Page 16 - Budget Newsletter - March 2023

Business rates

From 1 April 2023, business rate bills in England will be updated to reflect changes in property values
since the last revaluation in 2017. The Autumn Statement announced a range of measures to
mitigate the impact of the latest revaluation including:

• A freeze on the business rates multiplier for 2023/24.

• New upwards transitional relief, with ‘upward caps’ of 5%, 15% and 30%, respectively, for
small, medium, and large properties in 2023/24, before any other reliefs or supplements.
Unlike in past years, this will not be funded by imposing downward caps for businesses
seeing a fall in values.

• An extension of support for eligible retail, hospitality, and leisure businesses with an
increase from 50% to 75% business rates relief up to £110,000 per business in 2023/24.

Dividends or salary?

Hitherto operating via a company has created the opportunity to draw income as dividends, free of
NICs, and shelter profits at a corporation tax rate that is below the basic rate of income tax – rather
than personal tax rates on earnings of up to 45% (47% in Scotland from 2023/24). From April 2023,
the increased corporation tax rate for all but the smallest companies, the greater tax on dividends
and the lowered additional/top rate tax threshold will change the calculation of relative advantage.
Dividends may not be the go-to solution for drawing profits which they have often been.

Dividend or salary revisited
Joan’s company will make profits of around £80,000 in the financial year to 31 March 2024. She
is already a higher rate taxpayer with income of around £75,000 a year and wants to draw

£20,000 of those profits out of the company. The 2023/24 cut in the dividend allowance will
mean any dividend she draws will be fully taxable. In past years she would have taken a
dividend rather than a bonus, but that does not make financial sense in 2023/24:

Bonus Company dividend
2022/23 £ 2023/24 £ 2022/23 £ 2023/24 £
Gross profit 20,000 20,000 20,000 20,000
Corporation tax (3,800) (5,300)
Employer NIC* (2,537) (2,425)
Gross pay/divi 17,463 17,575 16,200 14,700
Income tax† (6,985) (7,030) (5,130) (4,961)
Employee NIC* ( 477) ( 352)
Net income 10,001 10,193 11,070 9,739

* The Employment Allowance is assumed to be already used or otherwise unavailable. Employer’s
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NIC in 2022/23 is 14.53% and director’s is 2.73%, due to the November 2022 rate change.
† Available dividend allowance assumed to be £1,000 in 2022/23 and nil in 2023/24.