Rishi Sunak’s decision to raise Corporation Tax to 25% for “larger companies” in 2023 could have implications for many small businesses, according to Johnathan Dudley, Midlands & South West managing partner at national audit, tax, advisory and risk firm Crowe.
In his Budget announcement, the Chancellor said that he considered it “fair and necessary” for businesses to contribute to the economic recovery. He also announced a small profits rate which would maintain the current 19% rate for firms with profits of £50,000 or less – claiming that about 70% of companies, around 1.4 million businesses, would be “completely unaffected” by the tax rise.
In addition, there will be a taper arrangement above £50,000 with only those businesses recording profits of £250,000 or more being taxed at the full 25% rate – affecting around 10% of companies.
Johnathan Dudley said: “Raising the Corporation Tax to 25% will, as it stands, actually affect many small businesses where the proprietors distribute income in the form of dividends which do not get a Corporation Tax deduction.
“It will mean that regardless of any future changes in dividend tax rates, there will be a need once again to consider whether a business’s profits fall into the low rate, the full rate or the marginal rate, before they decide to pay dividends or PAYE’d salary/bonus to working shareholders.
“Given that the changes come into effect in 2023, there is still time to plan, but this needs to be on the boardroom agenda with immediate effect so that full appreciation and understanding can be made of how SME owner managers reward themselves in the future."
Pictured: Johnathan Dudley
Julia Rosenbloom of Smith & Williamson suggests four key proposals for the new Chancellor
Business leaders warn hardest hit need more help
Second national Crowe video conference call takes place
Business leaders say it's a lifeline for firms across the UK
Businesses respond to wide-ranging financial update
Businesses asked about long-term effects of Brexit and Covid
Upbeat reaction to Chancellor's plans
WMCA and partners host free webinar on advice and grants
Breakfast launch will reveal outlook for 2020
New faces will support ongoing growth
New directors are appointed
Business leaders urged to take part in new survey
Professional services firm makes key appointment
Insolvency and restructuring organisation predicts more insolvencies
Working together is vital