What limited company contractors should prioritise as new tax year 2023-24 looms
Each new tax year brings changes, and this year is no different, so it’s worth understanding what the new tax year 2023/24 means for you and your limited company, writes Greg Timson, chief accountant at inniAccounts.
2023/24 tax rates
The government has frozen the personal tax-free allowance and higher rate tax income bands until April 2028. This means that for most individuals the personal tax-free allowance is £12,570.
The higher rate tax will be applied to total earnings above £50,270. But the additional rate of income tax has been cut, so the threshold for when the highest earners start paying the top rate of tax will be reduced from £150,000 to £125,140 from April 6th 2023.
Also for tax year 2023-24, are changes to the dividend allowance. Currently every shareholder in the UK has a £2,000 tax-free dividend allowance. This is being halved in 2023 to £1000, and then halved again in April 2024 to £500.
What other tax rate are changing from April 6th 2023?
In addition from April 6th 2023, the corporation tax rate will increase to headline rate of up to 25%. This applies to profits over £250,000. A small profits rate will also be introduced for companies with profits of £50,000 or less, with the effect that they continue to pay corporation tax at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief. In effect, this provides a gradual increase in the effective corporation tax rate.
With this in mind, it’s a good idea to look at how your pipeline of work will influence your tax situation and plan accordingly with your accountant. There’s more detail to help with this planning, below.
Get ahead with your 2022/2023 Self-Assessment Tax Return (SATR)
Though it might seem like yesterday that you submitted a tax return, April is actually a great time to get ahead with your 2022/23 self-assessment form. Such returns need to be filed before January 31st 2024.
It’s normal to receive annual interest statements from banks or dividend vouchers / statements from your investments in April and May/ As a result, it makes sense to use these to make a solid start on the admin!
Or, if you’re not quite ready to turn your attention to a return, then do at least make sure you keep this information safe and easily accessible. It might be worth passing it to your accountant so they can help smooth the process.
Remember too, if you have a rental property, you’ll also need to compile your records for the tax year in readiness for your SATR.
Don’t forget the discount…
The other reason it helps to make an early start is to ensure you get the dedicated help you need when you need it. You might find you can take advantage of ‘early bird’ discount fees too -- accountants will be in demand, and most will operate a ‘first come first served’ service if you leave it too late. In short, being organised could save you money, not to mention the stress!
Plan your income strategy for 2023/24
When running your own business, it’s good practice to plan your income for the tax year. This will help you determine how you structure things like dividends, but also ensure you use the right financial instruments to manage your money. For instance, you might want to invest more in a pension or lower your salary so you can build up a ‘war chest’ for leaner times.
There are a few things we recommend everyone does, some are worth discussing further with your accountant and or an independent financial adviser.
1. Before your first payslips of the new tax year are issued and submitted to HMRC, you should:
- Review your company’s salaries for any automatic changes and make any changes that you require. Bear in mind the corporation tax thresholds above when you do this.
- Check your tax code has been accurately updated and is live. You can look this up with HMRC. If it’s wrong you could pay too much, or get a surprise HMRC bill.
2. Ask yourself what you want to achieve in the year ahead, and then consider your salary and dividend income accordingly.
These will be unique to everyone, which is why it can be helpful to discuss them with a qualified expert. Here are the questions that should be considered first and foremost:
- What income tax and NICs efficiencies do you want to achieve? Where will you fall in the range of basic to high earner and what difference will it make to your plans?
- Do you want to ensure that you retain your right to a state earned pension and other benefit entitlements? The answer is probably ‘yes,’ so keep that in mind.
- What level of contribution do you want to set for your pension this year?
- Do you need to demonstrate a certain salary level for any reason e.g. income for borrowing purposes?
- Do you need to consider company director appointments, now or in the future?
- Do you have other sources of income? How could this affect your financial position and therefore overall tax liabilities?
Income, in the round
When you are calculating your tax and NIC liabilities, it is important to ensure that you consider all your income streams. This can include salary or income from other jobs, share and savings income, pension income and any other source of income.
Insulation from IR35
Penultimately, it’s prudent to think about how you insulate yourself from any risks related to IR35, as you plan your work and income for the year. Despite Budget 2023 being just around the corner, it’s very unlikely there will be any movement on repealing the off-payroll rules, so plan inline.
Lastly, use the planning service
Finally, remember a good accountant will offer a ‘planning service’ included in the fees. April can be the ideal time to take them up on the offer and get a tailor made plan in place that supports your business and personal goals.