Plan now for future increases to Corporation Tax
Chancellor Rishi Sunak’s decision to raise Corporation Tax to 25 per cent for larger companies in 2023 could have implications for many small businesses, according to Johnathan Dudley, Midlands and South West managing partner at national audit, tax, advisory and risk firm Crowe.
In his Budget announcement last month, the Chancellor said that he considered it “fair and necessary” for businesses to contribute to the economic recovery. He also announced a small profits rate which would maintain the current 19 per cent rate for firms with profits of £50,000 or less – claiming that about 70 per cent of companies, around 1.4 million businesses, would be “completely unaffected” by the tax rise.
In addition, there will be a taper arrangement above £50,000 with only those businesses recording profits of £250,000 or more being taxed at the full 25 per cent rate – affecting around 10 per cent of companies.
Mr Dudley, who is based at Oldbury, said: “Raising the Corporation Tax to 25 per cent will, as it stands, actually affect many small businesses where the proprietors distribute income in the form of dividends which do not get a Corporation Tax deduction.
“It will mean that regardless of any future changes in dividend tax rates, there will be a need once again to consider whether a business’s profits fall into the low rate, the full rate or the marginal rate, before they decide to pay dividends or PAYE’d salary/bonus to working shareholders.
"Given the changes come into effect in 2023 there is still time to plan, but this needs to be on the boardroom agenda with immediate effect so that full appreciation and understanding can be made of how SME owner managers reward themselves in the future.
"“I encourage anyone who thinks they may be affected by this increase, to contact a professional."
