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March 2023

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To March’s Business Companion News.

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March 2023
· Optimum Salary and Dividends 2023/24
· HMRC homes in on Airbnb landlords
· Planning your profit extraction
· Plugging NIC gaps
· March Questions and Answers
· March Key tax dates
Optimum Salary and Dividends 2023/24 top
The optimum directors’ salary in 2023/24 will be £12,570 per annum (£1,047 per month) for most directors. This is the most tax efficient amount for the majority of directors to pay themselves. After this Directors should pay themselves further amounts as dividends. You should also make use of allowable expenses and employer pension contributions.

National Insurance (NI) Rates
The lower earnings limit for NI in 2023/24 is £6,396 per annum (same as last year). If you earn over this amount it will count as a qualifying year for your future state pension.

The personal allowance and the primary NI threshold (employees’ NI) are now aligned. They are both now £12,570. If your annual salary exceeds this amount, then you the employee will need to pay NI contributions and you will pay tax on your earnings.

The secondary NI earnings limit (employers’ NI) in 2023/24 is £9,100 per annum. If your annual salary exceeds this amount the employer (your business) will need to pay NI contributions, unless these are covered by the Employment Allowance. The Employment Allowance continues to be £5,000 per annum (but sole director firms are not eligible).  

The Optimum Salary 
The optimum directors’ salary (excluding sole directors) for 2023/24 should be £12,570 per annum.  
In situations, where the director has other income such as pension income, another salary, self-employment or rental income, it may be advisable to pay a salary of £9,100.  Also, consider if you are already at pension age or if it is no longer important to have another qualifying year towards the state pension. Under these circumstances, it is important to seek tax advice, which we can offer. 

Sole Directors
If you’re the sole director, the best salary to pay yourself is £9,100 per annum (or £758.33 a month). This is because a sole director/employee company cannot claim the Employment Allowance. If you pay at the secondary threshold of £9,100 your company won’t need to pay Employer’s NI on it. 

Dividends
The dividend tax-free allowance is reducing from £2,000 to £1,000 from April 2023. Pay this £1,000 as your next priority.

Why not pay higher salaries?
All taxpayers have a personal allowance in which they can earn income tax-free. As soon as the allowance is used up tax rates are applied. When income exceeds £12,570 per annum, both national insurance taxes and income taxes are applied.

The NI and income tax rates combined are significantly higher than the dividend tax rate until total earnings hit £51k. Say your company earns corporation tax profits at the new higher 25% rate, even allowing for the higher corporation tax recovery on the salaries, paying dividends is still more tax efficient.
 
HMRC homes in on Airbnb landlords top
Planning your profit extraction top
Online platforms such as Airbnb are now obliged to provide HMRC with data about the payments it makes to individuals who let rooms on a short-term basis. HMRC is matching that data to tax returns and writing to taxpayers who have apparently not declared their rental income correctly.
Read More		 In his Autumn statement in November 2022 Chancellor Hunt announced cuts to the dividend allowance and the additional tax rate threshold, where individuals start to pay tax at 45%. You need to take these changes into account when planning how and when to extract profits from your company.
Read More
 
Plugging NIC gaps top
Many people don‘t realise that they have significant gaps in their National Insurance Contribution (NIC) record, and as a result they won‘t be entitled to the full state retirement pension. This can come as a shock when you start to receive your state pension, but by that time it may be too late to fill the gaps in your NIC record.
Read More
 
March Questions and Answers top
March Key tax dates top
Q. My company is buying an electric car for me to use for business and private journeys. In truth there will be very few business journeys. Can the company still claim the 100% first year allowance, although the business use will be small? Answer

Q. I will have to register my business for VAT soon, but I‘m confused as how to work out net and gross amounts, when the VAT rate is 20%. If I want to receive £2000 for a job, after VAT, what do I quote as the VAT inclusive price for the customer? If my customer will only pay £1600, how do I calculate what I will get after paying over VAT. Answer

Q. My wife and I lived in our joint-owned property for 12 years and it is now let it out, but we plan to sell it in two years time. What will be the impact of capital gains tax on that sale? Answer 		2 – Where income tax, CGT, class 2 NIC or class 4 NIC remains unpaid for 2021/22 a 5% penalty is imposed. This penalty can be avoided if a time to pay arrangement is agreed in advance with HMRC.

10 – Last day to set up a variable direct debit to pay PAYE for payment this month.

15 – Chancellor Hunt to present his Spring Budget

22 – PAYE, NIC and student loan deductions to be paid to HMRC by electronic means for month to 5 March 2023, unless the employer has set up a direct debit so HMRC can collect the amounts due.

31 – Last day to amend returns and pay any outstanding ATED charge for the year 1 April 2021 to 31 March 2022.
 
Need Help? top
New Clients Welcome top
Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list. 		If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.

See details of our Business Companion Service.
 
About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Xero, Quickbooks or Clearbooks.

‘All clients using these software packages can benefit from our support. Visit our website https://www.simpleaccounting.co.uk for a look at the resource on offer.’
 
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