5 Strategies To Handle Increased Company Taxes

In light of the numerous modifications to credit programs, tax allowances, and corporation tax, it is prudent to reevaluate your circumstances and ensure that your company is set up for maximum efficiency.

In 2023, corporations with profits exceeding £50,000 will see a rise in corporation tax.

Companies can take a variety of actions in response to these increased taxes, such as reviewing their corporate structure and using the allowances and credit programs that are available.

It may be wise to reassess how you receive revenue from your firm due to changes in dividend taxation and the amount of tax you pay as a limited company owner.

Small and medium-sized businesses (SMEs) have had to deal with a concerning array of changes to the personal and business tax regimes during the last two years, including noticeably increased Corporation Tax rates for many. Larger HMRC bills this year are compelling businesses and their owners to restructure their strategies and find ways to lessen the damage.

You must act quickly to reduce the effects of increased taxes, so you don’t want to lose out on any tax-planning possibilities in case they are eliminated. The good news is that you can still legally assess your tax arrangements and strategies to improve your financial situation as a whole. Thus, it’s time to review your own financial and tax strategies to make sure you’re still in the finest possible arrangement.

Beginning in April 2023, all businesses with annual profits of more than £50,000 will be subject to higher corporation taxes. A more intricate system of rates tapering between 19% and 25%, depending on your profits, replaced the former primary rate of 19%. This indicates that companies with profits over £250,000, which is at the top end of the scale, have experienced a sharp increase of six percentage points.

According to experts, many businesses are under more financial strain due to the new business tax rates, which have also decreased distributable income. In order to prepare for and offset the increased tax obligations, these businesses have to properly estimate and manage their cash flow. It’s possible that they had to carefully consider how to maximize various tax reliefs in addition to reviewing business strategies to make sure growth and funding projections are still reasonable.

These tax-saving suggestions may be helpful for businesses who are still dealing with these challenges.

1. Benefit From Capital Allowances

Businesses that intend to invest in capital goods, like as computer equipment, should think about taking advantage of the alluring “full expensing” allowance, which was originally scheduled to expire in 2026 but is now permanent. You can deduct 100% of your taxable profits from investments in qualifying plant and machinery when you use full expensing.

That does, however, necessitate careful preparation given the specifics of your business. For instance, in order to avoid incurring more tax losses, loss-making businesses may decide not to claim full expensing on expenses incurred during the expenditure period. But only after that, when the investment’s value decreases, can it write down and claim reimbursements for this expense in later years.

2. Apply Relief for Research and Development (R&D)

Should your business have contributed to an initiative aimed at advancing science or technology, you may be eligible for the beneficial R&D tax credit. In addition to the regular 100% capital allowance, this enables SMEs to deduct 86% of their yearly profit, for a total deduction of up to 186%. To make sure your claim is solid and properly supported, you must carefully plan for the tight requirements.

The Research and Development Expenditure Credit will grow to 20% in April 2023 as part of a recent significant revision to the R&D system. For accounting periods beginning on or after April 1, 2024, the R&D program for SMEs is also being combined with the program for bigger businesses.

3. Examine Your Organizational Structures

The tax limits will decrease in accordance with the number of affiliated entities under the 2023 Corporation Tax revisions. Associated denotes a situation in which two businesses share control or are managed by one another. Think about if a different structure might be more advantageous if your organization has shared controls or a group structure.

4. Examine Your Corporate Organization Again

In light of the recent hikes in corporation taxes, you might also be wondering if it makes sense to conduct business through a limited company as opposed to going it alone. Accountingweb’s analysis reveals that limited firms are somewhat more tax efficient than lower-profit businesses1. However, there is an administrative cost associated with incorporation that some people may decide outweighs the minimal benefits.

5. Examine How You Receive Money and Your Own Taxes

Recently implemented modifications to the personal tax code, such as the freezing of thresholds until 2028, may also have an impact on business owners. As inflation increases and more income generally falls into higher-rate bands, this could result in an increase in your personal tax liability. Furthermore, more taxpayers were placed at the higher rate of 45% as a result of the additional-rate Income Tax threshold being lowered from £150,000 to £125,140.

Additionally, starting in April 2023, Scotland’s top and higher tax rates will rise to 47% and 42%, respectively. The top rate will increase once again to 48% in April 2024, and income between £75,000 and £125,140 will be subject to a new “Advanced rate” of 45%.

The yearly pension allowance has been raised from £40,000 to £60,000 beginning of 2023–2024; the £1,073,100 lifetime allowance will be eliminated in 2024–2025 and subject to zero taxation. These adjustments are important to take into account in any assessment of financial planning as they may significantly aid in balancing other tax increases.

Tax exemptions, tax rates, and bases are all subject to change at any time. Any tax relief’s value is contingent upon the specifics of each case.