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Corporation Tax - 2023 Increased to 25% on Profits Over £250K
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- Lemon Half
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Corporation Tax - 2023 Increased to 25% on Profits Over £250K
From April 2023 Corporation tax is changing.
On this occasion changing means increasing
Corporation Tax charge and rates from 1 April 2022 and Small Profits Rate and Marginal Relief from 1 April 2023
Legislation will be introduced in Finance Bill 2021 to set the charge to Corporation Tax and set the main rate of Corporation Tax for all non-ring fence profits to 19% for Financial Year 2022 and to set the charge to Corporation Tax and set the main rate at 25% for Financial Year 2023.
Legislation will also introduce a small profits rate and will set this at 19%.
The small profits rate will apply to profits below the lower limit of £50,000 and profits exceeding the upper limit of £250,000 will be charged at the main rate.
I've not looked into this in great detail [yet]. My initial thought is that share holders are going to be taxed an additional 6% as I doubt most companies will be able to pass that sort of increase onto their customers. I suspect that those who rely on dividends are being taxed directly unless the PLC they are invested in raises it's dividend to compensate. Have I understood this correctly?
AiY(D)
On this occasion changing means increasing
Corporation Tax charge and rates from 1 April 2022 and Small Profits Rate and Marginal Relief from 1 April 2023
Legislation will be introduced in Finance Bill 2021 to set the charge to Corporation Tax and set the main rate of Corporation Tax for all non-ring fence profits to 19% for Financial Year 2022 and to set the charge to Corporation Tax and set the main rate at 25% for Financial Year 2023.
Legislation will also introduce a small profits rate and will set this at 19%.
The small profits rate will apply to profits below the lower limit of £50,000 and profits exceeding the upper limit of £250,000 will be charged at the main rate.
I've not looked into this in great detail [yet]. My initial thought is that share holders are going to be taxed an additional 6% as I doubt most companies will be able to pass that sort of increase onto their customers. I suspect that those who rely on dividends are being taxed directly unless the PLC they are invested in raises it's dividend to compensate. Have I understood this correctly?
AiY(D)
Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
Have I understood this correctly?
Short answer, no.
Longer answer. The shareholder won't get any direct increase in personal taxes, but it means the company will have less cash to issue as dividends.
FY22 - Company makes £1M profit, it pays 19% Corporation Tax of £190k and has £810k to do with as it wishes (assuming profits = cashflow - this is a VERY simplified example). It chooses to pay 50% of it's profits as a divi and re-invest 50% - it pays £405k in divis to shareholders who pay tax at their relevant %age depending on tax code/ if it's in an ISA or SIPP etc.
FY23 - Company makes £1M profit, it pays 25% Corporation Tax of £250k and has £750k to do with as it wishes . It chooses to pay 50% of it's profits as a divi and re-invest 50% - it pays £375k in divis to shareholders who pay tax at their relevant %age depending on tax code/ if it's in an ISA or SIPP etc.
So while the shareholder hasn't paid the extra tax, their divis have gone down.
OR
FY23 - Company makes £1M profit, it pays 25% Corporation Tax of £250k and has £750k to do with as it wishes . It chooses to continue paying £405k of it's profits as a divi and re-invests the remaining £345k and shareholders get slightly lower growth in the future - shareholders pay tax at their relevant %age depending on tax code/ if it's in an ISA or SIPP etc.
So while the shareholder hasn't paid the extra tax, their growth prospects in the company have gone down.
OR
FY23 - Company makes £1M profit, it pays 25% Corporation Tax of £250k and has £750k to do with as it wishes . It chooses to re-invest £405k and shareholders get the 'normal' level of growth, but can now only pay £345k of it's profits as a divi - shareholders pay tax at their relevant %age depending on tax code/ if it's in an ISA or SIPP etc.
So while the shareholder hasn't paid the extra tax, their divis have gone down.
There could be another OR which is that the board all cut their salaries to ensure shareholders don't miss out, but this isn't the Laughing Lemons board.
Short summary - Shareholders will pay no extra personal tax, but will feel other negative effects most likely.
Optimistic summary - Shareholders will pay no extra personal tax, but the increased tax take for the government will have a positive societal effect and they will end up much happier by having good services and security.
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- The full Lemon
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
richreduk has given you chapter and verse and the fact is that it is Corporation Tax that is being increased not personal tax. So the extra tax burden falls on the Corporation not the shareholder, at least not directly on the shareholder anyway.
