Corporation tax increase to 25%

[9005rpm]

Hi all

I own a limited company. I’ve always taken a small salary and dividends as I’m advised that’s marginally more tax effective than just salary. But of course dividends are not offset against corporation tax. All things being equal, and assuming I don’t need to build up cash in the company, am I going to be better off after April if I take all of the profits via PAYE such that there is no corporation tax to pay? I’d be an additional rate tax payer if that makes any difference.

What are all you other business owners doing?

I’d

Thanks

[DeejRC]

Put as much as possible into your pension pot. Or invest in other business stuff elsewhere.

[anonymous-user]

DeejRC said:

Put as much as possible into your pension pot. Or invest in other business stuff elsewhere.

Not sure how that’ll save any personal tax.

To be fair, clamping down on business owners taking dividends instead of salary can only be a good thing.

Edited by anonymous-user on Friday 27th January 18:22

[DeuceDeuce]

9005rpm said:

Hi all

I own a limited company. I’ve always taken a small salary and dividends as I’m advised that’s marginally more tax effective than just salary. But of course dividends are not offset against corporation tax. All things being equal, and assuming I don’t need to build up cash in the company, am I going to be better off after April if I take all of the profits via PAYE such that there is no corporation tax to pay? I’d be an additional rate tax payer if that makes any difference.

What are all you other business owners doing?

I’d

Thanks

How much profit is your company making? Your company may not be liable for 25%. That’s just the top rate.

[Eric Mc]

25% will be charged on profits exceeding £50,000.

If you are involved in Associated Companies, then the £50,000 threshold is divided by the number of Associated Companies.

For example, if you are a director of (say) two companies, the 25% profit treshold for each company is reduced to £25,000 each.

[9005rpm]

DeuceDeuce said:

How much profit is your company making? Your company may not be liable for 25%. That’s just the top rate.

I’m well into the 25% category and can only put £4k into my pension. Nice problem to have and all that, true. What I’m trying to work out is whether I will pay less tax overall via PAYE.

[Seventy-Eight]

Eric Mc said:

25% will be charged on profits exceeding £50,000.

If you are involved in Associated Companies, then the £50,000 threshold is divided by the number of Associated Companies.

For example, if you are a director of (say) two companies, the 25% profit treshold for each company is reduced to £25,000 each.

The marginal rate between £50 and £250k is taxed at 26.5%

[trickywoo]

wormus said:

To be fair, clamping down on business owners taking dividends instead of salary can only be a good thing.

What motivates an idiot like you to post in the business section?
I’ll bet you are one of the leave earlier fools in spl too.

[OtherBusiness]

Or don’t pay any and if you get caught just say you made a "careless and not deliberate" error!!

[Phil.]

It’s a good question OP.

If anyone can run the figures with say a nominal £100k profit for the 2023-24 tax year, I’d be very interested in the findings.

[Simpo Two]

'Corporation tax increase to 25%'. What an excellent way to encourage inflation and damage industry. We need them the other way round.

[Rufus Stone]

9005rpm said:

I’m well into the 25% category and can only put £4k into my pension. Nice problem to have and all that, true. What I’m trying to work out is whether I will pay less tax overall via PAYE.

Your profit is over £250,000?

[Rufus Stone]

Eric Mc said:

25% will be charged on profits exceeding £50,000.

That's not correct Eric.

Up to £50,000 - 19.0%
£50,000 - £250,000 - 26.5%
Over £250,000 - 25.0%

[9005rpm]

Rufus Stone said:

Your profit is over £250,000?

Yes

[Rufus Stone]

9005rpm said:

Yes

Good for you.

My gut feeling is that overall dividends are still better, but for any element over £150,000 in isolation the dividend route is worse.

This is simplified, but:

PAYE
Income tax 45%
NI 2%
Employers NI 13.8%
Total 60.8%

Dividends
Corporation tax 25.0%
Dividend tax 38.75%
Total 63.75%

Take what Hunt said yesterday about rewarding entrepreneurship with a pinch of salt.

[Seventy-Eight]

9005rpm said:

I’m well into the 25% category and can only put £4k into my pension. Nice problem to have and all that, true. What I’m trying to work out is whether I will pay less tax overall via PAYE.

It's very very close, within a few percent. The problem is that if you decide to switch to salary, you have a period where you're paying personal tax and NI (via payroll) at the same time as paying the previous year's self assessment and the higher corporation tax. There's a year or so where you'll be 'catching up' and it'll feel like you're paying two years' tax in a single year - not great for cashflow.

I'm guessing that most business owners will stick to dividends to avoid this.

[Seventy-Eight]

Have a look at https://www.pkf-francisclark.co.uk/autumn-statemen... (not our website and I can't guarantee that these workings are accurate!)

[Eric Mc]

Rufus Stone said:

Eric Mc said:

25% will be charged on profits exceeding £50,000.

That's not correct Eric.

Up to £50,000 - 19.0%
£50,000 - £250,000 - 26.5%
Over £250,000 - 25.0%

Yes - I meant to say "the higher rates".

The marginal rate between £50,000 and £250,000 makes life very complicated. They should have just introduced a single rate covering all profits - say 23 or 24%.

[Rufus Stone]

If we look at 2022-23

Say £300,000 profit.

All dividends
CT £57,000
Dividend tax £77,620
Total £134,620

All paye
Ers NI £36,900
Ees NI £10,700
Income tax £103,350
Total £150,950

2023-24 will incur an additional £18,000 CT, but the dividend tax will reduce by £7,000. Total tax £145,620.
PAYE for 2023-24 should be the same.
I'm assuming you use the employers NI allowance for employees.

Edited by Rufus Stone on Saturday 28th January 08:08

[Rufus Stone]

Cripes, that's pretty sickening when laid out like that. The government benefits almost as much as you do without lifting a finger.

Roll on retirement.