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📢 2025/26 Director Salary Strategy: What Business Owners Need to Know

If you’re a limited company owner, setting the right salary is one of the most effective ways to optimise your tax position while continuing to build up qualifying years towards your state pension.

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💷 What’s the Generally Recommended Salary for Directors?

Dividends vs Salary – 2025/26 Tax Year

From April 2025 onwards (i.e. the 2025/26 tax year), it usually makes sense to pay a salary of £12,570 per year (or £1,047.50 per month). This is generally recommended because:

• It’s above the Lower Earnings Limit (£6,396), so it counts as a qualifying year for your state pension—you currently need at least 10 qualifying years to receive any State Pension, and 35 years to receive the full amount

• It is more tax-efficient than dividends at this level. Dividends would be charged at a marginal rate of between 19-26.5% corporation tax whereas a salary would be subject to a maximum of 15% employer national insurance above £5,000.

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🤔 When Should I Pay Myself More Than £12,570 in Salary?

This is a really complicated area, and honestly, we’ve spent hours working through different scenarios. What we’ve concluded is that it’s definitely not a one-size-fits-all answer — it really depends on your specific situation.

That said, in some cases, taking more salary can be the most tax-efficient option. For example:

• If your company profits are over £50,000 or you have connected companies, and

• Your personal income is significantly under £50,000, and

• Your company is able to claim the employers allowance.

This often applies to two-director companies where profits are healthy, but both directors are taking modest incomes.

As we do every year, we’ll carry out a full year-end limited company review to ensure you’re set up as efficiently as possible. If we identify that taking a bonus before your company year end would save tax, we’ll be in touch to advise on the best way to do it.

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⚠️ When Should I Pay Myself Less Than £12,570 In Salary?

While £12,570 suits most director/shareholders, there are circumstances where another approach may be more appropriate:

• You’re receiving other income (e.g. a salary from another business, pension, or large property/investment income)

• You’re state pension age and so don’t pay National Insurance

• Your company is loss-making, or you’re not a shareholder, so you’re unable to pay yourself dividends

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📉 What’s Changed with Employer’s National Insurance from April 2025?

From April 2025, a few big changes came into effect:

1. The Employer’s National Insurance rate increased from 13.8% to 15.0%

2. The point at which Employer’s NI becomes payable decreased from £9,100 to £5,000 per year (or £417 per month)

3. However, the employment allowance has increased from £5,000 to £10,500

This means a director being paid £12,570 will now incur an Employer’s NI liability of approximately £1,136 per year—an increase of £657 from the previous year. Even with this increase, £12,570 per year is still the most tax-efficient salary level for most limited company owners.

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🧾 Employment Allowance

The Employment Allowance allows eligible businesses to reduce their Employer’s NI bill by up to £10,500 per year.

This allowance is available to most businesses who have an employee on payroll earning above £5,000 per year (or £417/month).

However, it is not available in these circumstances:

• If you are a sole director with no other employees

• If the company is part of a group of connected companies (only one company in that group can claim the allowance)

• If you are someone whose earnings are solely within IR35 “off-payroll working rules”

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👥 Should Sole Director Companies Employ Additional Staff?

For some businesses, employing an additional staff member could allow access to the Employment Allowance and help recover the increased NI costs.

In many cases, directors already receive informal help from their partners, family members or friends—with admin tasks like invoicing, chasing payments, paying suppliers, bookkeeping, personal assistant duties, etc.

If this support is genuine and regular, you might consider employing them formally. This must be done correctly, including:

• Providing a contract

• Meeting minimum wage requirements

• Paying holiday entitlement and pension contributions if applicable

• Offering a fair, market-appropriate wage for the work done (for example, it wouldn’t be reasonable to pay £100/hour for basic admin. Imagine you weren’t personally connected to the person - what would you realistically pay?)

📌 Thinking about it? We can help you assess whether employing someone makes financial and legal sense for your business.

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💬 Need Help With Your Salary Strategy?

The most tax-efficient salary depends on your total income, goals, and company structure. If you're unsure what's best for your situation—or considering employing someone to help qualify for Employment Allowance—we're here to guide you through it.

As a limited company business owner, understanding how to claim mobile phone expenses correctly can help reduce your tax liability. However, there are specific rules regarding what can and cannot be claimed, depending on whether the contract and phone are in your business name or your personal name.

