By Glenn Clifford, of Armstrong Watson
The end of the tax year can be a stressful time.
For business owners, effective tax planning shouldn’t be a mad March rush.
Of course, this could all change following the Spring Budget, but aiming to get ahead next year will ensure you don’t overlook tax changes or lose valuable tax allowances that can help reduce your tax bill.
Unincorporated businesses and basis period reform
For business owners, one of the things you will need to consider in planning up to the tax year end in 2024 is the major reform of the income tax basis period.
The basis period is ordinarily the 12-month period in which an individual’s profits or losses are calculated, which will normally be the accounts year-end.
If, for example, your year-end is 30th September, you will be taxed on the business profits for the 12 months to 30th September.
However, from 2023-24 all businesses will need to pay tax on profits to the end of the tax year (5th April, 2024).
Therefore, if your basis period ends on 30th September, 2023, you will be taxed on profits arising in the 12 months to 30th September, 2023, plus the additional profits from 1st October, 2023, to 5th April, 2024.
As a result, you will be taxed on 18 months of profits in 2023-24 instead of only 12 months.
If, for example, your taxable business profits are normally £40,000 you will see these increase to £60,000.
Changes to Corporation Tax for companies
At present, all companies pay 19 per cent Corporation Tax on all their profits.
This is due to change in April, when the rate of tax will depend on the level of profit and whether you own any other companies.
For a company with no other associated companies, the first £50,000 of profit will be taxed at 19 per cent.
The next £200,000 of profit is taxed at a marginal rate of 26.5 per cent and any balance over £250,000 is taxed at 25 per cent.
While there have been calls from businesses, industry bodies and even senior backbenchers to lower the headline rate of Corporation Tax, both Jeremy Hunt and Rishi Sunak have ruled out cancelling the planning rate rise.
This is therefore something companies will need to factor into their tax planning.
If you would like support or advice with your tax planning, please contact Glenn Clifford-Perkins on 01768 222057 or email help@armstrongwatson.co.uk
