Plan For The New Tax Year 2023/2024
Vinku Shah FCCA
Community Pharmacy Specialist Accountant and Partner at Silver Levene LLP
With 2023/2024 tax year well under way, it is imperative to look at any planning opportunities available to save some tax, extract cash from the business and reduce overall tax liabilities. We list below some of the ideas/tips in the new tax year so that you can plan.?
1.???????Salaries??
As a director of a limited company, you are entitled to be paid a salary for your work and so are members of your family who work for the company. Paying at least a small salary can be beneficial, particularly when the recipient does not already have the 35 qualifying years needed for entitlement to the full single-tier state pension.?
To preserve entitlement to state pension, and to ensure the year counts as a qualifying year, it is advisable to pay a salary at least equal to the lower earnings limit for National Insurance Contributions (NIC) which is set at ￡123 a week for 2023/2024 i.e., ￡533 per month or ￡6,396 per annum.??
2.???????State pension
To obtain a full state pension, you need to have an NIC record containing 35 qualifying years. You will normally have an NI record for a year because you have earned a salary or self-employed profits above the de-minimis level for each year.
If there are gaps in your records (say because you were not working or were working abroad) AND you do not believe you will reach 35 qualifying years before you retire, you can fill those gaps by way of a voluntary payment.
However, the time limit for how far you can go back is changing. At present, for men born after 5 April 1951 and women born after 5 April 1953, they have until 31 July 2023 to pay for any eligible gaps between the tax years April 2006 and April 2016, going back 16 years.
After 31 July 2023, this will revert to the usual 6-year look back period.
3.???????Dividends?
The annual tax-free dividend allowance for 2023/2024 is ￡1,000. Although referred to as an “allowance,” it is a zero-rate band and therefore uses up your basic or higher rate band as appropriate. Dividends are treated as the top slice of income and for 2023/2024, dividend income is taxed at 8.75% to the extent it falls within the basic rate band, 33.75% if it falls within the higher rate band and 39.35% to the extent it falls within the additional rate band.??
It is important to put together all your sources of income before deciding on the level of dividends to draw as these other sources of income will utilise the basic rate band before dividends can be taxed. The company will need to have sufficient reserves to be able to pay a dividend to its shareholders.?
4.???????Annual employment allowance??
The annual employment allowance for 2023/2024 will be ￡5,000 and is available to most companies. This is not available if the company is a personal company where the sole employee is also a director. Most pharmacy contractors will be operating as a limited company and will employ staff other than directors and the allowance will help to reduce the NIC liability of the company.?
5.?????Company Cars?
The cost of acquiring pure-electric and some hybrids will usually qualify for the Enhanced Capital Allowances (ECAs). Pure zero emission cars and vans qualify for 100% first year allowance in the year of purchase and are purchased new and unused. Cars with CO2 emissions not exceeding 50g/km emissions will attract main rate allowances currently at 18% on reducing balance basis therefore it may be beneficial to purchase a new and unused electric vehicle if the cashflow permits as this will reduce the corporation tax liability or increase the tax losses that can be carried forward to offset against future taxable profits.?
The director or employee provided with electric and low Co2 emission company cars will pay a low benefit in kind tax charge which is set at 2% for 2023/2024.?
6.?????Corporation tax?
From 01 April 2023, the corporation tax main rate applicable to non-ring-fenced profits over ￡250,000 has increase from 19% to 25%. A small profits rate (SPR) for companies with profits of ￡50,000 or less applies so that they will continue to pay corporation tax at 19%. Companies with profits between ￡50,000 and ￡250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual decrease in the effective corporation tax rate.?Therefore, in order to save tax, some planning will be required for example, investing in planned Capex to claim Annual Investment Allowance in 2023/2024 if the rate applicable will be more than 19%.
7.?????Pension provision?
The employer can contribute to an employee’s pension and is made gross and no tax or NIC is payable by the employee in respect of the contribution. The annual allowance for pension contribution is ￡40,000 per person and this is tax deductible when computing the company’s taxable profits. For 2023/2024 this would equate to a maximum saving of ￡10,000 in corporation tax (￡40,000@25%) per person contributed. Also note that any unused allowance for pension contributions can be carried forward up to a maximum of 3 years therefore some planning should be undertaken. ?
Although we are early in the tax year, it is better to look through your finances and plan ahead as you could find some considerable tax savings.
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