Tax matters January 2023

Taxation can be complex and ever changing.

1) There is an alternative tax break for home working - one can charge rent to the Employer Company instead of claiming the fixed allowance set at £312 per year. The rent charged must be reasonable and calculated on basis of what proportion of the home is used for work/ business. However homeowners may face Capital Gains Tax issues by doing this

2) From April 2023 the corporation tax rate increases from 19% to 25% for profits above £50,000-. And the Dividend Nil Rate Band decreases from £2000 to £1000 from April 2023 and down to £500 fro April 2024.

Higher dividends and lower salary (usually around the personal allowance liftoff £12570) is still the preferred way of extraction profits from a limited company from tax years 2034/24, 2024/25 and 2025/26. For example in 2024/25 taking a salary equal to the personal allowance (£12,570) plus dividends of £80,000 will result in £4303 more net income compared to a salary of £60,000 and dividends of £40,238. With corporation tax going up to 25% on profits above £50,000 it will become slightly less beneficial taxwise to incorporate. On estimation a profit extraction of about £112,500 from a limited company with profits above £112,500 will still be more beneficial to a sole-owner Director by about £3000.