/a | n/a |
| Upper rate | 2% | 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.
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.
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.
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.
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.
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.
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.
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%.
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.
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.
About Us Our Prices Instant QuoteHere 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.
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.
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.
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 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.
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.
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.
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