How to navigate rising taxes

At a glance

• From April, several changes to the way companies and individuals are taxed will come into force, so if you haven’t already done so, now’s the time to review how these changes will impact you and your business.
• Companies with profits of more than £50,000 will pay an increased rate of Corporation Tax, with firms making more than £250,000 profit paying 25%.
• As well as planning for an increased tax bill, you may wish to conduct a cash-flow forecast and review your business plan, updating any assumptions that may no longer be realistic.

The next financial year will bring a swathe of tax changes for SME owners and their advisers to navigate. From April 2023, most companies and their owners will pay more tax, so it’s critical to plan now to minimise the impact and keep your corporate and personal plans on course.

The biggest change is that, from 1 April, Corporation Tax will increase for companies with profits over £50,000 a year. And the current main rate of 19%, paid by most companies, will change to a more complex system.

Briefly, the changes are:

• Companies with profits of more than £250,000 will pay tax at a main rate of 25%.
• Companies with profits of £50,000 or less will pay tax at the ‘small profits rate’ of 19%.
• Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% but reduced by marginal relief. The effect will be a gradual increase in the rate you pay as your profits rise between these thresholds.
• Tax limits will reduce in proportion to the number of companies associated for tax purposes. Associated means one company has control of another, or both are under common control.

HMRC has provided a marginal relief calculator to make these figures easier to work out and help you take account for all relevant factors.

How can the impact of increased tax be reduced?

Andy Gibbs, Head of Group Technical at TaxAssist Accountants, says these new tax rules will reduce distributable profits available to investors and increase financial stress on companies.

“Firms will need to carefully manage their cash-flow and growth plans as the tax increases bite from April,” he says.

In addition to planning to pay the increased tax, SME owners will need to carry out cash-flow forecasting to model the impact of the hikes, says Andy. He also recommends reviewing business plans to ensure that assumptions are still realistic in light of the tax changes, as well as other funding needs to make sure the business has enough capital. And don’t forget to consider maximising any other tax reliefs available.

For growing firms that face increasing financial pressure from April, here are some tax-saving ideas that could help.

1. Accelerate profits

If your profits exceed £50,000, you could accelerate them where possible so that they’re taxable in the financial year 2022/23 financial year, to lock in the 19% rate.

2. Delay expenses

Conversely, you could consider delaying expenses beyond April 2023 to secure relief at a higher rate.

3. Bring forward disposals

If you’re looking to sell assets subject to tax, you may wish to do this before April 2023.

4. Use the Super-deduction

Firms planning significant capital spending – including on items such as computing equipment – should consider doing this before the generous Super-deduction Capital Allowance ends on 31 March 2023. You should undertake a review, as any decision needs to be based on your companies' circumstances.

5. Delay losses

Companies that have made losses would often carry back the loss to a previous year, which would generate a Corporation Tax refund at 19%. However, you may now wish to carry forward the loss where possible and obtain an increased tax refund under the new rate system.

6. Review your group structures

Companies with group structures, or that have common controls, should consider whether a different structure would be more beneficial under the new system.

7. Use research and development (R&D) relief

If your company has been involved in a project that seeks to advance science or technology, you could claim the valuable Research and Development (R&D) tax relief. Bear in mind that the R&D scheme will be reformed from April 2023, so make sure you factor these changes in.

Changes to personal taxes

Business owners could also be affected by changes to the personal tax regime in April. Several personal tax thresholds have been frozen until 2028, which will increase your personal tax liability as inflation bites and more income falls into higher-rate bands.

Some of the main income-related tax changes are:

• The Dividend Allowance will halve from £2,000 to £1,000 from 6 April 2023, and to £500 from April 2024. So it may be worth advancing any dividend payments if the allowance has not been fully used.
• For higher earners, the additional-rate threshold will fall from £150,000 to £125,140 from April 2023, and will lead to more taxpayers paying Income Tax at the higher rate of 45% on non-savings income and 39.35% on dividend income. If you’re likely to be an additional-rate taxpayer in the next tax year, you could consider advancing any bonus payments now.
• In Scotland, the higher tax rate will increase to 42%, and the top rate will rise to 47% from April 2023.

How we can help

You still have time to plan for the impact of these changes. However, you should urgently review your remuneration plans to ensure they remain tax efficient, as well as keeping track of your anticipated future tax liabilities so you can budget effectively.

Alongside your accountant, we can help you ensure your financial plans stay on track.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.

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