The most exciting event of the year just happened for accountants all over the UK; the Spring Budget. Here, we highlight the main changes for small businesses, coming in from 1 April 2023.
The amount of Corporation Tax Limited Companies pay on its profits is changing from 1st April 2023. Rather than a rate of 19% on all profits, there will be 2 rates:
‘Small Profits Rate’ of 19% on profits up to £50k.
The ‘Main Rate’ of Corporation Tax is 25% on profits above £250k.
Where it gets a little complicated is calculating the amount of Corporation Tax on Profits between £50k and £250k. Profits between these amounts will get a ‘Marginal Relief’, which uses a super complicated formula that will make you want to put pins in your eyes. So instead, Corporation Tax between £50k and £250k can be calculated at the rate of 26.5%.
‘What?!, but 26.5% is higher than the Main Rate of 25%! Why am I paying that when my profit isn’t over £250k?!’ I hear you cry. I don’t blame you either.
But essentially, it will work out an ‘effective rate’ of Corporation Tax, which increases on a sliding scale up to £250k, until you’re paying the full Main Rate of 25% on all profits.
It may mean that you’re paying a perceived higher rate of 26.5% on profits between £50k-£250k, but your overall effective rate across all your profits will be lower than 25%. Here’s some examples to show my point:
Profit/Effective Corporation Tax Rate
So, with the example of £75k profit, you’d pay 19% on the first £50k, and then 26.5% on the next £25k, giving a total of £16,125 Corporation Tax to pay, which is an overall effective rate of 21.5% tax on the full £75k profit.
If you still don’t understand, then don’t worry, just trust me. I’m an accountant.
The Super Deduction, which has been around since April 2021 comes to an end from 1st April 2023.
This meant you could claim 130% of the cost of qualifying equipment and machinery, in the first year of purchase.
Instead, the government has announced a ‘Full Expensing Tax Relief’ from 1st April 2023. This means you can claim 100% of the cost of new (not used) qualifying equipment and machinery in the first year.
This is the same as the Annual Investment Allowance that’s been around for ages, so really, it’s bullshit, and only means bigger companies can now claim this (as there is a limit to the Annual Investment Allowance of £1m); so no real change for small businesses, other than they can now only claim 100% of the cost of a new asset in the first year, as opposed to 130%.
You can now invest up to £60k tax free per year into your pension, up from £40k per year. The lifetime allowance of £1m that you’re able to invest tax free into a pension has also been removed. Good news for the rich people.
Tax Rates remain largely the same as we move into the new tax year, with the only notable change being the tax free dividend allowance dropping from £2k to £1k per year.
That’s it for the main changes from this year’s budget.
The chancellor promised a boring budget this year, and boy did he deliver.
I hope you didn’t fall asleep reading this, but if you did, at least you got something from it.
Lots of love,
The Diverso Team
Diverso Accountants is rated 5/5 based on 45 Google Reviews 1 Pirelli Way Eastleigh SO50 5GE GB
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