Under plans set by Rishi Sunak as Chancellor, corporate tax was to move from a single rate of 19% to effectively three different rates dependent on the taxable profits made from April 2023 (as much as 26.5% for profits made between £50,000 and no more than £250,000). Truss has promised to cancel the corporation tax increase. Whilst there should always be a plan in place to extract earnings from a limited company in the most tax efficient way, planning can involve less profit forecasting with a single lower tax rate.
From April 2022, National Insurance had increased by 1.25 percentage points for both employees and employers due to the increased cost of health and social care. National Insurance was already set to fall back to the previous rates and be replaced by a separate 1.25% Health and Social Care Levy from April 2023. Truss has said she would reverse the National Insurance rise and scrap the Health and Social Care Levy, but it will be interesting to see if the decrease in National Insurance will happen at some point in this tax year or from April 2023 as originally planned.
Although there is no National Insurance charge on dividends, income tax at each tax band on them was increased by the corresponding 1.25 percentage points in April 2022. This is also expected to be reversed but the timing is also unknown.
Reports have suggested that the standard rate of VAT at 20% could be cut by 5 to 10 percentage points. For agencies and consultancies, where transactions are business to business, the direct advantage would be for cash flow only.
Indirectly, there could be benefit with clients that sell directly to consumers. The reduction in VAT could either mean some or all the VAT saving being passed on to consumers or prices held and the VAT saving used against increasing costs and / or helping profit margins. Either way, it might help these clients to maintain their spend with you.
In the short-term at least, it should be good news for shareholders of owner managed limited companies with reductions in corporation tax and income tax on dividends. The reduction in national insurance for employees and employers will go a small way towards helping with the increased cost of living and wage inflation respectively. In the longer term, it may not help with the budget deficit and could conflict with the Bank of England’s attempts to curb inflation.