The overarching message from the 2022 Autumn Statement is fiscal drag and tax rises. The debate for owner managers about whether to pay themselves through salary and bonus or dividend rages on.
The key changes coming out of the 2022 Autumn Statement are:
- From 1 April 2023, corporation tax rates are rising from the current rate of 19% to 25% for companies with taxable profits exceeding £250,000 and an effective rate of 26.5% for companies with taxable profits between £50,000 and £250,000.
- From 6 April 2023, the additional rate income tax threshold reduces from £150,000 to £125,140. The additional tax rate for income is 45% and for dividends is 39.35%.
It is well known that extracting profits through the payment of dividends has been a more tax efficient remuneration option for owner-managers than bonuses over recent years, particularly for owner-managers in the higher and additional rate bands. This is principally because of the low income tax rates for dividends, as well as the low rates of corporation tax.
However, is there a marked difference between the effective rate of tax on an owner-manager between bonus and dividend payments from 6 April 2023? Obviously individuals and businesses have specific considerations that will need to be taken into account and, being mindful of this your tax advisor should be consulted before any remuneration decisions are made, but perhaps there are now other options to be considered?
Before the changes come into effect in April 2023, there may be an opportunity for owner-managers with income levels between £125,140 and £150,000 to make some tax savings. For example voting a dividend of £10,000 from the business before 6 April 2023 as opposed to waiting until 2023/24 could save tax of £560, albeit accelerating the payment of the tax by 12 months. The benefit could be doubled if your spouse is also a shareholder in the business.
As always we will be addressing tax-planning opportunities with you next year, however, our team of experienced tax advisers would be happy to work through your individual circumstances and identify any potential saving opportunities now and from 6 April 2023. Please contact your usual Kilsby Williams adviser, call 01633 810081 or email firstname.lastname@example.org if you would like to discuss.