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Claiming Business Mobile Phone Expenses

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If the Contract is in the Business Name

If your business takes out a mobile phone contract in its name (i.e., your business name appears on the invoice as the customer), then:

• The full cost of the contract can be claimed as a business expense.

• Any VAT paid can be reclaimed if your business is VAT-registered.

• The cost of the handset itself can also be claimed as a business expense.

• There is no taxable benefit for employees (one phone per employee).

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If the Contract is in Your Personal Name

If the phone contract is in your personal name, you cannot claim the monthly contract fee as a business expense, even if you use the phone for work. In the past, business owners would often claim for additional costs incurred for business use, such as:

• International calls made for business purposes.

• Additional charges for business-related data usage.

• Any other extra charges that can be directly attributed to business activity.

However, in reality, additional business-related costs are now quite rare. Most UK mobile contracts include unlimited calls and data, meaning there are usually no extra charges to claim. Furthermore, international business communication is often conducted via WhatsApp, Zoom, or other video call services, which do not incur additional costs. As a result, most business owners with personal contracts find they have little to nothing to claim.

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Claiming the Cost of the Phone Itself

Even if you choose not to claim the monthly contract cost, it does make sense to purchase the phone through the business. However, for the phone’s cost to be a valid business expense:

• The invoice must be in the business name.

• The business should pay for the phone directly.

• The phone should primarily be used for business purposes.

By doing this, the phone becomes a company asset, and the full cost can be claimed as a business expense. If VAT is charged, it can also be reclaimed if your business is VAT-registered.

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The Business Contract Premium – Is It Worth It?

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Business phone contracts often come at a premium compared to personal contracts, with higher monthly fees and sometimes less flexibility. For this reason, some business owners choose not to have a business phone contract as this approach can be more cost-effective.

Business Contract Providers

If you're considering a business mobile contract, here are some providers to explore:

• O2 Business Plans: O2 Business Mobile Contracts

• Vodafone Business Plans: Vodafone Business Mobile Contracts

• EE Business Plans: EE Business Mobile Contracts

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Key Takeaways

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• If the mobile phone contract is in your company name, you can claim the full cost, including VAT.

• If the contract is in your personal name, additional business-related costs are now quite rare and often not claimable.

• Business phone contracts often come at a premium, so it may not always make financial sense to claim the contract as a business expense.

• Purchasing the phone through the business (with the invoice in the company’s name) is a valid tax-deductible expense.

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What If You’re a Sole Trader?

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If you are a sole trader, the rules are different. Instead of claiming the full cost of the contract or handset, you must apportion a percentage of the total cost between personal and business use. This means:

• You can only claim a proportion of the contract cost based on the percentage of time you use your phone for business.

• The same applies to the handset purchase – only the business-use portion is deductible.

• VAT can only be reclaimed on the business-use proportion if you are VAT-registered.

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By following these guidelines, you can ensure that you are maximising your tax benefits while remaining compliant with HMRC regulations.

As the 5 April personal tax year-end approaches, now is the time to review your finances and ensure you’ve taken advantage of key tax allowances and reliefs. Many allowances reset at this point, meaning if you don’t use them, you lose them. Below are some important considerations to help you minimise your tax liability and maximise your allowances before the deadline:

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General Tax Planning Tips

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Use Your Pension Allowance

You can contribute up to £60,000 into a pension and benefit from tax relief - if you are a company director it is usually much more tax efficient to pay this directly from your limited company instead of paying into one personally.

Please be aware:

• If you haven’t used your full pension allowance from the previous three years, you may be able to carry it forward. If you pay into your pension personally, your pension will be grossed up (e.g. you will pay in £80 and the government will top it up by £20 to £100), and its the grossed up figure which must remain below your pension allowance.

• Higher earners may have a reduced allowance due to the tapered annual allowance.

You can also contribute to a child’s pension for your child, grandchild, etc.

This is quite a complex area and so we would recommend speaking to an independent financial adviser, such as Jim Monger, to explore your options.

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Maximise Your ISA Allowance

ISAs remain one of the most tax-efficient ways to save. You can contribute up to £20,000 into an ISA, and any interest, dividends, or capital gains earned within it are tax-free. If you haven't used this allowance yet, now is the time to do so before it resets on 6 April. You can also contribute to a child’s ISA, offering a tax-free way to save for their future. Again, financial advice from Jim Monger can help you decide the best approach.

