New Tax Changes for Higher Rate Taxpayers
The Autumn budget included quite a few tax changes that will affect higher-rate taxpayers, especially if you currently draw your regular income as dividends from your company.
The 3 main changes were:
- To reduce the additional tax rate from when you pay tax at 45% which is now £125,000
- Corporation tax is increasing to 25% for those companies where the taxable profit exceeds £250,000
- Between £50,000 and £250,000, the tax rate scales from 19% to 25% the nearer you get to £250,000
- Personal allowances and tax thresholds are not increasing so, with inflation currently at 9.3%, this is in effect a tax increase
It is very important to plan now as these changes take effect from April 2023. The first thing to do is review whether it is still tax efficient to draw your earnings as a dividend as it might now actually be more tax efficient to draw a salary rather than a dividend. This will depend on the amount you draw and the level of profits your company earns. In circumstances where your earnings are below £50,000, it is still tax efficient to draw a dividend. If they are over £50,000, then we need to review if this is still the best course of action. This will depend on whether family members are shareholders and utilising their basic rate band etc.
It would also be worth reviewing your pension contributions to make sure you have utilised your allowances for the previous 3 years, especially if you are getting tax relief at 25% if the company profits are taxed at this rate.
The tax-free dividend allowance is also being cut from £2,000 to £1,000 from April 2023 so, again, this needs to be taken into account if you pay family members dividends to utilise their allowances.
If you have any questions or want to discuss these tax changes further, please email me at lee.manning@raffingers.co.uk or click here to get in touch.