In just a few days, we enter the new tax year, and there are a few changes that will likely you and your business. So read on for a summary of the changes…
Firstly the status quo, tax-free threshold, and all the PAYE tax rates have stayed the same.
Summary:
Tax-free threshold: £12,570 - no change
Basic rate up to £37,700, 20% - no change
Higher rate £37,701 - £125,140, 40% - threshold reduced
Additional rate Above £125,140, 45% - threshold reduced from £150,000
The Bad News
If you earn £125K-£150K, you will be worse off due to paying the additional 45% rate at the reduced threshold.
Corporation Tax
The one that affects any business making a profit of £50k or above. Feels like yet another attack on the entrepreneur… the rate has increased by a whopping 32%!
From 19% to 25% for profits over £250k
If your profits are between £50k and £250k, you’ll pay 19% on the first 50K and 26.5% on profits between 50k-£250k. (I have done the math, and I can assure you this is better than 25% on all the profits)
Dividends
For most business owners, this is our main source of income. The rates remain unchanged (below for reference), but the tax-free allowance has been reduced from £2,000 to £1,000. I know it’s only £87.50, but it feels like a kick in the teeth when costs are rising.
• 8.75% if your income tax band is the basic rate
• 33.75% if your income tax band is the higher rate
• 39.35% if your income tax band is the additional rate
Capital allowances, if you dispose of any property, shares etc., then the ‘annual exemption’ (the tax-free amount) reduction will most likely affect you.
Down from £12,300 to just £6,000.
The Good News
Pensions! It was the only bit of good tax news. For those of you squirrelling away your profits into your pensions, the limit has been increased from £40k to £60k a year. (Note this only applies to the 23/24 year, your previous year's allowances are still at £40k)
AND the lifetime allowance has been abolished.
