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.
- 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.)
- 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.
- 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.
- Super Deductions
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.