Rishi Sunak delivered his second and third budget as chancellor this year, announcing allowance freezes, as well as a rise in Corporation Tax and a new super-deduction.

Changes were rife in other quarters too. The prime minister announced a Dividend Tax rise and an increase in National Insurance (NI), the latter of which will become the “Health and Social Care Levy”. Elsewhere, the work and pensions secretary Thérèse Coffey was forced to break a Conservative manifesto promise and suspend the State Pension triple lock.

But what do these changes mean for you as a business owner? How will they affect you and your clients over the next few years? And could they force you to make fundamental changes to how you manage your income?

Keep reading to find out.

4 tax changes that could affect you and your business

1. Corporation Tax

What is changing?

Back in March, the chancellor announced that from 2023, the rate of Corporation Tax on company profits will rise from 19% to 25%.

The new rate will only be paid by companies whose profits exceed £250,000. If your business records annual profits between £250,000 and £50,000, the rate of tax you pay will be tapered, with those companies with less than £50,000 profit continuing to pay the current level of 19%.

What does it mean for your business?

The impact of the change will depend on the profit your business currently makes.

While the full 6% increase will no doubt seem high to many – especially after the struggles of the pandemic – the chancellor was at pains to point out that the new rate would apply to only 1 in 10 companies.

We can help you look at ways to mitigate the effects of the Corporation Tax rise, so get in touch.

2. The super-deduction

What is changing?

If your business will be looking at an increased Corporation Tax bill from next year, the chancellor might have hoped the introduction of his super-deduction would soften the blow.

In an attempt to incentivise investment, the super-deduction applies to the money you invest in your business between now and 31 March 2022.

Intended to help aid the UK’s economic recovery, it could reduce your tax bill by 130% of the cost of your tangible investments, an effective tax cut of 25p for every pound invested.

What does it mean for your business?

Many of the coronavirus schemes introduced to help businesses – from “furlough” to bounce back loans and VAT deferrals – have now ended. If, however, you are in a position to be able to grow your business, now is a great time to do so.

We can take stock of your company’s finances and help you decide whether making the most of the super-deduction is the right move for you.

3. The Health and Social Care Levy

What is changing?

Early in September, the prime minister announced a 1.25 percentage point rise to National Insurance, effective from April 2022.

The levy will be paid by employers as well as employees. It will also be payable by workers of State Pension Age from 2023, the first time this group have been asked to make National Insurance contributions (NICs). Also from this date, the contribution will appear on your payslip as the “Health and Social Care Levy”.

The increase is expected to raise £12 billion a year for health and social care over the next three years.

What does it mean for your business?

We can help you limit the negative impact of the NI rise. With NICs linked to salary, you might consider offering share option schemes to employees or increasing pension contributions via salary sacrifice. This lowers the salary on which NICs are paid, leading to potential savings for you and your employees.

It’s also worth reiterating that the change will affect any employees you have over State Pension Age.

4. Dividend Tax

What is changing?

Dividend Tax rates are also set to rise from April 2022. The rates across tax bands are rising by 1.25% on all dividends above the £2,000 Dividend Allowance.

Basic-rate taxpayers will pay tax at 8.75%, higher-rate taxpayers at 33.75% and additional-rate payers at 39.35%.

What does it mean for your business?

If you complement a lower salary by paying yourself dividends, you might consider bringing forward your plans to pay yourself before the change comes into force.

Remember, too, that even the increased rates might still make them more profitable than paying Income Tax on an increased salary. We can help you decide.

Make the most of the rules that apply now

As the end of 2021 approaches, this year more than usual, it pays to start getting tax year end ready early.

Tax rises and allowance freezes mean that making the most of the rules as they exist now and using up all of your applicable allowances – if you can afford to – will be more profitable than ever.

Starting early means that you can spread payments over the next four months or so, rather than finding the money all at once. You’ll also avoid the kind of last-minute rush that can lead to mistakes in calculations.

Get in touch

If you would like help getting tax year end ready, or you’d like to discuss the possible impact of any of this year’s tax changes on your business, please contact us today.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.