Readers should take note of the following changes:
- Income Tax Allowances frozen: The Income Tax personal allowance and the rates and bands are frozen until April 2026. Whilst this is not a direct tax increase, it does mean that any increases in earnings will be fully taxed and certain taxpayers may find that this process will push some of their income into the higher rate bands.
- Dividend Tax: To ensure that the tax payable on dividend income increases in line with the increase in NIC next year, from April 2022 the new rates payable on dividends in excess of the £2,000 tax-free allowance will be:
- Dividends that form part of the basic rate band – 8.75% (7.5% 2021-22)
- Dividends that form part of the higher rate band – 33.75% (32.5% 2021-22)
- Dividends that form part of the additional rate band – 39.35% (38.1% 2021-22)
For most director/shareholders of smaller companies who have adopted the high dividend low salary approach to remuneration, will pay more tax as a result, but this should not affect the overall strategy.
- Corporation Tax: The planned increase in rates to 25% (currently 19%) from April 2023 was confirmed. From 1 April 2023, there will be two rates of CT. Taxable profits up to £50,000 will continue to be taxed at 19%, taxable profits more than £250,000 will be taxed at 25%. Profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods.
- Increasing the normal minimum pension age: The earliest age at which pension savers can access their pensions without incurring an unauthorised payments tax charge is changing. From 6 April 2028, the normal minimum pension age is increasing from 55 years to 57 years. Affected individuals may need to revisit their retirement plans.
If you are concerned by any aspects of the recent Budget, please call.