As an entrepreneur, navigating the maze of taxes and exemptions that affect businesses can be hard work at the best of times.
But as the economy emerges from the coronavirus crisis, the government has made a number of changes to the tax regime, some of which could have an impact on the decisions you make for the future of your business and your personal finances in the years ahead. Three of the key changes to look out for are:
- Employer, employee and self-employed National Insurance increasing by 1.25% from April 2022
- Dividend Tax increasing by 1.25% from April 2022
- Corporation Tax increasing from 19% to 25% from April 2023 on profits of more than £250,000, with an effective marginal rate of 26.5% applying to profits between £50,000 (below which the 19% rate continues to apply) and £250,000
And as well as these changes, we have the freezing of many personal tax bands, thresholds, reliefs and allowances until April 2026.
With so many moving parts – not to mention the pressures of running your business – having to make tax-smart, informed decisions can be daunting. Indeed, according to the Institute for Fiscal Studies, a think tank, the planned tax rises are the biggest in 25 years and will mean the UK’s tax is at its “highest sustained level in peacetime”.1
Yet with the right advice, it is possible to maximise tax efficiency while continuing to focus on the everyday running of your business.
“Tax may, understandably, not feel like the most important thing in the world to a business owner. But not paying attention to the tax detail can result in material financial harm over the years. With your focus on running and building your business, it’s pretty important to have an experienced financial planner or accountant on your side – ideally, both, and working in collaboration with your best interests at heart,” says Tony Wickenden, Managing Director of Technical Connection, a subsidiary company in the St. James’s Place Group.
Despite the importance of good tax planning, Wickenden firmly believes that the starting point is to be clear about what’s important to you and your business – effectively, being clear about your goals and why you want to achieve them. Any personal and business financial plan should be developed based on this clear foundation. It should be a means to an end. Achieving your financial objectives will, of course, be that little bit easier if you build in tax efficiency. Working with your financial planner and other professional advisers is a great way to do this efficiently.
“Most business owners will have no problem understanding that overall success will come from being ‘business smart’ first and ‘tax-smart’ after that,” adds Wickenden. The best tax planning is aligned to a clear financial plan.
One of the biggest changes for many incorporated businesses in the next few years is an increase in the rate of Corporation Tax. From April 2023, the rate will increase from 19% to 25% on profits of more than £250,000. Companies with profits below £50,000 will pay 19%, while those with profits between £50,000 and £250,000 will pay a tapered rate up to the full 25%.
Another tax change to look out for is a rise in the Dividend Tax by 1.25% from April 2022, although there remains a tax-free dividend allowance of up to £2,000. The government has also recently announced an increase of 1.25% on National Insurance.
These three changes, to Corporation Tax, Dividend Tax and National Insurance, all need to be factored into the decision on how best to withdraw money from a company.
“While for most, even after these changes (and remember the NIC and dividend changes kick in from April 2022), removing funds by dividend rather than salary will be the way to go, the corporate tax increase will require a further reconsideration for those affected in 2023. For some, there are also some non-tax consequences to take into account in decision making. With the number of ‘moving parts’, decision making is often far from straightforward,” says Wickenden.
With such a minefield to navigate, speaking to a St. James’s Place adviser can help you work out the best option for you and your family.
What are the key taxes you need to consider when running a business?
Income Tax: This will fall due regardless of the way you run your business. Profits of a sole trader, partnership or LLP are all taxed, regardless of whether they are drawn. For those running their business through a limited company, then Income Tax will be relevant on any amounts withdrawn by salary or dividend. The rates are different for each of these, though.
National Insurance: An increase of 1.25% comes in on both employer and employee Class 1 NI from April 2022. Always remember to ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.
Corporation Tax: This applies only to companies, and currently at a single rate of 19%. It is rising to 25% for profits of more than £250,000 in April 2023.
VAT: This is mandatory for those with turnover in excess of the registration threshold of £85,000.
