Make use of allowances and plan ahead for Corporation Tax changes

by Michael Blaken

Published on 1st March 2023

We’re nearing the end of the financial year, so now is the time to make the most of tax allowances and plan for the next year.

One major change being introduced from April 1 is the increase in Corporation Tax, to up to 25 per cent, depending on profits. This means, businesses should plan now to mitigate their Corporation Tax burden.

From April 1, Corporation Tax rises from 19 per cent to 25 per cent, affecting companies with profits of £250,000 and above.

Smaller companies, with profits of up to £50,000, will continue to pay Corporation Tax at 19 per cent, with marginal relief in between. 

However, there is a significant change for business owners with more than one company – known as ‘associated companies’ – and how these will be dealt with for Corporation Tax purposes.

Where a business owner controls more than one company, HMRC has reintroduced the rule, whereby the tax brackets of £50k to £250k are divided by the number of associated companies.

If the owner has two companies, £50k and £250k brackets will be divided by two. Therefore, instead of paying the top rate of Corporation Tax at £250k, the higher rate kicks in at £125k – in effect, paying a higher rate on a lower level of profits. Where owners have multiple companies this could increase their tax liabilities considerably.

Clearly, company owners and directors need to be aware of this change and put plans in place to offset any increase in their tax burden.

Super Deduction Scheme ends

The Government’s Super Deduction Scheme, giving tax breaks to businesses investing in plant and machinery, comes to an end on March 31, so the clock is ticking for anyone wanting to take advantage of the scheme.

Companies investing in qualifying new plant and machinery assets can claim a 130% super-deduction capital allowance and a 50% first-year allowance for qualifying special rate assets.

Making use of annual allowances

The are some other allowances you could be looking to make maximum use of, before the new financial year.

If you have an ISA, make sure you have paid in the maximum to make use of the tax-free allowance available. The allowance for 2022/20223 is £20,000.

If you have control over your level of income, ensure you have made full use of your personal allowance, which for 2022/2023 is £12,570.

Shareholders and directors should make sure they take their tax-free dividend allowance, which is currently £2,000 (and will be dropping to £1,000 in April 2023 and £500 in April 2024).

The annual Capital Gains Tax allowance is £12,300, which means that if you are planning to sell an asset, the first £12,300 you make in profit is tax-free. However, if you have already reached your CGT allowance, you might want to defer its sale until the new tax year. However, another change that was announced in the Autumn Budget was the halving of this rate consecutively in the next two tax years; £6,150 in 2023/24 and £3,075 in 2024/25.

Pension contributions are £40,000 per year per person. If you haven’t reached this, subject to your personal financial circumstances, you might want to pay in more before the new tax year. Make sure you speak to your financial adviser for help on this.

If you would like some help or advice with end-of-year tax planning, or the changes in Corporation Tax, please get in touch with the tax team.

We work with business owners in Swindon, Wiltshire, Cheltenham, Gloucestershire, and the surrounding area.

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