Tax tips for directors/Business owners - Must be actioned before end of financial year (31 March 2023)

As company directors and business owners, you have an opportunity to make significant tax savings but you need to act before 31st March 2023. Find below some of the points which you can easily act upon prior to 31 March 2023 in order to save tax. 

1. Company tax rate increase

From 1^st April 2023, the main corporation tax rate will rise from 19% to 25%. However, smaller companies will not have to pay the full rate. 

• Company profits of £50,000 or less: 19%
• Company profits of £250,000 or more: 25%
• Company profits in between £50,000 & £250,000: 25% less marginal relief

The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.

So, if you operate more than one limited company, where one company – under the control of the same owners – is controlled by another, the £50,000 and £250,000 thresholds are reduced.

There is time to plan ahead to mitigate the impact of the changes. For example: 

• If possible, where profits exceed the lower profits limit, accelerate profits so that they are taxable in the financial year 2021 or the financial year 2022, rather than after 1 April 2023. 
• Where the effective rate of corporation tax after 1 April 2023 is more than 19%, delay expenses to secure relief at a higher rate. 
• Where losses are made, consider whether it would be more beneficial to carry them forward rather than carry them back. The trade-off is between later relief, potentially at a higher rate or earlier relief (or repayment), but at a lower rate. 
• Consider the impact of associated companies and whether restructuring would be beneficial. 

2. Timing of dividends

 What can directors do before the end of the tax year to reduce the tax bill on dividends withdrawn

From 6 April 2023, the additional rate of income tax will apply to income above £125,140 (45% tax rate for most income) rather than starting at £150,000.

The change in tax band level means that some directors may find themselves slipping into the higher tax rate band after the change date, whereas they may have been at a lower rate before the change. This may be particularly relevant should the director have other income which then pushes a dividend into a higher-rate tax band, as dividends are generally taxed at the highest band of income.

In such circumstances, the changes may bring with it a ‘one-off’ opportunity for tax planning with the bringing forward of dividend payments to 2022/23 rather than 2023/24.

If this means finishing of a contract early and raising the tax invoice early in order to pay yourself dividend by end of March, you can save around 5% of dividend tax on dividends above £125,140. 

3. Super Deduction to disappear

Super deduction, the most attractive tax incentive for business investment, is going for good. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets could benefit from a 130% first-year capital allowance. This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest. Since Super deduction is only available till 31^st March 2023, you can fast track your capital expenditure on qualifying plant, machinery, furniture, fixtures, equipment, computers, laptop etc to benefit from this generous covid support measure one last time.   

4. CGT allowance slashed

Currently, the annual tax-free allowance for CGT is £12,300. This means that, when you sell a property, you only pay tax on gains over this amount.

However, from April 2023, the tax-free allowance will drop by more than half to £6,000. In April 2024, it will plummet still further to a miserly £3,000.

This is a ‘use it or lose it’ exemption; it cannot be carried forward to future years. It, therefore, makes sense to crystalise gains each year to the extent of the annual allowance, if possible.

We would recommend making the most of this year’s £12,300 exemption by realising gains prior to 6 April 2023 where possible.