Having looked at companies in my last blog, now we turn our attention to what you need to be thinking about in 22/23 to ensure you are running your self-employed business tax efficiently?

Ensure your profit is accurate

This may sound obvious – but be sure that you are keeping an accurate record of all your business costs to offset against your income.  Use one bank account for all your business transactions, otherwise you will forget that you spent £6 on parking last week, and you bought some printer Ink from Amazon, along with the other personal items.  These small amounts add up and if your profits are overstated, you will pay more tax than necessary.

Claim all relevant costs

Are you including in your accounts a charge for working from home, and for using your car for work?  You can look back at my previous blogs to see how to calculate these costs.

Marriage Allowance

If your profits are low, and you haven’t utilized all your Personal Allowance for the year, then if you are married you may be able to transfer part of your allowance to your partner and save tax overall as a couple. You can apply online and backdate your application to previous years if relevant. www.gov.uk/marriage-allowance

What rate of tax are you paying?

If you are a higher rate taxpayer then you could consider these measures to reduce your tax bill:

Pension contributions – you will receive a further 20% tax relief for making a pension contribution which you claim on your tax return.  You can contribute up to £40k a tax year, and use up to 3 years previously unused contributions.

Charitable donations – by donating to a charity under Gift Aid, you can claim 20% tax relief on your donation through your tax return.

Your business structure – if all your income is coming from your self-employment and you are paying higher rate tax, it may be time to think about transferring your business to a limited company, where you have more tax planning options available to you.

Payments on account

If your tax bill is over £1,000 in a year, then you need to make payments on account of your next year’s tax bill during the year.  These are based on the profit of your business last year.  If current year profits are lower, then consider making a claim to reduce your payment on account to avoid overpaying tax during the year.  Better still, get your tax return done quickly (your 21/22 tax return can be done now) so you have accurate figures and know what your tax bill in July 22 and Jan 23 will be.

If you require any further information or advice, then please contact Rosie Forsyth.

It’s the start of the tax year – which means a few changes to tax rates and allowances.  Company owners will need to consider how these changes may affect their businesses during the year.

This blog focuses on the tax changes that affect limited companies and what directors need to be thinking about during the year.

1. Increase in National Insurance Rates and Thresholds

   The NIC rate has increased by 1.25% this year: employees NIC is now 13.25% and employers NIC 15.05%.  Companies, already facing upward pressure on wages, will see payroll costs increasing, and employees will see a reduction in their net pay.

   However, the point at which employees start to pay NIC is increasing to £12,570 from July to align with the personal allowance.  Lower paid employees may therefore be taken out of tax and NIC altogether.

   For companies with more than one employee, the employment allowance is available and has increased to £5,000 (from £4,000.)

2. Increase in dividend tax rates

   The dividend tax rate has also increased by 1.25% – to 8.75% for the basic rate taxpayer, and 33.75% for a higher rate taxpayer. Directors who extract funds from their business as dividends will therefore face increased personal tax bills.

3. Increase in corporation tax rates from April 23

   The current rate of corporation tax is 19%. This is increasing from next year for companies with profits over £50k.  For a company with profit over £250k, the rate of corporation tax is increasing to 25%.  For companies with profits between £50k and £250k, there will be a marginal rate of tax falling between the 2 rates.
   Whilst this increase is still a year off, directors will need to plan ahead and budget for the increase.

4. Super Deductions

   Whoohoo-sounds exciting!

   Super deductions are a new, more generous capital allowance for companies investing in assets. For qualifying assets (eg IT, office equipment) companies will get 130% deduction against profits for the cost of their investment.   For example, purchasing a £1,000 computer will give you a deduction against profit of £1,300.

   The super-deduction capital allowance is only available until 31 March 23 and directors should therefore consider bringing forward any expenditure on assets to benefit from the allowance.

Given the increases in NIC, dividend tax and corporation tax, directors need to carefully consider the best way to extract money from their companies to maximize tax efficiency.

Company pension contributions are tax efficient with no tax or NIC for the director, and an allowable cost for corporation tax.

Tax free benefits could also be considered, such as electric cars, company mobile phones and trivial benefits.

For directors who have lent money to their companies, consider charging interest on that loan to utilise available savings allowances.

For more information or advice on tax changes affecting companies this year, then please contact Rosie Forsyth.