Year end tax planning 2022/23

As we head towards the new tax year on 6 April 2023, there are lots of things to think about in relation to tax planning such as changes to tax bands, capital gains tax allowances, corporation tax rates and dividend allowances to name but a few.

How can Lambert Chapman LLP help you in the next few weeks to ensure that you are maximising your position for the year end and coming year?

Have you used all your allowances?

• Personal income tax allowances give you £12,570 of tax free income each year
• Additional relief is given for married couples, born before 6 April 1935, of up to £10,375
• The marriage allowance allows you to transfer £1,260 to your spouse if you have not used it all
• If you are registered blind, you are entitled to a further £2,600

Capital Gains Tax (CGT)

• If you dispose of an asset, you are entitled to claim £12,300 against any gain
• This allowance reduces to £6,000 from 6 April 2023
• Further reduction to £3,000 from 6 April 2024

Should you consider making disposals in the next few weeks to utilise this generous allowance now?

Dividends

• We have been used to having a tax free allowance in the last few years, starting at £5,000 and currently £2,000
• From 6 April 2023, this reduces to £1,000
• From 6 April 2024, it reduces again to £500
• The rate at which tax is paid on dividends is also increasing. New rates will be 8.75%, 33.75% and the top rate of 39.35% – another good reason to maximise payments now

Can you make additional dividend payments from your business to utilise this generous allowance before it is restricted?

Tax Bands

• The additional rate of income tax is currently set at 45% and this is not due to change
• However, from 6 April 2023, this tax rate will start when your total income exceeds £125,140
• Currently you can have total income of £150,000 before you pay tax at this top rate

Can you make a bonus payment in this final payroll period to maximise your earnings.

Pensions

• There are currently no changes due to pension contributions, so you are still entitled to pay an amount equal to the lower of your net relevant earnings or £40,000 (gross)
• These include both employee and employer contributions

Can your business make additional employer contributions in lieu of a bonus?  This will save national insurance for both you and the company.

Corporation Tax rates

• 19% corporation tax has been a standard rate for all businesses since 2015
• From April 2023 – companies with profits in excess of £250,000 will pay tax at 25%
• Companies with profits below £50,000 will pay tax at 19%
• For businesses with profits between £50,000 and £250,000 there will be a tapered rate

National Insurance

• Many of the above are impacted by National Insurance, which has been in the news ever since the Government announcements made in September 2022 and the subsequent reversal in November 2022
• Whilst for next tax year things are back to normal, for 2022/23 we have been left with random hybrid rates for the self employed of 9.73% and 2.73%.

Lambert Chapman LLP are always happy to discuss tax planning options with you so please do get in touch if you need any assistance.