Tax Outlook for contracting

[MrC]

With all the recent toing and froing i'm probably trying to understand how big the tax grab will be next year for those outside with ltd and any possible mitigation strategies.


Firstly what is the CT rate going to be next April for a co with under 300k profits? There seems to be contradiction out there and on this gov page:

On 23 September 2022, the government announced that the increase in the Corporation Tax main rate to 25% and the introduction of a small profits rate of tax from 1 April 2023 (previously announced at Spring Budget 2021) would no longer go ahead. The Corporation Tax main rate will, therefore, remain at 19% from 1 April 2023.

from https://www.gov.uk/government/public...orporation-tax

If CT and dividend rate are going up next year does it make sense to do anything like adjust your company year end to April 5th or pay more dividends this tax year Vs next even if that takes you into HR tax?

[northernladuk]

Bearing in mind we had the IR35 changes repealled and then that got removed in less than a month then who the hell knows at this situation.

As to what is most efficient giving what we think we know then your accountant is the one you should be asking. We don't know your exact situation so any general advice won't be worth much. Get a session in with your accountant and work the art of the possible out with them.

[malvolio]

Unless they change things yet again, the plans for the CT changes were to have a sliding scale, so small companies stay at 19% while larger ones range up to 25%.

Given that this would almost certainly drive bigger companies to look for lower CT regimes, it may not even happen.

So assume it won't either change, or it will be at 25% and work out both situations.

[Maslins]

The MARGINAL rate of CT next year will be (assuming no further backtracking, or u-turns on backtracks, or whatever they want to call it):
<£50k profit = 19%
£50k-300k profit = 26.5%
>£300k profit = 25%

Ie a bit like how each extra £ earned between £100k-125k suffers more personal tax than each extra £ above that (due to loss of personal allowance), you're going to have a similar thing here.

What should you do about it? Up to you, and what levels of profit you're currently at. You'll likely do yourself more financial harm than good if you let the tax tail wag the commercial dog though. Never ceases to amaze me the lengths some will go to, losing £'000s to save £00s in tax...but having said that, timing of things like dividends/pension contributions is worth considering.

[Lance]

The MARGINAL rate of CT next year will be (assuming no further backtracking, or u-turns on backtracks, or whatever they want to call it):
<£50k profit = 19%
£50k-300k profit = 26.5%
>£300k profit = 25%

Ie a bit like how each extra £ earned between £100k-125k suffers more personal tax than each extra £ above that (due to loss of personal allowance), you're going to have a similar thing here.

What should you do about it? Up to you, and what levels of profit you're currently at. You'll likely do yourself more financial harm than good if you let the tax tail wag the commercial dog though. Never ceases to amaze me the lengths some will go to, losing £'000s to save £00s in tax...but having said that, timing of things like dividends/pension contributions is worth considering.

ouch. That marginal rate is going to hit most contractor companies.

[MrC]

Bearing in mind we had the IR35 changes repealled and then that got removed in less than a month then who the hell knows at this situation.

There's no absolute certainty but given that the 2021 ir35 reform was Sunaks baby I can't see that changing and I don't think the Tories will want to change anything further in this space prior to the next general election to avoid spooking the markets again

[MrC]

What should you do about it? Up to you, and what levels of profit you're currently at. You'll likely do yourself more financial harm than good if you let the tax tail wag the commercial dog though. Never ceases to amaze me the lengths some will go to, losing £'000s to save £00s in tax...but having said that, timing of things like dividends/pension contributions is worth considering.

good to see you're still alive and well on these forums Maslins and keeping abreast of the latest

Sure, taking less work because of the higher tax might be a rash move. Taking an inside gig through a brolly might make more sense when you reach income that'll land your ltd with 50k profit (depending on rates). A generous employers pension contribution might help too.

[Lance]

Sure, taking less work because of the higher tax might be a rash move. Taking an inside gig through a brolly might make more sense when you reach income that'll land your ltd with 50k profit (depending on rates).

WHAT?

You'd pay 40% + NICs, and have no expenses to claim, rather than 26.5% marginal rate???

A generous employers pension contribution might help too.

a what?
Inside or outside IR35, that doesn't exist.

[eek]

My current plan

6 month contract inside IR35 - max pension then income
3 months outside IR35 - £10k salary, then into the company til £50,000 or so profit

3 months off

this may change depending on how things fall across company and tax year ends

[ensignia]

My current plan

6 month contract inside IR35 - max pension then income
3 months outside IR35 - £10k salary, then into the company til £50,000 or so profit

3 months off

this may change depending on how things fall across company and tax year ends

Good luck with that.