Posted on 2nd December 2023 at 09:31
CORPORATION TAX RATES
Corporation tax changed to a marginal rate as of 1st April 2023.
From 1 April 2023 the main rate of Corporation Tax will be 25% for Companies with profits of £250,000 or more. This applies for all profits.
A small profits rate of 19% will exist for Companies for profits of £50,00 or less.
The main rate will taper in between £50,000 and £250,000.
The effective tax rates will be;
£0 - £50,000 – 19%
£50,000 - £249,000 – 26.5%
Above £250,000, all profits are taxed at 25%.
This is a useful tool for employee benefits and leads of a saving on employee’s national insurance at 10% (from Jan 2024) & other deductions.
Employers can pay an expense on behalf of employees, then deduct this amount from the gross salary. Income tax is payable by the employee (tax code change), and employer’s national insurance is payable by the employer. Employee’s national insurance and other deductions are not charged. A P11D (due June) is filed to notify HMRC of any such payments.
HMRC's definition of a benefit-in-kind is anything of monetary value provided to employees that is not 'wholly, exclusively, and necessary' for work purposes. For example, health insurance, gym memberships, cars with personal use etc.
The benefit in kind on electric cars is currently 2%, set to rise a further 1% from 5th April 2025.
In practice this means an employee is deemed to have received a benefit of 2% of the cars original list price (this value doesn’t change) as income.
For example, if a car has a list price of £50,000. The employee will pay income tax based on receiving £1,000 extra income. Tax payable of £200 at lower rate, £400 at higher rate.
The employer pays employers national insurance (13.8%) based on this figure, £138.
Overall yearly tax charge for the use of a £50,000 electric vehicle – lower rate £338 / higher rate £538.
If the lease cost of this car is around £600/month the following tax savings would be made;
VAT - £50 (50% of VAT can be reclaimed on lease cars)
Employee’s NI - £55 (10%)
Income tax - £110 / £220
Overall yearly tax savings for monthly payments of £600, lower rate - £2,580, higher rate - £3,900.
Net saving, lower rate - £2,242, higher rate - £3,362.
*The above calculation is for a monthly lease agreement, there is a slightly different calculation for hire purchase/purchase, full amount of VAT can be reclaimed as well as other things.
Employees begin to see tax benefits on cars below 15% benefit in kind.
It’s important directors pay themselves up to the Secondary Threshold for national insurance, the point at which employers start paying NI (13.8%). This counts as a year towards state pension qualification. Individuals need 35 years contributions to get a full state pension.
23/24 Secondary Threshold - £9,096 (£758/month)
There is also a case for paying directors up to the Primary Threshold for national insurance, when employees start paying NI (10%). Up to this point only employers NI has been due, a payment of 13.8% vs a corporation tax saving of 19-25% based on company profits.
23/24 Primary Threshold - £12,576 (£1,048/month)
Past this amount other deductions are also due, there is no further tax benefit.
TRIVIAL BENEFITS AND DIRECTOR'S EXPENSES
Directors can take up to £300 in tax free vouchers during the year. These must be in £50 denominations.
£150 can be spent on annual events for employee's, such as Christmas parties.
Mobile phone costs of employee's and directors are allowable as long as the phone is used for work purposes (personal use is also permitted).
Working from home expenses can be claimed.