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2023-24 Tax planning for owner-managed companies

So, the key message for SME’s from the 2023 Spring statement announced on 15 March 2023 is: brace yourselves!

Corporate Tax is getting more complicated and it’s not a rosy picture in terms of tax burdens. The change in corporation tax rates will also be an administrative burden on owner-managed companies and their accounting advisers. It will make tax planning more difficult as there are knock on effects in terms of different taxes (corporation, employment and personal tax) which advisers must explain to you .

Key Tax changes from the Spring Statement

So what needs to be considered?

How can owner managers plan the most tax efficient strategy?

Sole director companies (company profits up to £50,000) 

Sole director plus employee(s)) (company profits up to £50,000)

Where the company has a sole director and shareholder but also has employees (earning above the secondary National Insurance threshold), the director should be remunerated with a £12,570 annual salary and further profits extracted by way of dividend, as long as the director does not have other income classed as earned income (which would be subject to the Scottish income tax rates).

Companies owned by  multiple directors (or director plus employee(s)) and with profits over £50,000

For companies owned by two or more directors or companies with profits between £50,000 and £250,000, the more complex income tax system for Scotland and also the change in corporation tax rates from 1 April 2023 now means tax planning must be done specific to their particular personal circumstances.

Where a company is owned and managed by more than one director, existing sources of income (e.g. rental property, investment income) need to be considered for each specific director and, if relevant, their spouse and this may have an influence on how to set salary and dividend payments for the company for 2023-24.

2023-24 Relevant Tax rates

A summary of relevant tax rates for Scottish registered companies in 2023-24 is shown below:

Personal allowance12,570
Scottish intermediate rate threshold (for earned income not savings income)31,092 + personal allowance = 43,662
UK-wide basic rate threshold (for savings income e.g. dividends)37,700 + personal allowance = 50,270
UK-wide additional rate threshold125,140
Class 1 & 4 National Insurance primary threshold and rates12,570 (12% Class 1, 9.73% Class 4 up to £50,270 profits & 2.73% over this amount)
Class 1 National Insurance secondary threshold (& employer National Insurance rate)9,100 (13.8%)
Dividend allowance –nil rate1,000
Dividend tax rate –basic8.25%
Dividend tax rate –higher rate33.75%
Dividend tax rate -additional rate (dividends over £125,140 if no other income)39.35%
Scottish starter tax rate (earnings up to £14,732) *19%
Scottish basic tax rate (earnings from £14,733 to £25,688) *20%
Scottish intermediate tax rate (earnings from £25,689 to £43,682) *21%
Scottish higher tax rate (earnings from £43,683 to £125,400) *42%
Scottish top tax rate47%

* includes personal allowance of £12,570 on which no tax is paid. If earnings are above £100,000, the Personal Allowance will reuce by £1 for every £2 earned over £100,000.