What does the Spring Budget 2023 mean for your business?

The government has announced that corporation tax will increase from 19% to 25% for companies with over £250,000 in profits from April 2023. However, if your profits are £50,000 or less, you’ll still pay 19% under a new small profits rate (SPR).​

For example, if your company makes £40,000 in profits in 2023, you will pay £7,600 in corporation tax (19% of £40,000). However, if your company makes £300,000 in profits in 2023, you’ll pay £75,000 in corporation tax (25% of £300,000). ​

If your profits fall between £50,000 and £250,000 you’ll be taxed at 25% on profits over £50,000, but will receive marginal rate relief - so the effective tax rate will be somewhere between 19% and 25%. ​

The corporation tax shuffle could have both positive and negative impacts on small business owners. You could benefit from the lower SPR if your profits are low (£50,000 or less), but could face a higher tax rate if your profits are between £50,000 and £250,000. ​

It’s the perfect time to plan your business's finances and strategy now to maximise your opportunities and minimise your risks for the future. If you wish to know more about this topic, get in touch with your accountant or sign up with Beany.​

The Spring Budget 2023 has brought in some changes to personal tax and dividends rates that could impact businesses and their owners. The income tax and dividends tax rates haven’t increased since the 2022/23 tax year, however, the threshold at which you start paying the highest rate of income tax has decreased from £150,000 to £125,140. This means more people will pay the additional rate of 45% on their income above this limit. ​

The dividend allowance, which is the amount of dividend income that can be received tax-free, will also be reduced from £2,000 to £1,000. These changes will affect the tax liability of business owners who pay themselves dividends from their company profits, as well as shareholders who receive dividends from other companies.​

If you wish to know more details about how it affects you as a business owner or a shareholder, have a conversation with your accountant - they’ll be able to guide you through the changes. ​

One of the most exciting measures mentioned in the Spring Budget 2023 is the extension of capital allowances (until the end of March 2026). Basically, it means small business owners can deduct some or all of the cost of an asset from profits before paying tax. In other words, businesses can essentially write off the full cost of certain items of plant and machinery in the year in which they purchase the asset. There is also a new 50% First Year Allowance for assets that are classed as special rate (which typically includes long-life assets). ​

For example, if you own a bakery, you may be eligible to buy a new oven, a mixer and a delivery van and claim the full cost of these assets as a deduction from their taxable profits. If you run a small IT company, you could buy new laptops, software and servers and do the same. ​

However, there are some restrictions and eligibility requirements you need to meet before claiming the capital allowances, so talk to your accountant to find out your eligibility and how capital allowances work. ​

The Budget has some good news for small business owners who are engaged in R&D activities. ​

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The dividend allowance is the amount of dividend income you can receive tax-free each year. It was originally £2,000, however, the government has reduced it to £1,000 for 2023/24, and then to £500 from 2024/25. This means that if you are a small business owner who pays yourself dividends, you’ll need to pay more tax on your income. In the UK, the tax rates for dividends are 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate).​

For example, if you receive £10,000 in dividends in the tax year 2023/24, you’ll only have £1,000 tax-free, with the rest being taxed at your marginal rate. Check with your accountant on how it might impact you and your business, and if your current situation is tax efficient  (for example, you might also want to consider other ways of paying yourself, such as a salary).​

The Spring Budget 2023 has introduced some major changes to the pension system, such as the increase of the Annual Allowance (AA). The Annual Allowance is the amount you can contribute to your pension and receive tax relief. This has increased from £40,000 to £60,000. This means that contributing to a pension is an increasingly tax-efficient way to extract profits, which helps small business owners who may want to boost their pension savings. ​

It’s best to consult with a financial adviser when making decisions about your pension, or ask your accountant to see if they know a financial advisor that could help you navigate these changes!​

Here are some practical tips from our accountants:​

For more detailed information, please visit GOVT UK’s website.​

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