Thursday, February 16, 2023

Business tax in 2023/24

 Like personal taxes, the planned business tax changes for 23/24 have been revised on several occasions and we could still see further alterations in the forthcoming budget. Fortunately we are only dealing with UK wide taxes for the most part which makes it a bit easier. Here's where we seem to be today.

The rate of Corporation tax for 23/24 will rise to 25% for companies earning over £250,000. Companies earning up to £50,000 pay 19% and a marginal rate will apply between £50,000 and £250,000. The effective rate of tax within this band is 26.5%.

The secondary threshold for National Insurance, like the primary threshold, has been frozen for the foreseeable future. This will result in significant real increases in NI payments from employers. Fortunately the primary threshold has been re-aligned with the income tax personal allowance which may allow for some increase in salaries for owner-directors. Sadly the amount of dividend these individuals can take tax free is dropping significantly.

Careful consideration of the remuneration packages for owner-directors will be needed especially for those companies close to, or within, the marginal rate of corporation tax where capital allowances may also be important to assist the maximisation of tax allowances and the minimisation of effective tax rates.

Personal tax in 2023/24

 You may well be confused about the likely tax changes which will have an effect in the new tax year - you are not alone. In the following paragraphs we'll try to summarise the main changes which are likely to occur - not with absolute certainty because we still have another UK budget to come and a Scottish budget to be confirmed!

Income tax bands and allowances have mostly been frozen for the foreseeable future in both Scotland and the UK. The only major change is the reduction in the amount of income you can earn before paying the top rate of tax - 45% in the UK and 47% in Scotland. This rate will come into play for taxable income above £125,140. Looks like a silly number but it has been set to coincide with the point at which the personal allowance has disappeared. No change in the main UK rates of tax but the Scottish higher rate should rise from 41% to 42% and the top rate from 46% to 47%.

Allowances and rate bands have also been frozen for National Insurance and for Inheritance tax but the annual allowances for dividends and capital gains will be cut. The CGT allowance drops in April from £12,300 to £6,000 then to £3,000 in April 2024. The dividend allowance drops from £2,000 to £1,000 in April then to £500 the following year. Don't be surprised if the tax free allowances for interest and others fall in April 2024 as well. The changes in CGT are likely to prove expensive and it may be beneficial to trigger some gains in the current tax year to utilise the current level of allowance.