Tax mitigation

In 2015, the Government announced legislation for a more competitive Corporation Tax system - a key element of creating the right conditions for business investment and growth. As a result, Corporation Tax dropped to 19% in April 2017 across all profits with no differentiation between bands.

However, the budget in March 2021 confirmed that Corporation Tax will rise for larger companies to 25% from April 2023.

At the same time, new anti-avoidance legislation was introduced to identify companies who engage in arrangements which seek to exploit loopholes in Corporation Tax legislation.

This follows the general trend against what are deemed aggressive forms of tax mitigation.

Tax planning

Where relevant, you should take advantage of the annual investment allowance which gives 100% initial relief for investment in plant and machinery. The annual investment allowance has increased to £1,000,000 until 31 December 2021 and from January 2022 it is £200,000.

Despite the reduction in Corporation Tax, dividends remain an attractive method of distributing funds from a company for shareholding directors as the upper earnings limit is reducing the higher rate tax threshold. Broadly speaking, by taking dividends, the directors take-home-pay could be increased.

Once the Corporation Tax increase comes into force in April 2023, it would be prudent for directors to re-assess their remuneration structure.

It’s important, however, that a director draws sufficient remuneration to retain entitlement to state benefits and is aware that an even lower effective rate of income tax can be achieved by a combination of salary dividends and pension contributions.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

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