As an entrepreneur, navigating the maze of taxes and exemptions that affect businesses can be hard work at the best of times.
But as the economy emerges from the coronavirus crisis, the government has made a number of changes to the tax regime, some of which could have an impact on the decisions you make for the future of your business and your personal finances in the years ahead. Three of the key changes to look out for are:
- Employer, employee and self-employed National Insurance increasing by 1.25% from April 2022
- Dividend Tax increasing by 1.25% from April 2022
- Corporation Tax increasing from 19% to 25% from April 2023 on profits of more than £250,000, with an effective marginal rate of 26.5% applying to profits between £50,000 (below which the 19% rate continues to apply) and £250,000
And as well as these changes, we have the freezing of many personal tax bands, thresholds, reliefs and allowances until April 2026.
With so many moving parts – not to mention the pressures of running your business – having to make tax-smart, informed decisions can be daunting. Indeed, according to the Institute for Fiscal Studies, a think tank, the planned tax rises are the biggest in 25 years and will mean the UK’s tax is at its “highest sustained level in peacetime”.1
Yet with the right advice, it is possible to maximise tax efficiency while continuing to focus on the everyday running of your business.
“Tax may, understandably, not feel like the most important thing in the world to a business owner. But not paying attention to the tax detail can result in material financial harm over the years. With your focus on running and building your business, it’s pretty important to have an experienced financial planner or accountant on your side – ideally, both, and working in collaboration with your best interests at heart,” says Tony Wickenden, Managing Director of Technical Connection, a subsidiary company in the St. James’s Place Group.
Despite the importance of good tax planning, Wickenden firmly believes that the starting point is to be clear about what’s important to you and your business – effectively, being clear about your goals and why you want to achieve them. Any personal and business financial plan should be developed based on this clear foundation. It should be a means to an end. Achieving your financial objectives will, of course, be that little bit easier if you build in tax efficiency. Working with your financial planner and other professional advisers is a great way to do this efficiently.
“Most business owners will have no problem understanding that overall success will come from being ‘business smart’ first and ‘tax-smart’ after that,” adds Wickenden. The best tax planning is aligned to a clear financial plan.
One of the biggest changes for many incorporated businesses in the next few years is an increase in the rate of Corporation Tax. From April 2023, the rate will increase from 19% to 25% on profits of more than £250,000. Companies with profits below £50,000 will pay 19%, while those with profits between £50,000 and £250,000 will pay a tapered rate up to the full 25%.
Another tax change to look out for is a rise in the Dividend Tax by 1.25% from April 2022, although there remains a tax-free dividend allowance of up to £2,000. The government has also recently announced an increase of 1.25% on National Insurance.
These three changes, to Corporation Tax, Dividend Tax and National Insurance, all need to be factored into the decision on how best to withdraw money from a company.
“While for most, even after these changes (and remember the NIC and dividend changes kick in from April 2022), removing funds by dividend rather than salary will be the way to go, the corporate tax increase will require a further reconsideration for those affected in 2023. For some, there are also some non-tax consequences to take into account in decision making. With the number of ‘moving parts’, decision making is often far from straightforward,” says Wickenden.
With such a minefield to navigate, speaking to a St. James’s Place adviser can help you work out the best option for you and your family.
What are the key taxes you need to consider when running a business?
Income Tax: This will fall due regardless of the way you run your business. Profits of a sole trader, partnership or LLP are all taxed, regardless of whether they are drawn. For those running their business through a limited company, then Income Tax will be relevant on any amounts withdrawn by salary or dividend. The rates are different for each of these, though.
National Insurance: An increase of 1.25% comes in on both employer and employee Class 1 NI from April 2022. Always remember to ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.
Corporation Tax: This applies only to companies, and currently at a single rate of 19%. It is rising to 25% for profits of more than £250,000 in April 2023.
VAT: This is mandatory for those with turnover in excess of the registration threshold of £85,000.
