2022 was a highly confusing year for finance professionals (and, of course, the companies that rely on them for guidance and support).
With a government in chaos and a series of unprecedented U-turns to deal with, it was difficult to keep track of new legislation – particularly in terms of how much tax companies would be expected to pay in the coming tax year.
In keeping with the concept that being forewarned is forearmed, here are five of the key changes to the tax process that might affect your business in the period 2023/24.
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Your corporation tax bill may be increasing
The government has confirmed that corporation tax rates will be changing next year, in line with the original plan put in place by then-chancellor Rishi Sunak back in March 2021. This is despite interim prime minister Liz Truss and temporary budget-keeper Kwasi Kwarteng promising to cancel the rise during their ill-fated term towards the end of 2022.
Companies with non-ringfenced profits over £250,000 per year will be expected to pay a new 25% main corporation tax rate from April 2023.
Businesses with profits under £50,000 will need to pay the small profits rate (SPR), which will remain at 19%.
Organisations earning above £50,000 but under £250,00 will be able to claim marginal relief on the main corporation tax rate on a sliding scale. These lower and upper limits will be proportionately reduced for short accounting periods and in cases where companies own one or more associated companies.
This significant increase in corporation tax will affect many businesses of a certain size. That said, the government expects more than 1.4 million companies at the lower end of the earnings spectrum to continue paying 19% on their taxable profits (or, in fact, continue paying no corporation tax at all).
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QIPS is coming into full force
Larger companies – ie, those with taxable profits over £1.5million – will also soon be expected to pay their corporation tax in four equal instalments, on the fourteenth day of the seventh, tenth, thirteenth and sixteenth months following the start of their accounting period. This is what’s known as the quarterly instalments payments regime, otherwise known as QIPS.
Where there are other 51% group companies, the limit will be divided by the total number of group companies.
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Dividend tax is changing
If you are the director of a limited company and take some or all your earnings in dividends, there will soon be changes to the way these dividends are taxed.
Dividend taxes will be reduced slightly to 7.5% for basic rate taxpayers; 32.5% for higher rate taxpayers; and 38.1% for additional rate taxpayers. However, this will only occur in cases where your annual income exceeds your Personal Allowance. The Personal Allowance has been frozen at £12,570 until 2028. (This means you can currently earn up to £12,570 per year without paying a penny to HMRC.)
Additionally, the tax-free allowance for dividend income will be reduced as of April 2023. At the time of writing, directors can take up to £2,000 in tax-free dividends. This amount will be reduced to £1,000 in the coming tax year, and just £500 from 2024 onwards.
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The income tax additional rate thresholds will be adjusted
This is a particularly important change for anyone who currently earns £150,000 or more per year. As announced during the Autumn Statement, from 6th April 2023, the income tax additional rate threshold (ART) will be lowered from £150,000 to £125,140.
Bear in mind, too, that anyone who earns over £100,000 will lose £1 of their Personal Allowance from every £2.
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NICs are changing to better cover health and care
The 1.25% increase in National Insurance contributions (NICs) that came into effect back in April last year will be removed on 6th April 2023. This levy will be turned into a separate tax instead. This change won’t affect the amount your staff are paying into their NICs, but when reviewing their wage slip, they will be able to see just how much of this total is planned to go towards the NHS and other health and social care settings.
For more help preparing for the 2023/24 tax period, along with specialist support from one of our part-time finance directors and financial consultants, contact Dartcell today.