24 Apr Spring 2023 Update from your Accountant
Here to help your business flourish
It’s the start of spring and another fiscal year 6 April 2023 to 5 April 2024. So you can plan ahead, we thought you might like a reminder of some of the main tax changes that may affect you and your business.
If there is anything we can do to help you make some tax efficient fiscal decisions of your own, please do get in touch firstname.lastname@example.org
Personal Tax 2023/2024
Let’s start with personal tax:
- the personal tax-free allowance remains the same at £12,570, hence ignoring increase in the cost of living.
- the higher rate 40% starting salary is also frozen at £50,271 thereby not taking into account any inflationary increases in income.
- the 45% tax threshold was lowered from £150,000 to £125,140, resulting in a wider net of taxable income.
- the tax-free allowance for dividends is reducing from £2000 to £1000
- in addition, the dividend tax rate increased by 1.25% making the new rates 8.75% for basic-rate, 33.75% for higher-rate and, 39.35% for additional-rate taxpayers.
- the annual exempt amount for capital gains was reduced from £12,300 to
£6000 for 2023/24
- Pension savings thresholds increased from £40,000 to £60,000
- Isa Investment limits remains at £20,000
- Inheritance tax thresholds and rates remain unchanged until 2027/28
Limited Company Tax 2023/2024
Moving onto taxes relating to limited companies
- Corporation Tax on profits below £50,000 remains at 19%.
- From 1 April the corporation tax rate increased to 25% for profits over
£250,000 with a sliding scale of Corporation Tax for profits in-between the two rates.
- Super deductions for qualifying capital expenditure came to an end on 31 March 2023 but, it’s being replaced by 100% first-year allowance from 1 April 2023 for the following 3 years. The good news is there is no upper limit to this.
Most Tax Efficient Combination of Salary and Dividends for Owner/Manager Businesses
If you are an owner and manager of a business (“OMB”) that is a limited company, you are entitled to earn a salary as an employee/director and receive a dividend as a shareholder. So depending on your needs and the business’ circumstances you can decide how much to pay yourself.
The most tax efficient way to take an income from your profitable limited company is through a combination of a low salary, topped up with dividends. Things to take in to consideration from a tax perspective are:
- Salaries are charged as an expense against profits but dividends are a distribution of available profits and so not an expense.
- Employees national insurance (“NI”) and personal tax is paid by an employee above the personal allowance of £12,570
- Employers NI allowance of £5,000 is available for companies that have 2 or more employees
- The Lower earnings limit of £6396 for 2023/24 allows individuals to qualify for state pension
- The secondary threshold before Employer’s NI paid is £9,100 per employee
If you are a sole employee then you will not have employer’s allowance of £5000 available to cover employer’s NI contributions and so you may want your annual salary to be at its lowest.
Taking a salary higher than the lower earnings limit of £6396 up to the primary threshold of £9,100 allows directors to build up qualifying years for state pension without paying any NI. Thus a salary of £9,100 is chargeable against corporation tax with a saving of 19% for smaller companies of £1,729. The remainder of income can be taken as dividends which attract a different tax rate, but there is no additional NI contributions and the first £1,000 dividends is free of income tax.
OMB’s with more than 2 employees
Where an 0MB has a greater number of employees, the employers allowance of
£5000 can be used against employers NI and so the salary can be increased up to the personal allowance and primary threshold of £12570, giving a saving on corporation tax at 19% of £2,422.50 without having to pay any Employee or Employer NI contributions as long as Employers NI is below the £5000 limit.
Of course if you have other income, or losses in the business, company contributions to directors’ personal pensions, or other complexities to add to the mix, then a bespoke tax plan may be required.
Please do email us email@example.com if you need help with this.
National Minimum and National Living wage rates
1 April 2023
The annual increase in NLW and NMW rates that apply from 1 April 2023 are set out below:
If you operate payroll through Xero remember to tick the employment allowance box to reclaim your Employers NI allowance back throughout the year.
A Touch of Good News
Chancellor Hunt announced an exceptional expansion in free childcare for all eligible working parents. This will go forward beginning April 2024 when parents of 2-year-olds can access 15 hours of free childcare per week. From September 2024 this shall be extended to parents of 9 months- 2-year-olds benefitting parents of up to 640,000 children. Finally, from September 2025 15 hours shall increase to 30 hours for children aged 9 months to 4 years old.
Gaps in your Pension contribution
Voluntary National Insurance
Anyone who is retiring on or after 6 April 2016, under the ‘new State Pension’ rules, requires approximately thirty five qualifying years to claim the full state pension.
The U.K. government has extended the voluntary National Insurance contribution deadline from 5 April 2023 to 31 July 2023.
You or your family/friends could have gaps in your contributions if you don’t pay National Insurance or do not receive National Insurance credits. This occurs if you were:
- Employed but had low earnings
- Self-employed but did not pay contributions due to low profits
- Unemployed and not claiming benefits
- Living or working outside the UK
Some assistance, please….
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We hope our news and updates are helpful and if you would like more information
on these or any other financial and business related topics, please do give us a call or drop us an email. We are here to help you grow your business.
The Team at Rajani & Co.
Tel: 01933 276327