As an entrepreneur, navigating the maze of taxes and exemptions that affect businesses can be hard work at the best of times.
But as the economy emerges from the coronavirus crisis, the government has made a number of changes to the tax regime, some of which could have an impact on the decisions you make for the future of your business and your personal finances in the years ahead. Three of the key changes to look out for are:
- Employer, employee and self-employed National Insurance increasing by 1.25% from April 2022
- Dividend Tax increasing by 1.25% from April 2022
- Corporation Tax increasing from 19% to 25% from April 2023 on profits of more than £250,000, with an effective marginal rate of 26.5% applying to profits between £50,000 (below which the 19% rate continues to apply) and £250,000
And as well as these changes, we have the freezing of many personal tax bands, thresholds, reliefs and allowances until April 2026.
With so many moving parts – not to mention the pressures of running your business – having to make tax-smart, informed decisions can be daunting. Indeed, according to the Institute for Fiscal Studies, a think tank, the planned tax rises are the biggest in 25 years and will mean the UK’s tax is at its “highest sustained level in peacetime”.1
Yet with the right advice, it is possible to maximise tax efficiency while continuing to focus on the everyday running of your business.
“Tax may, understandably, not feel like the most important thing in the world to a business owner. But not paying attention to the tax detail can result in material financial harm over the years. With your focus on running and building your business, it’s pretty important to have an experienced financial planner or accountant on your side – ideally, both, and working in collaboration with your best interests at heart,” says Tony Wickenden, Managing Director of Technical Connection, a subsidiary company in the St. James’s Place Group.
Despite the importance of good tax planning, Wickenden firmly believes that the starting point is to be clear about what’s important to you and your business – effectively, being clear about your goals and why you want to achieve them. Any personal and business financial plan should be developed based on this clear foundation. It should be a means to an end. Achieving your financial objectives will, of course, be that little bit easier if you build in tax efficiency. Working with your financial planner and other professional advisers is a great way to do this efficiently.
“Most business owners will have no problem understanding that overall success will come from being ‘business smart’ first and ‘tax-smart’ after that,” adds Wickenden. The best tax planning is aligned to a clear financial plan.
One of the biggest changes for many incorporated businesses in the next few years is an increase in the rate of Corporation Tax. From April 2023, the rate will increase from 19% to 25% on profits of more than £250,000. Companies with profits below £50,000 will pay 19%, while those with profits between £50,000 and £250,000 will pay a tapered rate up to the full 25%.
Another tax change to look out for is a rise in the Dividend Tax by 1.25% from April 2022, although there remains a tax-free dividend allowance of up to £2,000. The government has also recently announced an increase of 1.25% on National Insurance.
These three changes, to Corporation Tax, Dividend Tax and National Insurance, all need to be factored into the decision on how best to withdraw money from a company.
“While for most, even after these changes (and remember the NIC and dividend changes kick in from April 2022), removing funds by dividend rather than salary will be the way to go, the corporate tax increase will require a further reconsideration for those affected in 2023. For some, there are also some non-tax consequences to take into account in decision making. With the number of ‘moving parts’, decision making is often far from straightforward,” says Wickenden.
With such a minefield to navigate, speaking to a St. James’s Place adviser can help you work out the best option for you and your family.
What are the key taxes you need to consider when running a business?
Income Tax: This will fall due regardless of the way you run your business. Profits of a sole trader, partnership or LLP are all taxed, regardless of whether they are drawn. For those running their business through a limited company, then Income Tax will be relevant on any amounts withdrawn by salary or dividend. The rates are different for each of these, though.
National Insurance: An increase of 1.25% comes in on both employer and employee Class 1 NI from April 2022. Always remember to ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.
Corporation Tax: This applies only to companies, and currently at a single rate of 19%. It is rising to 25% for profits of more than £250,000 in April 2023.
VAT: This is mandatory for those with turnover in excess of the registration threshold of £85,000.