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Use Your Capital Gains Tax (CGT) Allowance

The CGT exemption for 2024/25 is £3,000. If you have investments or assets that have increased in value, consider realising gains (i.e. selling them) before the year-end to take advantage of the exemption. The calculation for these gains can be quite complicated and so we would advise seeking professional advice before selling.

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Investing in EIS/VCT

Investments in Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) can provide significant tax relief. If this is of interest, we recommend speaking to Jim Monger for further advice.

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Company Director/Shareholders – Key Tax Planning Considerations

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Use Your Tax-Free Dividend Allowance

For 2024/25, you receive a tax-free dividend allowance of £500. If you haven’t used this allowance yet, you may want to do so before the tax year resets.

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Use Your Trivial Benefits Allowance

If you're a company director, you can provide yourself and employees with tax-free trivial benefits of up to £50 per benefit, with an annual cap of £300 for directors. These must not be cash or cash vouchers and should not be linked to performance. For more details, read our Trivial Benefits Guide.

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Suggested Order for Maximising Your Tax Efficiency

For company directors/shareholders, generally we would suggest considering the following approach assuming no other income:

• Draw down a salary of £12,570 to utilise your tax free personal allowance (and to get your stamp for state pension purposes).

• Draw down dividends in the basic rate tax band. For 2024/25 the basic rate tax band is £50,270 and so assuming you’ve taken a salary of £12,570 and that you have the reserves in your company to do so, you can take up to £37,700 in dividends and remain within basic rate tax.

• Maintain a reserves buffer (equivalent to approximately six months of salary/dividends, depending on lifestyle needs).

• Pay into a pension (up to £60,000/year, subject to eligibility and limits).

• Pay out dividends in higher tax bands, if company reserves allow. This will attract higher rate tax and so its best to speak to us before doing this if you haven’t spoken to us already. Also, please be aware that having income of more than £60,000 can affect any child benefit your family receives.

This is a general guide so please speak to us to ensure this is suitable for your specific circumstances

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The Deadline is 5 April!

If you need assistance with year-end tax planning, please don’t hesitate to get in touch. Taking action now can help you make the most of available allowances and avoid unnecessary tax liabilities.

For pension or investment advice, speak to Jim Monger by clicking the following link: www.millwardmay.co.uk/independent-financial-advisor.

As a business owner, showing appreciation for your team is important. But did you know you can offer small perks to your employees (or even yourself if you're a director!) without triggering tax or National Insurance? Let’s explore trivial benefits—a tax-efficient way to spread a little joy.

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The Rules for Trivial Benefits

For a perk to count as a trivial benefit, it must meet all of the following conditions:

• The cost is £50 or less per benefit (per day)

• It isn’t cash or a cash voucher.

• It isn’t a reward for work or performance.

• It isn’t expected or part of the employee’s contractual entitlement.

If these conditions are met, there’s no tax, no National Insurance, and no reporting to HMRC. Simple!

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What’s In (Allowed)

These examples meet all the HMRC rules:

• A £40 massage voucher for an employee’s birthday.

  • It costs less than £50, isn’t cash, and isn’t a reward for work performance.

• A box of chocolates for staff during the festive season.

  • It’s a modest, one-off gift with no connection to work performance or contracts.

• A meal out for a leaving employee, costing £250 in total for six employees (£41.67 per head).

  • The cost per head is under £50, and it’s a farewell gesture not tied to performance.

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What’s Out (Not Allowed)

These examples fail one or more of the HMRC criteria:

• A £60 Amazon voucher for hitting a sales target.

  • It exceeds the £50 limit and is tied to work performance.

• A £20 cash gift for an employee’s birthday.

  • Cash is never considered trivial, regardless of the amount.

• A monthly team lunch provided by the company.

  • It’s a regular and expected benefit, making it part of the employee’s working conditions.

• A £45 gift card provided as a year-end bonus.

  • It’s a reward for work performance and therefore taxable.

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Close Company Directors: The £300 Cap

If you’re a director of a ‘close’ company (a limited company controlled by five or fewer shareholders), there’s an annual cap of £300 on trivial benefits you can personally receive. This cap doesn’t apply to your employees—so feel free to spread the goodwill!

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Can You Claim VAT on Trivial Benefits?

Yes, if your business is VAT registered you can claim back the VAT on trivial benefits, provided they’re for business purposes (such as boosting morale).

