Limited Company - 2023/24 Considerations

As we approach the end of another financial / tax year, we wanted to confirm some of the upcoming changes to the rates and allowances, as well as things that are worth considering both before and after the start of the new tax year.

1. Directors’ remuneration – with the new financial and tax year starting in April, it is time to consider the best level of salary for you to process for the 2023/24 tax year.

The main thresholds to consider for income tax purposes (personal allowance and basic rate band) are set to remain the same (at £12,570 and £50,270 respectively), with the tapering of the personal allowance still coming into force when your total adjusted net income exceeds £100,000.  The relevant thresholds for national insurance (NI) are as follows:

1. Class 1 primary NI (employee) – primary threshold of £12,570 for the year
2. Class 1 secondary NI (employer) – secondary threshold of £9,100 for the year

Consideration will need to be given to the level of salary to be taken, if you wish to avoid an income tax and/or national insurance liability on this source of income. Is the business eligible to claim the NI employment allowance (EA)? If so, you may benefit from disclosing the higher salary (£12,570 for the year, £1,047 per month), claiming the EA and thus paying no income tax or NI on your salary.

The Company continues to receive corporation tax (CT) relief on the salary payments being made, with this being more relevant than ever, given the increase in the rates of CT payable (see bullet point three below).

If we administer your payroll for you, we will be in touch separately to discuss your PAYE disclosures from April 2023 onwards.

2. Dividend policy – in accordance with the above salaried remuneration, due consideration needs to be given to the dividend policy operated in the 2023/24 tax year.

Income tax rates on dividend income are to remain at 8.75% in the basic rate band, 33.75% in the higher rate band and 39.35% in the additional rate band. Please note that the threshold at which an individual pays the additional rate of tax is being reduced to £125,140 as from April 2023. In addition, the tax-free dividend allowance is being reduced to £1,000 from April 2023 (down from £2,000).

As always, you will need to ensure that the Company has sufficient distributable reserves to support any dividends voted.

3. Corporation tax (CT) rates – the applicable CT rates will be as follows, as from April 2023

1. Small profits rate – taxable profits up to £50,000 – 19%
2. Marginal profits rate – taxable profits generated between £50,000 to £250,000 – 26.5%
3. Main profits rate – taxable profits above £250,000 – 25%

As you will be aware, salaried income run via the PAYE system represents a deductible expense for the business, thus reducing the taxable profits, whilst dividends are paid out of post tax profits (and therefore do not reduce the taxable profits of the business). The increase in CT rates further enhances the need to carefully consider the salary / dividend remuneration split to ensure that you are withdrawing your personal income from the Company in the most tax efficient way possible.

In addition, further consideration should be given to other means for extracting profits tax efficiently, such as corporate pension contributions.  

As a final point here, the above noted thresholds (£50,000 and £250,000) are apportioned where there are Associated Companies. Given this, it will be key to consider the overall structure that you have in place and, where you have additional Companies under the same ownership, whether this will result in an adverse tax position for you as a whole.

4. Super deduction – the “super deduction capital allowance” scheme allows for a 130% super deduction to be obtained on the purchase of qualifying equipment used in the business (as well as a 50% allowance for special rate pool items). This generous allowance will be repealed as from 1 April 2023 and therefore consideration is required in respect of any capital expenditure to be incurred by 31 March 2023 – does it make sense from a commercial and tax standpoint to accelerate expenditure to obtain this super deduction before it is removed?

As always, there is plenty to consider and please do not hesitate to contact your usual Ward Williams contact should you wish to discuss any of the points noted above.