Company Tax U-turns
So, that partnership went as well as predicted. As well as sacking Kwarteng, Truss also made another U-turn on the mini (non) budget announcements.
In recent weeks we heard that the removal of the 45% tax band for the wealthiest individuals was being reversed, so there will continue to be the additional level of tax (45% for earnings over £150,000 and 39.35% for dividends over that figure (2022/23))
Yesterday's announcement is a bit of a killer (for UK companies), especially if you've changed your plans, or worse, actually implemented the change of plan, since the previous announcement that corporation tax was no longer going to go up in April.
The upshot is that from April corporation tax WILL rise to 25%, from 19%. This is for profits over £50,000. If your profits are under £50,000, you will continue to be taxed at 19%.
There is an added complication if you have more than one company/control more than one company. This will mean that you will pay the 25% on lower profits depending on how many companies you control. For example if you control 3 companies, we divide the £50,000 by 3 and that is your lower corporation tax band. If you have involvements in more than one company it may be worth talking this through with one of the team.
This increase will also change the point at which it becomes advantageous (from a tax point of view) to incorporate. Most people will be better off a sole trader in the infancy of their businesses - added to the news in my previous update that all UK companies will have to publicly disclose their profit and loss account, I expect there to be fewer companies setting up over the next few years, plus a large number of disincorporations.
Obviously this could all change again if Truss doesn't make it through to the New Year… so my advice is prepare for the 25%, consider delaying the purchase of expensive assets if it will make a material difference to your tax bill to do so and you are able to wait it out, but don't panic or assume this will definitely happen… what a time to be an accountant… or be in business…
As always, please let us know if we can help you or if you'd like to chat through some of the changes.
Have a great weekend
Photo credit: Benjamin Voros on Unsplash
This is information is correct at the time of publishing. This is not advice. You should always consult a professional who is engaged to help you.