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Why Trivial Benefits Matter

Trivial benefits may be small in value, but they can make a big difference in building goodwill, boosting morale, and creating a positive work culture. A little gesture can go a long way, especially when it’s tax-free!

If you’d like further advice on trivial benefits or other business expenses, get in touch—we’re always here to help.

As Christmas approaches, many companies are planning their annual parties – a time to thank employees for their hard work and, of course, have a bit of fun. But before finalising plans, it’s important to understand the rules for claiming tax relief on these events.

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The £150 Per Head Rule

HMRC allows businesses to spend up to £150 per head on annual events such as Christmas parties or summer BBQs. This includes VAT and covers all costs related to the event. If you exceed £150 per head, even by a small amount, the entire cost becomes taxable as a benefit to employees.

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Key Rules to Follow

• Annual Event: The party must be a recurring event, such as a Christmas, BBQ or company year end party. One-off events don’t qualify.

• Open to All Employees: Every employee must be invited, regardless of their role or department.

• Guests: Each employee can bring a guest.

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How to Calculate £150 Per Head

Work out the cost per head by dividing the total event cost by the total number of attendees, including guests.

Example:

• Total Cost: £2,880 (£2,400+VAT)

• Attendees: 15 employees + 10 guests = 25 people

• Cost Per Head: £2,880 ÷ 25 = £115.20

This would be within the limit, so the entire cost would not be taxable as a benefit to employees. However, if your total event cost rises to over £3,750, the cost per head would be over £150, and the entire amount would lose its tax-exempt status.

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What Costs To Include?

When calculating the cost, include food, drink, entertainment, travel, and any other associated costs. The £150 per head covers all these expenses, so plan carefully to ensure you stay within the limit.

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Reclaiming VAT

For VAT-registered businesses, VAT on costs related to employees can be reclaimed. However, VAT for non-employee guests (such as partners) cannot be reclaimed, so ensure you separate these costs when filing.

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It’s Usually a Christmas Party

While HMRC doesn’t specify the type of annual event, most businesses use the £150 allowance for a Christmas party. For full details on what’s exempt, take a look at HMRC’s guidance here.

By sticking to the rules, you can enjoy celebrating your team’s hard work this year without any unexpected costs from the taxman.

The 2024 Autumn budget seeks to raise £40 billion in taxes, mainly through an increase in Employers’ National Insurance Contributions (NICs) and Capital Gains Tax. We have summarised the key points below.

IMPACT ON BUSINESSES

Employers’ National Insurance (changes from 6th April 2025):

• Rate Increase: The main rate of Employer NIC will rise from 13.8% to 15%.

• Secondary Threshold Decrease: Threshold at which employers start paying Ers NI reduces from £9,100 to £5,000 until April 2028.

• Employment Allowance Increase: The allowance for small businesses will increase from £5,000 to £10,500 and extend to all eligible businesses by removing the £100,000 eligibility threshold.

Example: NIC Calculation for a Small Business with 5 Employees on £30,000 Annual Salary:

Savings: This business would save £1,170 under the new rules (£9,420 - £8,250).

Millward May: A lot of businesses will see an increase in their employer NIC bill, however some may see a reduction, especially if they are a small business. We have prepared an excel calculator where you can estimate the impact by inputting your gross wage bill and number of employees, click the following link to download it: Employers NI Calculator

Corporation Tax
The government have committed to maintain Corporation tax rates at 19% for profits below £50,000 and 25% for taxable profits above £250,000 throughout their term.

Millward May: We examined the impact of corporation tax rate changes in a previous newsletter here: www.millwardmay.co.uk/news/2023/5/18/corporation-tax-changes

National Living Wage
From April 2025, the National Living Wage will increase as follows (per hour):

• £12.21 for those 21 years old and over (£0.77 or 6.7% increase)

• £10 for those aged 18-20 years old (£1.40 or 16.3%)

• £7.55 for those aged 16-17 years old (£1.15 or 18%)

• £7.55 for apprentices under 19 or in the first year of their apprenticeship (£1.15 or 18%)

Millward May: We advise all employers to check they are paying the correct amounts to their employees. You can use the government calculator here: https://checkyourpay.campaign.gov.uk/. If you have any questions or concerns, you can email our payroll team at payroll@millwardmay.co.uk

Capital allowances
The Budget continues to support carbon reduction efforts, maintaining the 100% First-Year Allowance on zero-emission company cars and electric vehicle (EV) charging points for another year until 5 April 2026.