Dod
Dod
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
Dod101 wrote:richreduk has given you chapter and verse and the fact is that it is Corporation Tax that is being increased not personal tax. So the extra tax burden falls on the Corporation not the shareholder, at least not directly on the shareholder anyway.
Agreed. What would be a nice gesture would be if the government reduced the rate of income tax on dividends to compensate, but of course it won't.
Since companies are things and not people, they cannot ultimately pay any taxes. They have to pass on the cost either as reduced dividends, higher prices or lower pay or benefits.
So in the end we all pay.
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- Lemon Quarter
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
or the company reduces investment in the UK and increases it in subsidiaries overseas in places where CT is lower and the business environment is more favourable;
alternatively they bring forward capital expenditure to get more capital allowances, even the 'super-deductions'
Large companies have many options!
The net result is, as with many tax increases, HMG actually ends up raises less tax.
alternatively they bring forward capital expenditure to get more capital allowances, even the 'super-deductions'
Large companies have many options!
The net result is, as with many tax increases, HMG actually ends up raises less tax.
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
scrumpyjack wrote:or the company reduces investment in the UK and increases it in subsidiaries overseas in places where CT is lower and the business environment is more favourable;
alternatively they bring forward capital expenditure to get more capital allowances, even the 'super-deductions'
Large companies have many options!
The net result is, as with many tax increases, HMG actually ends up raises less tax.
The question is of course where does the optimum point lie on Laffer Curve and all that.
Dod
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- Lemon Slice
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
Lootman wrote: Agreed. What would be a nice gesture would be if the government reduced the rate of income tax on dividends to compensate, but of course it won't.
I'm sure it won't have escaped memories that the argument presented for the introduction of a dividend tax (at 7.5%) was that corporation tax had been significantly reduced (to reach just 19%) over recent years and thus companies had the scope to pay significantly larger dividends to shareholders. With corporation tax back at 25% that 'significant reduction over recent years' will be completely erased thereby nullifying the original argument for a dividend tax as was introduced.
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- Lemon Slice
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
BobGe wrote:Lootman wrote: Agreed. What would be a nice gesture would be if the government reduced the rate of income tax on dividends to compensate, but of course it won't.
I'm sure it won't have escaped memories that the argument presented for the introduction of a dividend tax (at 7.5%) was that corporation tax had been significantly reduced (to reach just 19%) over recent years and thus companies had the scope to pay significantly larger dividends to shareholders. With corporation tax back at 25% that 'significant reduction over recent years' will be completely erased thereby nullifying the original argument for a dividend tax as was introduced.
I'm sure your tongue was well in cheek for that comment . So, no, the dividend tax has already been increased to 8.75% for Basic Rate taxpayers, and will only continue to rise, I guess, until dividends are taxed at a rate close to earned income. That will certainly resolve the issues around individuals incorporating to reduce their tax bill, and without all those pesky IR35 court cases!
Cheers
StepOne
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
StepOne wrote:BobGe wrote:Lootman wrote: Agreed. What would be a nice gesture would be if the government reduced the rate of income tax on dividends to compensate, but of course it won't.
I'm sure it won't have escaped memories that the argument presented for the introduction of a dividend tax (at 7.5%) was that corporation tax had been significantly reduced (to reach just 19%) over recent years and thus companies had the scope to pay significantly larger dividends to shareholders. With corporation tax back at 25% that 'significant reduction over recent years' will be completely erased thereby nullifying the original argument for a dividend tax as was introduced.
I'm sure your tongue was well in cheek for that comment . So, no, the dividend tax has already been increased to 8.75% for Basic Rate taxpayers, and will only continue to rise, I guess, until dividends are taxed at a rate close to earned income. That will certainly resolve the issues around individuals incorporating to reduce their tax bill, and without all those pesky IR35 court cases!
It would be trivially easy for the taxman to differentiate between company officers paying themselves "dividends" under their own control, and ordinary individual investors who hold shares and of course have no control over their dividends. But they decline to make that distinction.
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- Lemon Slice
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
I guess that there cannot be that many IR35 court cases now since employers were made liable for contract workers IT and NI not properly deducted.
Those salaried individuals in cushy 9-5 / 35hr week employment (some enjoying working from home) critical of normal incorporated close businesses (not those falling under IR35) paying dividends rather than salary should try it for themselves and experience all the extra work, time, costs and risk involved. The wimps won't, of course.
(A general comment.)
