Step Up your game: A preview of what’s coming for Accountants in the 2023/24 Tax Year.

The UK has seen several changes in corporate taxes and dividend rates and thresholds in recent years. These changes have had a significant impact on businesses and investors alike.

Most importantly, you need to be aware of the changes happening in corporate taxes and dividend rates and thresholds. These changes have been a hot topic in recent years, with significant impacts on businesses and investors.

Starting with corporate taxes, the UK government recently announced an increase in the rate of corporation tax from 19% to 25% for companies with profits of over £250,000. This is the first increase in corporation tax in over a decade and has been met with both support and criticism. On the other hand, dividend taxes have also undergone significant changes, with the introduction of a new dividend tax system.

So, what do these changes mean for you? In this article, we’ll explore the changes that have taken place, and what you can do to prepare for them.

What is Corporation Tax?

Corporation Tax is a corporate tax that is levied on the annual profits made by UK resident companies and branches of overseas companies. The UK Corporation Tax rate is currently 19% for all limited companies.

• Corporation Tax Rate (Until April 2023): 19%
• Corporation Tax Rate (April 2023 onwards): 25%

Who pays Corporation Tax?

All taxable UK limited companies must pay Corporation Tax on their annual profits, but Corporation Tax liabilities can also extend to unincorporated organisations like co-operatives, trade and housing associations, and members, clubs or associations.

What are the significant Corporate Tax Changes moving forward?

In 2021, the UK government announced that it would be increasing the rate of corporation tax from 19% to 25% for companies with profits of over £250,000. This increase will take effect from April 2023. This is the first increase in corporation tax in over a decade.

The new 25% main rate will be payable by companies with taxable profits above £250,000. A small profits rate (SPR) will also be brought in for companies with profits of £50,000 or below, meaning they will continue to pay 19%.

Companies with taxable profits between £50,000 and £250,000 will pay the main rate reduced by a marginal relief providing a gradual increase in the average Corporation Tax rate.

It’s worth noting that the UK’s corporation tax rate is still lower than that of many other countries. For example, the US has a federal corporate tax rate of 21%, while France has a rate of 28%.

When is the Corporation Tax deadline?

Your Corporation Tax return deadline is usually 12 months after the end of the accounting period the return covers.

You must also note that the deadline to pay a Corporation Tax bill is separate and is usually 9 months and one day after the accounting period ends. Note that large companies can be liable to pay Corporation Tax in instalments, with some of these payments falling due in the accounting year (rather than after the year-end).

Missing deadlines will result in penalties.

Now let’s look at Dividends. But first, what is a dividend?

Dividends are a type of payment which a limited company makes to its shareholders from the profits left over after paying Corporation Tax. The total amount of dividends paid out can’t be more than the company’s profits in the current or previous financial years.

Unlike other forms of income, such as a salary, they’re not subject to National Insurance, and the rate of tax is much lower too. This means that dividends are generally a tax-efficient way of taking money out of a limited company.

How dividends are taxed?

You may get a dividend payment if you own shares in a company. You can earn some dividend income each year without paying tax.

You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).

You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.

Dividend Tax changes:

For the 23/24 tax year, the dividend tax rate was increased by 1.25 percentage points as part of the government’s health and social care levy announcements.

How much tax you pay on dividends, above the dividend allowance, depends on your Income Tax band. 2023/24 Dividend tax rates and thresholds are as follows:

How to pay the tax on dividends?

If you earn income above the allowance but under £10,000 then you’ll need to inform HMRC. The tax can then be paid either by:

• Filling out a self-assessment tax return or;
• Getting HMRC to adjust your tax code thereby ensuring it is taken from your salary or pension
• If you earn income above £10,000 in dividends then you’ll need to fill in and complete a tax return. You have to declare this income in the dividends section of the form.

What Can Businesses and Investors do to prepare better?

With a whirlwind of change incoming, here are a few tips from us;

Review your tax strategy – With the changes to corporate taxes and dividend rates and thresholds, it’s a good idea to review your tax strategy. You may need to make changes to ensure that you are paying the right amount of tax and taking advantage of any available tax breaks.

Seek professional advice – If you’re unsure about how the changes to UK corporate taxes and dividend rates and thresholds will affect your business or investments, it’s worth seeking professional advice.

Here at AccNet, our professional team of consultants can help you navigate the changes and ensure that you’re making the right decisions. Contact us today at +44 207 097 3767 to navigate the tax year with prudence and smart thinking.