Three relevant factors you need to know about the upcoming Corporation Tax increase

In his March 2021 spring statement, former chancellor Rishi Sunak announced a 6 percentage point Corporation Tax increase that would come into place in April 2023.

While that may have seemed a million miles away for business owners at the time, the 2023/24 tax year will shortly be upon us. Soon, many business owners will see their Corporation Tax bill rise from 19% to 25%.

However, this rise doesn’t apply to all businesses – and will have a varied impact on different companies depending on:

• The amount your business generates in non-ringfenced profits each year
• Your business’s allowable expenses.

If you are a business owner anticipating a larger Corporation Tax bill from April 2023 onwards, you could be concerned about managing both your personal and corporate wealth in the coming years.

If you have questions about the impact this rise may have on your wealth, you are in the right place. Read on to find out three relevant factors business owners should know about the upcoming Corporation Tax increase.

1. Corporation Tax is set to rise from 19% to 25% for many businesses in April 2023

Whether or not your company will see a Corporation Tax increase this April depends on the non-ringfenced profits it earns each year.

The below points exemplify which businesses will be affected, and how severely.

• Businesses with more than £250,000 a year in non-ringfenced profits will see their Corporation Tax bill rise from 19% to 25%.
• Companies with profits between £50,000 and £250,000 will see a tapered increase of their tax bill. For example, according to the IT Contracting Corporation Tax calculator, a business with £75,000 profits would see their bill rise from £14,250 to £16,125.
• Businesses turning less than £50,000 in profit will see no change in their Corporation Tax bill.

So, if you run a small business, it could be your tax bill isn’t affected at all. However, medium and larger businesses are likely to experience either a tapered rise, or the full 6 percentage point Corporation Tax increase.

2. Keeping up employer pension and National Insurance contributions can help mitigate your Corporation Tax bill

If your business is set to receive a higher tax burden from April 2023 onwards, you might be searching for ways to bring your bill down overall.

One simple and effective way to mitigate your Corporation Tax bill is to pay as many employer pension contributions, and as many National Insurance contributions (NICs), as you can.

Indeed, employer pension contributions and NICs are seen as an “allowable expense” by HMRC – meaning when you pay into an employee’s pension, the amount you spend is usually deducted from your profits when it comes to calculating your Corporation Tax bill.

All in all, matching employee pension and NIC contributions, or agreeing on a salary exchange with some key employees, could help mitigate the effects of the Corporation Tax rise.

In fact, according to Unbiased, this strategy could save up to 25% tax on these pension payments and NICs.

What’s more, pension contributions and NICs are not the only allowable expenses you can utilise. Others usually include:

• Business insurance
• Stock bought with the purpose of resale
• Employee salaries
• Corporate travel expenses
• Training costs
• Accountancy fees.

Claiming these expenses when paying your Corporation Tax bill could lessen your liability and bring you peace of mind in the coming years.

3. Working with a Kellands financial planner can help you manage both your corporate and personal wealth this year

Even with ample time to prepare, anticipating a 6 percentage point rise in your Corporation Tax bill could be worrying to you.

Indeed, after the Covid-19 pandemic and cost of living crisis have both had an impact on businesses in recent years, you may wish to seek further guidance from your financial planner about this additional cost.

By working closely with us you could:

• Create a bespoke fiscal plan that incorporates the upcoming Corporation Tax rise
• Make the most of allowable expenses in order to mitigate your bill
• Review your expenditure and cut costs if and where necessary.

What’s more, we can help you with your personal wealth. There are several planned tax increases and allowance freezes applying to individuals as well as businesses in the coming year, including:

• The level at which earners will pay additional-rate (45%) Income Tax is decreasing from £150,000 to £125,140. This means, if you pay yourself a salary as a business owner, you may pay increased Income Tax from April onwards.
• The Capital Gains Tax (CGT) annual exempt amount is reducing from £12,300 to £6,000 in April, meaning your CGT bill could be higher in 2023/24.
• The Dividend Allowance is also decreasing from £2,000 to £1,000 in April, so you may pay higher Dividend Tax if you take them as part of your remuneration.

All in all, if you feel overwhelmed by the prospect of these combined tax rises, you’re not alone.

Get in touch

To effectively plan for the impact of a rising Corporation Tax bill, and update your personal financial plan too, get in touch today. Email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority do not regulate cashflow planning.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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