Millward May: Electric company vehicles are currently very tax efficient – speak to us for more information.

Benefits in kind (P11D) on company cars
The rate of tax for company cars is increasing from 2025/26:

• Zero emission cars – rising to 3% from 2%

• Other cars – increasing by 1%

• Double cab pick-up vehicles with a payload of one tonne or more will be treated as cars and not vans from April 2025. Existing capital allowances/benefit in kind treatment will apply to those who purchase double-cab pickups before April 2025- they will be able to use the previous treatment until the earlier of disposal, lease expiry or 5 April 2029.

Millward May: Before deciding whether to purchase a car through the company or personally, it is worthwhile doing a thorough review of the tax situation. We can help our clients understand which option might suit them.

Business rates
The small business multiplier will be frozen at 49.9p whilst the standard multiplier will be increased to 55.5p. Eligible retail, hospitality and leisure properties will receive 40% relief on their rates liability.

IMPACT ON INDIVIDUALS

Dividend tax
There are no changes for dividend tax rates. The £500 tax-free dividend allowance remains for 2025/26. Dividends received above the allowance are taxed at the following rates:

• 8.75% for basic rate taxpayers

• 33.75% for higher rate taxpayers

• 39.35% for additional rate taxpayers.

Self-employed
The Class 4 NIC rates of 6% and 2% remain the same from April 2025. Self-employed people with profits of £6,725 and over will receive a qualifying year towards their state pension without paying Class 2 NICs. Those will profits under this level, can voluntarily pay Class 2 NICs to receive a qualifying year. You currently need 35 qualifying years to receive a full state pension.

Capital Gains Tax
There were immediate increases in capital gains tax:

• The lower tax rate has risen from 10% to 18% from 30 October 2024

• The higher tax rate has risen from 20% to 24% from 30 October 2024

• No changes will be made to the rates applying to the disposal of residential properties of 18% and 24%.

• The tax rate applying to Business Asset Disposal Relief will increase from 10% to 14% on 6 April 2025 and a further increase again to 18% after 6 April 2026.

• The annual exempt amount will remain at £3,000 for 2025/26

Millward May: If you are considering closing your business to access the business asset disposal relief over the next few years, it may be worth factoring the timing of this based on the changes coming in.

Stamp Duty
Additional stamp duty on second homes, buy-to-let properties, and company-owned residential property has increased from 3% to 5%.

Millward May: With the restriction of mortgage interest relief for higher rate taxpayers in recent years, the government continue to increase taxes on buy-to-let landlords.

Inheritance Tax
Inheritance tax thresholds are frozen for a further 2 years until 2030. However, unspent pension pots will now be included in estate valuations, making them potentially liable for inheritance tax—a significant consideration for estate planning.

Making Tax Digital (MTD)
Making Tax Digital for small businesses will still come in from April 2026. The sales threshold at which this applies to small businesses and landlords has been reduced now to £20,000 and will be reviewed in future.

Millward May: We would recommend using bookkeeping software for your sole trade or Limited Company business. You can still get FreeAgent for free if you have a Mettle or Natwest bank account. A Mettle bank account is also free! We can help setup the software for our monthly fee clients for no additional charge.

Associated Companies Impact

If your company is associated with one or more other companies this could impact your business:

• Corporation tax: the marginal rate tax band of £50,000 will need to be split between the number of associated companies and therefore higher rates of corporation taxes could be payable.

• PAYE: you can only claim the employment allowance of £5,000 against employers National Insurance for one associated company.

• VAT: you are not allowed to use the flat rate VAT scheme if you are an associated company.

To optimise your tax outcomes, it might be necessary to review your company structure and consider consolidating or dissolving certain companies to reduce the number of associated companies.

Corporation Tax Changes: Example 1

Corporation Tax Example 1 (No Associated Companies)

As of 1 April 2023, the corporation tax rate changed. Instead of paying 19% on your profits, you will now pay 19% on profits up to £50,000 if you don’t have any associated companies, a marginal rate of 26.5% on profits between £50,000 and £250,000 and 25% on anything over £250,000.

