‘Underwhelming’ Spring Budget makes ‘boring’ tax year-end changes even harder to face

Accountants fear limited companies aren’t actively making tax year-end changes which are “boring” ordinarily, but now look even more off-putting from Spring Budget being so flat.

The chancellor’s announcements have been derided as “underwhelming” -- by Alliotts partner Clair Dart, and “not the most ground-breaking,” by Cooper Parry partner James Peck.

With the contractor sector more in mind, Robert Sharp, chief executive of umbrella company Orca Pay Group says Spring Budget 2023 was simply a “non-event.”

'Several year-end considerations for limited company contractors'

But since then accountants have taken to LinkedIn to insist that despite the apparent insignificance of Jeremy Hunt’s statement, PSCs may have a lot of tax-related actions to take.

And not many days to take it in. “There are several end of year tax planning considerations to keep in mind,” says WTT Group’s Jerry Giles, citing 2022/23 ending on April 5th.

“These may be boring and annoying measures,” he acknowledged. “But so many taxpayers overlook the obvious. Use it or lose it”.

'CGT annual exempt amount down to £6,000'

Giles recommended six actions limited company directors ought to explore in advance of new tax year 2023/24 commencing on April 6th 2023.

The six are; maximise your ISA allowance, maximise your personal allowance, make use of pensions contributions, consider charitable donations, claim tax relief and finally, plan CGT.

Only last week, tax firm Dolan Accountancy reminded that the capital gains tax annual exempt amount falls significantly from April 6th 2023, from £12,300 to just £6,000.

The firm, which today explains Spring Budget's changes to R&D, exclusively on ContractorUK, says the £6,000 ceiling lowers to £3,000 for 2024/25.

'Significant jump in what directors lose to tax'

But it is another of Mr Hunt’s announcements from late 2022 which limited companies are warned will potentially affect their bottom line the most -- from Sunday.

“From April 1st, the rate of corporation tax changes from 19% to a variable rate between 19% to 25%, depending on the profits made by your business,” posted A to Z Finance Solutions.

The Birmingham-based accountancy firm deciphered: “This could mean a change to what you will owe in tax for the 2023/24 tax year. If you have no ‘associated companies,’ then where your profits are below £50,000, your tax will continue to be paid at 19%.

“If your profits exceed £250,000, your tax rate will be 25% -- meaning a significant jump in what you lose to tax.”

'Associated company criteria an added complication of corporation tax changes'

But aware they are often entrepreneurial and with multiple ventures, WTT Group’s Tom Wallace warns that the ‘associated company’ criteria may catch out contractors.

“A company will be associated with another if one has control of the other, or both are under the control of the same person or their ‘associates,’” he advises.

“So this is perhaps an added complication for those who own multiple businesses, or trade through two or more companies.

“And [so] it should not be assumed that marginal rate relief is available at the [standard CT] thresholds for 2023/24.]”

Formerly of HMRC, Wallace added that ‘associated companies’ will “definitely need to be a question asked by those preparing [tax] returns who might not act for all the client's business interests.”

'Get your head around Patent Box Tax Relief'

Reflecting too on the new 25% rate being introduced from Sunday April 1st, chartered accountant Jeffrey Lermer urged concerned individuals to look into Patent Box Tax Relief.

“[This HMRC scheme] incentivises a company to keep their Intellectual Property within the UK and rewards them for doing so, by reducing the corporation tax on profits resulting from qualifying IP income to 10%.”

Managing director at JLA Accountants, Mr Lermer continued: “It’s for UK limited companies paying UK corporation tax, [but] you need to have developed an innovative product or process, filed a patent application, and generated profits relating to the patented invention.

“The process may be small, but the profits generated large. It’s just something to get your head around [because] if 50% of your profits come from it, instead of your average tax rate being 25%, [it] would be 17.5%.”

'You're only as strong as your weakest link'

Aside from trying the unexplored or overlooked in a bid to boost tax-efficiency, limited companies should take a ‘back to basics’ approach too.

“[With only eight days] to go until your tax planning options will be limited…make sure your records are in order,” advised accountant Izzi Rosenberg.

The Xero specialist added: “The changes [to both corporation and dividends in April 2023] will have a costly impact on anyone with a limited company. [But] you are only as strong as your weakest link, if your data is inaccurate, that will be your weak link and as a result, the advice your accountant gives you may be inaccurate too.”