• Incorporated businesses are taxed at corporation tax rates, currently 19%, and any profits retained in the business will be subject to no additional tax charge. This final point illustrates one of the major advantages of running a profitable business inside a limited company structure. If you are self-employed you may want to consider the benefits of incorporating your business. NOTE: from 1 April 2023, corporation tax rates for profitable businesses may see an increase in rates from 19% to 25%.
  • Shareholders should review any plans in place to deal with succession, especially, smaller family businesses. This review should consider personal circumstances, changes in the company’s financial status, and changes in tax legislation.
  • Shareholders should also review shareholder agreements to ensure they still reflect the intentions of signatories.
  • Form 2022-23 shareholders’ dividends up to £2,000 can be drawn tax free. Would it be possible to issue shares to adult children and provide them with a tax-free income?
  • Review the active participation of director/shareholder family members. Is there an opportunity to employ a spouse or child; or provide taxable benefits?
  • Directors who have overdrawn their loan accounts with the company should consider taking a dividend to clear the loan (if reserves are available) or otherwise repay the loan within nine months of the trading year-end. In this way the additional (albeit temporary) 33.75% corporation tax charge can be avoided.
  • Directors with semi-permanent deposits on loan to the company, may be advised to charge the company interest. Basic rate income taxpayers can receive up to £1,000 in interest tax free, higher rate taxpayers £500.
  • As corporation tax rates are low, currently 19% and increasing for highly profitable companies to 25% from 1 April 2023, there is an argument to consider deferring claims for tax relief on qualifying capital investments to later years if this saves tax at the higher 25% rate. There should also, of course, be bona fide commercial reasons for the investment.
  • Another consideration, if significant capital expenditure is considered for 2022-23, claim the generous 130% Super Deduction before this allowance is withdrawn 31 March 2023. This allowance is only available to companies.
  • The tax on-costs of running a company car fleet – class 1A National Insurance for instance – as well as the tax implications for participating employees, may provide sufficient justification for a change in strategy. For example, could the company lend employees funds to buy their own cars and pay them a tax-free business mileage allowance to cover running costs? There are also compelling tax savings if car fleets convert to using electric vehicles.
  • If projected profits forecast a temporary dip, or a loss in the short-term, could the company’s accounting period be extended to embrace the loss and average down the taxable profits for the preceding period?
  • If projected profits are forecasting a downturn in profits, how will this affect director/shareholders’ remuneration in the coming months; will there be sufficient retained profits to maintain regular dividend payments?

Be sure to consider the funding of corporation tax payments that will need to be made nine months and one day after the company’s accounting year-end date.

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