An example of how this works for a company making a profit of £120,000 is shown below:

• £50,000 x 19% = £9,500

• £120,000 - £50,000 = £70,000 x 26.5% (marginal rate) = £18,550

Total tax for the period is therefore £28,050 (£9,500 + £18,550) which is a hybrid rate of 23.4% (£28,050/£120,000).

Corporation Tax Changes: Example 2

Corporation Tax Example (One Associated Company)

In this example lets assume you have one associated company and so the thresholds are divided by two. Instead of paying 19% on profits up to £50,000, you now pay 19% on profits up to £25,000 (£50,000/2), a marginal rate of 26.5% on profits between £25,000 and £125,000 and 25% on anything over £125,000.

An example of how this works for a company making a profit of £120,000 is shown below:

• £25,000 x 19% = £4,750

• £120,000 - £25,000 = £95,000 x 26.5% (marginal rate) = £25,175

Total tax for the period is therefore £29,925 (£4,750 + £25,175) which is a hybrid rate of 24.9% (£29,925/£120,000).

Determining Rule

The basic rule for deciding if two companies are associated with each other is that either:

• One of them has “control” of the other; or

• Both are under the “control” of the same person or “persons”; or

• One of them has “control” of one and “associates” of them have control of the other and the businesses have “substantial commercial interdependence”

Definitions

“Control” is determined by having the greater part (more than 50%) of the:

• Share capital; or

• Voting power; or

• Rights to income distribution; or

• Rights to assets on winding-up

“Persons” two companies are only under the control of the same persons if:

• A group which controls one company is identical with a group which controls the other; and

• For each company, that group is a “minimum controlling combination”

“Minimum controlling combination” this means a group of persons which has control of the company but which would not have control if any one of the persons were excluded from the group.

“Associates” are any relation to a person and includes (but is not limited to): spouse, civil partner, partner, parent, child, sibling. A full definition of associates can be found here.

“Substantial commercial interdependence”

• Financial - two companies are financially interdependent if either:

  • One gives financial support to the other (directly or indirectly) e.g. loan; or

  • Each has a financial interest in the affairs of the same business

• Economic - two companies are economically interdependent if one of the following applies:

  • They look to realise the same economic goal; or

  • The activities benefit the other company; or

  • They have common customers

• Organisational - two companies are organisationally interdependent if they have or use common:

  • Management

  • Employees

  • Premises

  • Equipment

Other Considerations

• Dormant companies and passive holding companies can be ignored for the purposes of determining the number of associated companies.

• Non-UK companies must be included in the calculation, therefore for groups of companies, the calculation could get quite complicated.

• You need to consider whether the companies were associated at any point during the year and not just at the end of the year.

Associated Companies Determination: Example 1

Company A: The shares are owned 75% by Alex and 25% by their spouse, Sam. The company’s only activity is the trade of providing engineering consultancy services solely carried out by Alex.

Company B: The shares are owned 80% by Sam and 20% by Alex. The company’s only trade is providing educational training, solely carried out by Sam.

Despite the mutual shareholdings in each other’s company, they both run their respective companies independently of each other. In the early years of Company B, there were occasional short-term loans of money from Company A and the lending of assets (e.g. company vehicles).

At first glance, you may consider the two companies are associated due to the spousal relationship, however this would only be applicable if there is substantial commercial interdependence between the companies. In the above example, as the inter-company transactions were a few years ago, they would have little significance in the current period and as there is no other financial, economic or organisational interdependence then they would not be associated in the current period.

Associated Companies Determination: Example 2

Company C: James holds 30%, Chris holds 40% and Claire holds 30%; none of them are associates

Company D: James holds 40%, Chris holds 30% and Claire holds 30%

Company C is controlled by any combination of James/Chris, Chris/Claire or James/Claire. They are minimum controlling combinations as they only have control with the addition of another person. Therefore, these two companies would be associated for tax purposes.

The key announcements from Jeremy Hunt’s spring budget last week were as follows:

Impact on businesses

The VAT registration threshold will increase by £5,000 from £85,000 to £90,000 from 1st April 2024.

Millward May: This will provide a bit of extra headroom to clients with sales approaching the VAT threshold. It is important to monitor your sales on a monthly rolling basis if you feel your business may be approaching this threshold. You can do this easily on your bookkeeping software. If you are unsure how to do this, don’t hesitate to get in touch.

