Corporation Tax Increase
From 1 April 2023, the main rate for Corporation Tax was increased from 19% to 25% for companies with taxable profits above £250,000. For companies with taxable profits below £50,000, a small profits rate of 19% applies. Where a company has taxable profits between £50,000 and £250,000, marginal relief is available to provide a gradual increase in Corporation Tax rate. These limits are apportioned for accounting periods of less than 12 months and for the amount of associated companies there are.
Class 2 and Class 4 National Insurance Contributions (NIC)
If you are self-employed (including being a partner in a trading partnership), your taxable trading profits will be liable to both Class 2 and Class 4 National Insurance contributions (“NIC”).
As of 6 April 2024, the main rate of Class 2 NIC has been abolished, meaning it will no longer be due for payment for self-employed people with profits above £12,570, with the tax year still being a qualifying year for your state pension entitlement. For self-employed taxpayers with profits below £12,570, it will be necessary to make voluntary Class 2 NIC for the tax year to count as a qualifying year for state pension purposes. The voluntary Class 2 NIC rate for the 2023/24 tax year is £3.45 per week.
Also from 6 April 2024, the main rate of Class 4 NIC will be reduced from 9% to 8%. This rate will be paid on profits between the lower profits limit (£12,570) and the upper profits limit (£50,270). Any profits above the upper profits limit will be charged at 2%.
Capital Allowances
The current capital allowance regime applies to those carrying on a trade or a business (and commercial property landlords). Capital allowances apply to sole traders, partners trading in partnership and limited companies.
What allowances are available?
- Annual Investment Allowance (“AIA”) – giving a 100% allowance for plant and machinery (excluding cars) in the year of purchase. The AIA is subject to an annual maximum of £1m.
- Full expensing – available only to companies, this also gives tax relief of 100% of the cost of the qualifying plant. This replaces the “super deduction” and can only be claimed on new and unused assets. Unlike the AIA, full expensing is uncapped.
- Writing Down Allowances (“WDA”) for pooled expenditure – given at 18% (main pool) and 6% (special rate pool) on a written-down basis each year.
- Structures and buildings allowance (SBA) – SBA gives tax relief for the fabric of a building which did not traditionally attract tax relief. Relief is given at 3% per annum and starts from when the structure was first bought into use. There is a mechanism whereby on sale, the tax relief given is clawed back.
- First Year Allowances (“FYA”) for cars – cars usually attract WDA, however for fully electric or zero-emission new cars, 100% of the cost can qualify as FYA in the year of purchase.
Basis Period Reform
For unincorporated businesses, there are ‘basis period’ rules that determine the timing of how profits are taxed. However, from 2024/25 businesses will be taxed on profits as they arise in the tax year i.e., the year to 5 April (or 31 March).
The current tax year (2023/24) acts as a transitional year, where businesses align their basis periods to the tax year. Any business that does not have a 5 April (or 31 March) year-end date will need to recognise two profit elements ‘standard profits’ and ‘transitional profits’. This is of particular relevance to businesses that traditionally have a seasonal year end, like farming.
The standard profits will simply be the profits for the 12 months of trading, beginning with the start of the basis period ending in the transitional year. The transitional profits are then the profits for the period starting immediately after the end of the bass period and ending on 5 April 2024.
Any historic ‘overlap profits’ that the business has will be deducted from the transitional profits. By default, any profits made in the transitional period will be spread over five years. However, it is possible to make an election to accelerate the charge and bring more of the transitional profit into charge, if beneficial.
Company Share Valuation
There are a multitude of reasons why a share valuation may be necessary, these reasons include;
- Calculating the value of the estate of a deceased individual for Inheritance Tax (IHT) purposes.
- For Capital Gains Tax (CGT) purposes, for example, on a gift of shares to a Trust as part of estate planning or as the basis of a share buyback.
- For the purposes of establishing a share scheme for the employees of a private company.
- Calculating the estimated value of the company if the owners decide to market the business for sale as a going concern.
For most tax or estate planning arrangements involving shares in a private company, often the first thing that is considered is the value of the shares.
Valuing shares in a private company can be complex and in circumstances where a valuation is needed the valuation itself usually underpins most of the planning and the valuation report is, as such, a highly important document. Because of this, it is advisable that a professional valuation is sought before proceeding with any complex tax planning arrangement involving the share the share capital of an unquoted company.
Although unincorporated businesses (partnerships and sole traders) do not have ‘shares’ in the same vein as a company, there are still occasions on which an unincorporated business needs to be valued. For example, on the death of an individual involved in the business.
How Churchgates can help
With Churchgates having a combination of accountants, solicitors, tax advisers and financial planners all under one roof, we can offer real value to businesses. Whether you are a limited company, partnership or sole trader, we can cover tax and accounts compliance, tax planning and advice, VAT and payroll services.
If you would like further information regarding any of the above topics or business tax in general, please contact [email protected] to arrange a free initial meeting. Alternatively, please call us on 01284 701271 or visit or write to us at 18 Langton Place, Bury St Edmunds, Suffolk, IP33 1NE.
