How do the 23/24 tax changes affect you?
I wanted to bring your attention to some recent tax rule changes that have come into effect for the 23/24 tax year. This is the tax year starting 06 April 2023, and ending 05 April 2024, the current tax year in play.
Dividend Allowance Reduction: The dividend allowance has been reduced from £2,000 to £1,000 for the 23/24 tax year. This means that the first £1,000 of dividend income you receive from your company is tax-free. Any dividends beyond this threshold will be subject to tax. It's crucial to consider this change when planning your dividend distributions and assessing the overall tax efficiency. Get in touch if you want any specific information.
National Insurance Rate Reduction: The UK government has removed the temporary 1.25% National Insurance COVID levy. This reduces both your Employer and Employee National Insurance bill. It also has the minor effect of marginally increasing corporation tax as Employer NI is tax deductible and has decreased. The levy was introduced in response to the challenges posed by the COVID-19 pandemic and aimed to provide additional funding for healthcare and social care services. However, as the economic situation has improved (their words, not mine!), the government has decided to eliminate this levy, providing relief for both employers and employees.
All the other tax rates and brackets have substantially stayed the same.
Okay, so what does all of this mean for you? Well…you pay more dividend tax, but less National Insurance. So I guess you want to know exactly how much of each?
I’ve done the boring bit for you and calculated a few different scenarios based on different incomes. Assuming you take a £12,570 salary from your Limited Company, and all available profits are removed as Dividends, then we have the following results based on profit before tax of £40,000 for the year.
But what if you earn more, or less? Well in this particular scenario it doesn’t matter how much you earn, the £18 saving is the same across the board.
So go out there and enjoy your £18 saving!
Stay tuned for future updates and insights in our upcoming newsletters. As ever, if you have any questions in the mean time feel free to reach out.