Corporation tax rates on your company profits will remain unchanged;

• 19% => £0 - £50,000

• 26.5% => £50,000 - 250,000

• 25% => £250,000+

Its also important to be aware of the associated companies rules - further details can be found here: www.millwardmay.co.uk/news/2023/5/18/corporation-tax-changes

Millward May: Where you have profits exceeding £50,000 you may want to consider ways to reduce this and therefore bring down the profits in the 26.5% rate (e.g. you could make pension payments or purchasing a large fixed asset such as an electric vehicle before your period end). We can help our clients if they require advice on this.

National Living wages will rise to £11.44 per hour from April 2024. 

Millward May: We advise all employers to check you are paying the correct amounts to your employees. You can use the government calculator here: https://checkyourpay.campaign.gov.uk/. If you have any questions or concerns, you can email our payroll team at payroll@millwardmay.co.uk

Research and Development reforms will come into place from April 2024. The RDEC and SME schemes will be merged and the rate will be set at 20% which is the current RDEC rate.

Impact on individuals

Class 1 employee National Insurance Contributions (NICs) are to be cut from 10% to 8% from 6th April 2024. This will provide a saving to those who are on a salary above £12,584, the threshold at which employees start paying National Insurance.

Millward May: We will be reviewing salaries for our director/shareholder clients in the next month and advise accordingly.

Class 4 NICs are to be cut from 9% to 6% from 6th April 2024 which will be a welcome change for self-employed individuals.

The income threshold at which Higher Income Child Benefit Charge (HICBC) starts to be charged has increased from £50,000 to £60,000. Additionally, the rate at which the HICBC is charged will be halved which means that it will not be withdrawn completely until individuals have income of £80,000 or more.

Millward May: Those who decided not to claim this in the past due to the charge being the same as the benefit may now decide it is beneficial to do so. We would recommend speaking to us if you are unsure as it will depend on individual circumstances.

The Capital Gains tax rate on residential properties has been reduced for higher rate taxpayers from 28% to 24% from April 2024. The basic rate remains unchanged at 18%.

Millward May: If you are considering selling your rental property then we offer an additional service to calculate the potential capital gains tax arising for existing clients.

The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. Holiday lets will then be treated in the same way as other residential lets.

Income tax rates will remain unchanged:

• Basic rate – 20%

• Higher rate – 40%

• Additional rate – 45%

The personal allowance and basic rate limit are fixed at their current levels of £12,570 and £37,700 respectively and the point at which higher rate starts remains at £50,270.

Dividend tax rates will remain unchanged:

• Basic rate – 8.75%

• Higher rate – 33.75%

• Additional rate – 39.35%.

As previously announced the dividend allowance will reduce from £1,000 to £500 from April 2024.

Class 2 National Insurance for the self-employed with profits over £6,725 will no longer be payable from 6 April 2024, saving £163.80 per annum. Those with profits under £6,725 who pay voluntarily will continue to be able to do so in order to access the benefits including the state pension at £3.70 per week from April 2024.

Pension changes previously introduced in 2023/24 will remain including:

• An increased annual allowance of £60,000

• Individuals with a “threshold income” over £200,000 will have their allowance restricted. It will be reduced by £1 for every £2 of “adjusted income” over £260,000. The minimum allowance is £10,000. 

• The lifetime allowance has been abolished from 2024/25.

Millward May: We would recommend speaking to an Independent Financial Advisor if you are a higher rate taxpayer and would like to ensure you are maximising your tax efficiency via pensions. You can find out more here: www.millwardmay.co.uk/independent-financial-advisor 

Capital gains tax annual exemption will reduce from £6,000 to £3,000 from April 2024 as previously announced.

Millward May: You may want to consider timing the sale of any shares/property to take advantage of the higher allowance this tax year ending 5th April 2024.

Making Tax Digital for small businesses will still come in from April 2026. The threshold at which this applies to small businesses and landlords is £30,000 and will be reviewed in future.

Millward May: We would recommend using bookkeeping software for your sole trade or Limited Company business. You can still get FreeAgent for free if you have a Mettle or Natwest bank account. A Mettle bank account is also free! We can help setup the software for our monthly fee clients for no additional charge.

