Rishi’s second budget of 2021 or was it more of a spending review?
The Chancellor presented his Autumn Budget last Wednesday. If you listened in, other than the extension from 30 days to 60 days for Residential Property Gains, it was light on headline grabbing tax announcements but there was still plenty of detail to work through – some of which we knew about already.
Some of the key messages we’ve taken on board are
- Confirmation that the tax year 2023/24 will be the transitional year before sole trader businesses are taxed on the actual profits arising in a tax year – irrespective of the accounting date adopted.
Profits taxable in 2023/24 could be up to 23 months of results minus ‘overlap relief’ created when your business commenced (or transitional overlap if your business has been running since the mid-1990s).
For some, this change may result in the acceleration of increased tax bills although there could be an opportunity to spread additional profit taxable over a 5 year period.
One solution to manage this might be to alter the date you prepare your accounts to – especially if losses have been realised in more recent accounting periods.
- From 1 April 2023, Corporation Tax Rates increase to 25% (at least) although small companies whose profits are less than £50,000 will continue to enjoy the current 19% rate.
- The availability of the £1m Annual Investment Allowance on qualifying plant and machinery expenditure is to be extended further to 31 March 2023 and Cultural Tax Reliefs (i.e. for theatres, orchestras, museums and galleries) is to be increased to help with post Covid recovery plans. This must be welcome news for Cambridge.
More immediate is the increase, from April 2022, to
- National Insurance Contributions (NIC) by 1.25% for employers, employees and the self-employed - across all ‘NIC limits’; and
- The Dividend Tax rate by 1.25% - across all ‘tax bands’
This means that the actual increase for those who typically extract a salary and dividend up to the basic rate tax band of £50,270 from their company will see an increase in their NIC and Dividend Tax liability of over 12% (although some of this, from April 2023, may be relieved at a higher Corporation Tax rate).
The NIC increases will be rebranded as ‘The Health and Social Care Levy’ from April 2023 which working pensions will also be required to pay and current NIC rates will be reinstated.
We are expecting the Finance Bill, which will cover many of the measures announced as well as updated legislation on basis period reform, to be published this week.
If you are anxious to understand more about how the basis period reform will affect your future tax bills or how you can lessen the affect of the of the NIC and Dividend Tax increases by extracting income from your company before 5 April 2022 and/or introducing ‘salary sacrifice’ arrangements, please do not hesitate to contact one of us on 01223 810100.