by David Watkinson of WatkinsonBlack
As I write this we are awaiting the budget and autumn statement so I am unable to comment on any announcements that the Chancellor will be making. However, we do know a lot of the changes that are to be made, the main one being that the rates of Corporation Tax and National Insurance are set to increase, with the majority of bands and thresholds being frozen.
Currently, Corporation Tax is paid by all companies at a standard rate of 19%. It has already been announced that it will remain at this rate for the year commencing April 2022. However, from 1st April 2023 the rate of Corporation Tax will increase to 25% on profits above £250,000. The rate will remain at 19% for profits up to £50,000. Profits between £50,000 and £250,000 will be taxed at 25%, but will receive marginal relief of 3/200 of the difference between taxable profits and £250,000, resulting in a gradual increase in the overall rate of Corporation Tax.
Older readers may remember that we had a similar system of Small Companies Corporation Tax up to 2014. As applied then, the above limits will be divided between all 2Associated Companies”, so if there are four companies under the same control then each company will pay the full rate on profits in excess of £62,500 and the small company rate will only be available on profits up to £12,500.
So what else do we know?
Well, we know that the Chancellor has already announced that all personal allowances and tax bands will be frozen at their current level up to and including 2025/26. This also applies thresholds for Capital Gains Tax, Inheritance Tax and Value Added Tax.
The income tax basic rate income tax will be payable on income between £12,571 and £50,270. Above this level, the higher rate of tax applies. The personal allowance will continue to be withdrawn progressively once income exceeds £100,000, and all income above £150,000 will be taxed at the “additional rate”. Whilst these may be subject to change, the current basic rate is 20%, the higher rate is 40%, and the additional rate is 45%.
National Insurance is set to increase from April 2022. The thresholds will be frozen at their current level. However, the rates at which it will be charged will all increase by 1.25%. Therefore, employees will pay 13.25% on income up to the upper earnings level, and 3.25% on income above this. Employers will see their contribution increase to 15.05%. If you are self-employed then your contribution will be 10.25% up to the upper earnings limit and 3.25% above that.
Capital Gains Tax will continue to be paid on all gains in excess of £12,300 in the year, or £6,150 in the case of most trusts. It is widely thought that the rate of Capital Gains Tax will be a prime target for the Chancellor. However the current rate of Capital Gains Tax is 10%, increasing if total income and taxable capital gains exceed £50,270 to 20% for the excess. These rates increase to 18% and 28% respectively if the gain is made on residential property, with the exception of your own “principal private residence” which is currently tax-free.
Inheritance Tax nil-rate band and residential nil-rate band remain at £325,000 and £175,000 respectively. And finally, the VAT registration and de-registration thresholds remain at £85,000 and £83,000 respectively.
All of the above is known before the Chancellor leaves No 11 clutching his little red box. We await with bated breath what further joys we have in store, but the general view is that it will not be a “give-away” budget. Perhaps this is to be expected following the trials and tribulations of the past couple of years. We will let you know what those further measures are once they are known.
WatkinsonBlack have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Our office is now open during all normal office hours. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
Call 01925 413210 for more details or email [email protected]