A few changes were announced by the Chancellor recently. We have summarised those most likely to affect you and your businesses below:

Impact on businesses:

Corporation tax rates will remain unchanged; details of these are shown here: www.millwardmay.co.uk/news/2023/5/18/corporation-tax-changes

National Living wages will rise to £11.44 per hour from April 2024. You can check that you are paying the correct amounts using the government calculator here: https://checkyourpay.campaign.gov.uk/

Capital allowance rules introduced in spring 2023 will remain enabling companies to claim 100% allowances on all qualifying plant and machinery

Research and Development reforms will come into place from April 2024. The RDEC and SME schemes will be merged and the rate will be set at 20% which is the current RDEC rate. This credit will then have corporation tax applied to it based on that of the recipient company. Therefore, businesses with over £50k profits, will effectively receive a credit at 15% whilst loss making ones will receive 16.2%.

For loss making R&D intensive SMEs, the 40% intensity threshold has reduced to 20%. Therefore, a loss-making SME company with qualifying R&D expenditure of 30% or more of its total expenditure from April 2024 may be able to claim the enhanced deduction of 86% and a payable credit of 14.5%. This results in a potential relief of 26.7% of the R&D expenditure for qualifying companies.

 From April, R&D claimants will also no longer be able to nominate a third party payee for the tax credit payments.

Business rates will be frozen for small businesses for another year whilst the 75% Retail, Hospitality and Leisure relief will be extended for 2024/25.

Impact on individuals:

Income tax rates will remain unchanged: basic rate – 20%, higher rate – 40% and additional rate – 45%. The personal allowance and basic rate limit are fixed at their current levels of £12,570 and £37,700 respectively with the point at which higher rate starts remaining at £50,270.

Dividend tax rates will remain unchanged: basic rate – 8.75%, upper rate – 33.75% and additional rate – 39.35%. As previously announced the dividend allowance will reduce from £1,000 to £500 from April 2024.

Class 1 National Insurance rates for employees will reduce from 12% to 10% from 6 January 2024.

Class 2 National Insurance for sole traders with profits over £6,725 will no longer be payable from 6 April 2024, saving £163.80 per annum. Those with profits under £6,725 who pay voluntarily will continue to be able to do so in order to access the benefits including the state pension at £3.70 per week from April 2024.

Class 4 National Insurance rates for the self-employed will reduce from 9% to 8% from 6 April 2024.

Pension changes previously introduced in 2023/24 will remain including:

• An increased annual allowance of £60,000

• Individuals with a “threshold income” over £200,000 will have their allowance restricted. It will be reduced by £1 for every £2 of “adjusted income” over £260,000. The minimum allowance is £10,000.

• The lifetime allowance has been abolished from 2024/25.

State pensions will be worth up to £900 a year more than previously due to the government maintaining the triple lock.

Capital gains tax annual exemption will reduce from £6,000 to £3,000 from April 2024 as previously announced.

Making Tax Digital for small businesses will still come in from April 2026. The threshold at which this applies to small businesses and landlords is £30,000 and will be reviewed in future.

As of 1 April 2023, the corporation tax rate changed. Instead of paying 19% on your profits, you will now pay 19% on profits up to £50,000, a marginal rate of 26.5% on profits between £50,000 and £250,000 and 25% on anything over £250,000.

Corporation Tax Example

An example of how this works for a company making a profit of £120,000 with an accounting period running from 01.07.2022 - 30.06.2023 is shown below:

• Old rate: 01.07.2022 - 31.03.2023 £120,000 x 9/12months = £90,000 x 19% = £17,100

• New rate: 01.04.2023 - 30.06.2023 £120,000 x 3/12months = £30,000

  • £50,000 x 3/12months = £12,500 x 19% = £2,375

  • £30,000 (profit for 3 month period) - £12,500 (profit at 19% rate) = £17,500 x 26.5% (marginal rate) = £4,637

Total tax for the period is therefore £24,112 (£17,100 + £2,375 + £4,637). This is a hybrid rate of 20.1% (£24,112/£120,000).

Associated Companies

If you have an associated company then the £50,000 threshold may have to be reduced. A company is an associated company of another when:

• One has control of the other; or

• Both are under common control

Here is a link to an article by the ACCA that explains this in more detail: How changes to corporation tax will impact associated companies

Investment Companies

If you have an investment company then you may not be entitled to the lower tax rate as most investment companies pay tax at 25% on all of their profits.

However, where a company invests in property and the property is let on a commercial basis to unconnected parties they will still be able to access the reduced tax rate of 19% for the first £50,000 of profits.