After the storm: self-employed tax planning

If you are self-employed or work via a company the winding back of many of the proposals in September’s mini-Budget have altered tax planning.

The  range of tax and other changes proposed in September affecting companies and employment, included:

1. Freezing the rate of corporation tax at 19% for all companies.
2. Reducing the basic rate of tax to 19% from 2023/24 (outside Scotland).
3. Ending the 2017 and 2021 reforms to off-payroll working rules (often called IR35).
4. Abolishing the additional rate of income tax (outside Scotland).
5. Scrapping both the 1.25 percentage point increase in National Insurance Contributions (NICs) from 6 November 2022, and the Health and Social Care Levy, which had been due to start in 2023/24.

Less than a month later, the new Chancellor, Jeremy Hunt, culled the first three on this list, the fourth having been already scrapped by Mr Kwarteng. Mr Hunt might also have buried the fifth, too, were it not for the fact that the necessary legislation was just about to become law.

Mr Hunt’s reworkings of his predecessor’s plans has several implications for shareholder directors:

• If you are wondering whether to pay yourself a bonus in this tax year or next year, you and your company will still both save NICs by waiting until after 5 April 2023.
• If you are considering a dividend instead of a bonus, there is now no point in delaying until 2023/24 as your dividend will still be taxed at the same rate, assuming your other financial circumstances do not change.
• If you are considering an investment in plant and machinery, there may now be less rush to take advantage of the 130% super-deduction, due to end on 31 March 2023. With the annual investment allowance staying at £1 million after March 2023, and the main corporation tax rate changing to 25% in April 2023, the mathematics have changed. You could even benefit from greater tax relief by delaying investment.

If you are self-employed and considering becoming a director by incorporating your business, you may also want to think again. The higher rate of corporation tax from next April, for businesses with gross profits above £50,000, has reduced the tax attractions of operating as a company.
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Yet again, this autumn has highlighted the need for advice in keeping abreast of tax developments and their consequences.