Rising by 6%, this is a stealth tax move by the Government to support the country’s recovery following the pandemic.
Having gone under the radar for many business owners, it may come as a shock that from 1 April 2023, Corporation Tax will increase from 19% to 25%. Undoubtedly, the rise is a big jump and pretty significant, so it’s critical that businesses plan now more than ever to mitigate their tax exposure and ensure that they don’t pay more than their fair share.
It can be overwhelming to get to grips with changes, especially during the current climate of uncertainty around inflation and rising costs. To help you understand the changes and provide advice on a number of key business tax planning opportunities that will make a difference to your business, Client Service Director and Chartered Tax Advisor, Liz McMillan, has outlined some key tips.
Understanding the changes to Corporation Tax
So, the rate at which Corporation Tax is charged will be effective from 1 April 2023. The current rate of Corporation Tax is 19%, but from 1 April, it will increase to 25% for companies whose taxable profits exceed £250,000. Companies with profits of less than £50,000 will remain on the current rate of 19%.
Quarterly Instalments Payment Regime (QIPS):
Quarterly instalments payment regime (QIPS) will also be affected by the new rules. The QIPS regime enforces large companies to pay corporation tax in four equal instalments, which is on the fourteenth day of the seventh, tenth, thirteenth and sixteenth months following the start of the accounting period.
Loss carry back claim considerations:
If losses are carried forward, relief could potentially be obtained at a maximum of 26.5% as opposed to 19%. In this circumstance, cashflow considerations of carrying forward the loss should be factored into loss utilisation decisions.
Business Tax Planning Health Check
Simple steps to get your business off to a great start
Whether you’re a director, self-employed, or in a partnership, I highly recommend having a company tax checklist for your business. With the UK currently facing a recession, and with the Corporation Tax increase just around the corner, there’s never been a more crucial time to give your business an all-round tax check-up. And, I’m pleased to share my tips below to help you plan.
Whilst the below is intended as an outline only, there are some procedures you can put in place to stay on top of your taxes and potentially avoid any unwelcome surprises.
Super deductions:
Within the Spring Budget of 2021, a super deduction capital allowance scheme was implemented. This meant that companies who acquired any capital assets additions between 1 April 2021 and 31 March 2023, are able to claim 130% first year relief on main pool qualifying assets, and 50% first year relief on special rate pool qualifying assets. This signifies a big increase on the 18% and 6% that would normally be available. So, it’s definitely worth checking if your business is eligible but you’ll need to act fast on any purchases – 31 March is just around the corner!
Capital allowances are a great way to save on tax if your business is eligible. We will be covering this topic in a few weeks’ time, but for a quick explanation, capital allowance is a type of tax relief which allows owners to deduct either some or all of the value of an item from profits before paying tax.
Consider employer pension contributions:
Employers can make contributions into a pension scheme which will boost an individual’s retirement savings, whilst achieving a tax saving of 25% (from 1 April 2023) of the amounts contributed. A maximum of £40,000 per year can be put into a pension scheme, and if you haven’t used your allowances in the last 3 years, you can also use those £40,000 limits to contribute a maximum of £160,000. This would generate a tax saving of £40,000!
Check to see if your company qualifies for Research & Development (R&D):
To be able to claim Corporation Tax relief, the claim must be part of a specific project that you’re working on, which in turn advances science or technology, to meet the definition of R&D as set out by HMRC. The second instalment of our tax planning series which will be available next week focuses on R&D tax relief, so make sure you keep an eye out!
It’s important to note the pension contributions in the point above are a qualifying cost for R&D purposes, so the tax savings can be even higher.
Claim patent box:
If your business makes profits from the sale of products which are patented, or have elements to the product which are patented, any profits on the sale of those products can be taxed as low as 10%.
It might be time for a restructure:
If you have multiple companies which aren’t in a group and one of those companies is loss making, consider restructuring the companies. This is so that loss making companies can surrender the losses to profitable companies.
Additionally, if your business owns a commercial property and the shareholders have sufficient funds in their pension, the pension could purchase the commercial property and rent the premises back to the company. The rent is a tax-deductible expense in the company and the rents are not charged to tax in the pension.
Remember to claim ALL business expenses:
It may be like second nature to some, but ensure to not overlook any expenses from accounting records. A lot of the time, Directors incur expenses on behalf of their business, but forget to claim them back through accounts.
Similarly, if employees use their personal car for business, they can claim expenses on a tax-free basis, using statutory rates per mile.
Work from home allowance:
Some employees may regularly work from home. If so, HMRC will allow a portion of home expenses to be claimed, in order to meet the additional costs of heating and lighting in a work environment. There could also be increased charges for the use of internet or phone calls.
It’s fair to say that the business environment is never consistent. There are constant changes and it’s important to be able to adapt quickly, especially in the current climate. Whilst the above is designed as a guide only, we are here to help.
If you would like to arrange a one-to-one session with a Senior Tax Advisor, you can get in touch with our Corporate Tax Team by emailing info@djhmittenclarke.co.uk.