Those salaried individuals in cushy 9-5 / 35hr week employment (some enjoying working from home) critical of normal incorporated close businesses (not those falling under IR35) paying dividends rather than salary should try it for themselves and experience all the extra work, time, costs and risk involved. The wimps won't, of course.
(A general comment.)
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- Lemon Slice
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
Hunt was unable to reverse Truss's reversal of Richi's NI increases as, apparently, they were already going through Parliament. However not so the planned Corporation Tax and the Dividend Tax increases and planned introduction of the Health and Social Care Levy. What will Richi do. Will he still be around post the next general election or will it be Labour. How long will it be before Dividend Tax is aligned to Income Tax rates, or perhaps the Levy aligned to enployee NI rates, and will Corporation Tax still be 6% higher than the 19% which supported the Dividend Tax introduction* along with the £5000p.a., subsequently cut to £2000p.a. tax free allowance and will that itself last.
*At Summer Budget 2015, the government announced legislation setting the Corporation Tax main rate (for all profits except ring fence profits) at 19% for the years starting 1 April 2017, 2018 and 2019 and at 18% for the year starting 1 April 2020. A further reduction to 17% for the year starting 1 April 2020 was announced at Budget 2016.
*At Summer Budget 2015, the government announced legislation setting the Corporation Tax main rate (for all profits except ring fence profits) at 19% for the years starting 1 April 2017, 2018 and 2019 and at 18% for the year starting 1 April 2020. A further reduction to 17% for the year starting 1 April 2020 was announced at Budget 2016.
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
Bloomberg reports:
"Chancellor of the Exchequer Jeremy Hunt is considering cutting the tax-free allowance for dividend income as he seeks to fill the UK's..."
Essentially from £2k, down to £1k.
FT story link: https://www.ft.com/content/13fee759-933 ... 50c4936f2d
Might the read across be the earned interest allowance?
"Chancellor of the Exchequer Jeremy Hunt is considering cutting the tax-free allowance for dividend income as he seeks to fill the UK's..."
Essentially from £2k, down to £1k.
FT story link: https://www.ft.com/content/13fee759-933 ... 50c4936f2d
Might the read across be the earned interest allowance?
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- Lemon Quarter
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
BobGe wrote:Bloomberg reports:
"Chancellor of the Exchequer Jeremy Hunt is considering cutting the tax-free allowance for dividend income as he seeks to fill the UK's..."
Essentially from £2k, down to £1k.
FT story link: https://www.ft.com/content/13fee759-933 ... 50c4936f2d
Might the read across be the earned interest allowance?
or have a non refundable withholding tax on all dividends, as most countries do. That would raise a lot as overseas holders of UK shares would then effectively pay UK tax as we do on US shares (and on most other countries shares). Don't know why we didn't do that years ago!
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- Lemon Quarter
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
Income tax allowances frozen, so fade in real terms. Corporate, dividend, capital gains taxation levelled at 30% (in reflection of earned income taxed at 20% tax, 12% NI). Ending of income tax and NI separation - merged into a combined 30% single rate for one and all (no lower/higher rate taxpayer differential). Abolition of ISA exemptions. Abolition of primary home CGT exemptions. 30% dividend withholding taxes introduced. Fixed 30% inheritance tax rate, no exemptions. A vastly simplified tax rule book that addresses the current/projected spending hole. Immediate effect, so any sales from ISA's, or home sales helping to contribute to closing down the disastrous wasted spending Sunak induced. On the plus side, ending of VAT. Simpler 'common taxation' and no VAT enabling more efficient (less expensive) tax office (central government savings). Also ends the current differential between UK reporting and foreign/non-reporting funds.
What's not to like?!
What's not to like?!
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- Lemon Slice
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Re: Corporation Tax - 2023 Increased to 25% on Profits Over £250K
"Chancellor Jeremy Hunt is considering a 1.25 percentage point increase to dividend taxes in a bid to plug a fiscal hole of around £50bn. He is also said to be considering changes to capital gains tax ahead of his Autumn Statement on 17 November."
"Hunt is also said to be considering halving the tax-free dividend allowance from £2,000 to £1,000 – a move that is predicted to raise £455m next year."
https://citywire.com/funds-insider/news ... fea=394519
"Hunt is also said to be considering halving the tax-free dividend allowance from £2,000 to £1,000 – a move that is predicted to raise £455m next year."
https://citywire.com/funds-insider/news ... fea=394519
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