Tax relief for owner-managers
There is no certainty of all the measures surviving, but September’s Growth Plan was good news as far as tax is concerned for owner-managers, with the rates of corporation tax, national insurance contributions (NICs) and dividend tax all cut.
The cuts
- Corporation tax: The intended increase in the main rate of corporation tax to 25% for profits in excess of £250,000 from 1 April 2023 has been cancelled. A marginal rate of 26.5% would have applied to profits between £50,000 and £250,000. Corporation tax will now remain at the current single rate of 19%.
- NICs: The 1.25% health and social care levy has been cancelled, so the rates of NICs for 2023/24 will return to what they were for 2021/22. For directors, the rate will be 12% on remuneration between £12,570 and £50,270, with a 2% rate thereafter. For the company, a flat rate of 13.8%. Compared to 2021/22, however, the increased primary threshold has been retained – a double benefit.
- Dividend tax: Tax rates for 2023/24 will similarly be cut by 1.25%, meaning a basic rate of 7.5%, a higher rate of 32.5% and an additional rate of 38.1%.
Directors will also benefit from the proposed 1% cut to the basic rate of income tax from 6 April 2023.
Impact
The changes previously set to come in from April 2023 would have made incorporation much less attractive compared to running an unincorporated business. The Growth Plan tax cuts effectively return the tax position to what it was for 2021/22. For a business with profits of £100,000 (taking director’s remuneration of £12,570 and maximum dividends if run as a limited company), the tax cost comparison – before and after the tax cuts for 2023/24 – is:
| Unincorporated | Incorporated | advantage | |
|---|---|---|---|
| Before tax cuts | £33,100 | £33,000 | £100 |
| After tax cuts | £31,600 | £30,300 | £1,300 |
The government’s step by step guide on setting up a limited company can be found here.
