CORPORATION TAX
The planned corporation tax reforms are going ahead. From 1 April 2023, the rate of corporation tax that you pay will depend on the amount of your taxable profits.
If you are a standalone company with profits of more than £250,000 you will pay corporation tax at a rate of 25% from 6 April 2023. A small profits rate of 19% applies where the profits of a standalone company are £50,000 or less. Where profits are between £50,000 and £250,000, the effective rate is between 19% and 25%. In this band, corporation tax is payable at the rate of 25% as reduced by marginal relief.
If your company has associated companies, the £50,000 and £250,000 limits are divided by the number of associated companies plus 1. The limits are also proportionately reduced where the accounting period is less than 12 months.
If your accounting period straddles 1 April 2023, you will need to apportion your profits and work out the corporation tax separately for the period before 1 April 2023 and the period on or after 1 April 2023. We can explain how the changes to the rules impact on the amount of corporation tax that you will need to pay.
INCOME TAX
The additional rate threshold is to fall from £150,000 to £124,140 from 6 April 2023. The personal allowance and basic rate band will remain unchanged, at respectively, £12,570 and £37,700, until 6 April 2028. The tax rates are also unchanged for 2023/24, remaining at 20%, 40% and 45%.
Where income in 2023/24 is likely to be between £125,140 and £150,000, consideration should be given to whether it is possible to advance income so that it is taxed in 2022/23 at 40% rather than in 2023/24 at 45%.
DIVIDEND TAXATION
The dividend tax rates were increased by 1.25% from 6 April 2022 as part of a package of measures to fund health and adult social care. Despite the cancellation of the Health and Social Care Levy, the dividend tax rates will remain at 8.75% where the dividends fall within the basic rate band, at 33.75% where the dividends fall within the higher rate band and at 39.35% where the dividends fall within the additional rate band.
Dividends sheltered by the dividend allowance are tax free. The dividend allowance is set at £2,000 for 2022/23. However, it is to fall to £1,000 for 2023/24 and to £500 for 2024/25.
If you operate your business as a personal or family company and extract profits in the form of dividends, this will affect you. We can help you formulate a tax-efficient profit extraction strategy and explain the impact of the reduction in the dividend allowance.
CAPITAL GAINS TAX
The capital gains tax annual exempt amount is the amount of net gains that can be realised each tax year before capital gains tax is payable. Where you are planning to dispose of assets which will realise a chargeable gain, consideration should be given to the timing of the disposal.
The annual exempt amount is set at £12,300 for 2022/23. It is to fall to £6,000 for 2023/24 and to £3,000 for 2024/25. Speak to us to find out how the reduction in the annual exempt amount will impact on the amount of capital gains tax that you will need to pay.
