Top tips for businesses as we enter the new tax year

Today marks the start of the new tax year, and with it comes a variety of changes and challenges for businesses. So, with that in mind, we’ve created this list of top tips for businesses, so they’re better equipped for the year ahead.

Prepare for the new tax changes

As we enter the new year, there are several tax changes that businesses need to be aware of. This includes changes to R&D tax credits, National Insurance, and corporation tax.

A new analysis commissioned by small business support platform Enterprise Nation found that businesses could see annual tax bills increase by around £9,000 for the bigger earners as a result of the new tax changes.

The figures show that for firms who make a profit of £200,000, tax bills will climb from £39,723 to £49,361 compared to the 2022/23 tax year. With a £150,000 profit, total tax take could rise by as much as £5,888 for a company with two company directors taking a salary of £23,816 each.

The comparison also found a business with a profit of £50,000 in 2023/24 would see hardly any difference from 2022/23, partly because Corporation Tax remains at the same level.

Businesses earning a £50k profit also get some relief because the 1.25 percent rise in National Insurance has been reversed. However, when businesses reach £100,000 in profit, the increases take hold. For example, a director that takes a salary of £12,470, plus dividends could pay an extra £1,950 in tax compared to last year.

Paula Tomlinson, Founder of On the Spot Accountants, who crunched the numbers for this analysis, comments: “We are seeing absolute tax levels increasing from 20% to 24% in some circumstances. We are not talking about extremely rich people here. We’re talking about people who work all day every day, at their own risk.  

“There are of course optimal mixes that can help to mitigate some of this, but that will require action and a pro-active approach with an accountant to understand solutions based on each business’s needs.” 

Edward Guest, the COO at UNLIMITED, says his company will benefit from the changes made to R&D tax credits.

He explains: “As a people business, we’re engaged in a lot of R&D at UNLIMITED, so the increase in Research and Development Expenditure Credit (RDEC) for large companies should benefit us. Our Human Understanding Lab is a good example of the kind of work we do. We bring human insights to every campaign we work on, through combining neuro, behavioural and data science with cutting-edge technology. Understanding more about human behaviour will be critical to more effective work and, crucially, conversion this year.”

Corporation tax rise to 25%

The corporation tax rise was first announced by Rishi Sunak and was confirmed by Chancellor Jeremy Hunt in his recent Spring Budget. Now in effect, it will see the rate increase from 19% to 25% for businesses with profits over £250,000, with businesses with profits below £50,000 paying a 19% small profits rate.

Businesses with profits between £50,000 and £250,000 will pay the main rate reduced by a marginal relief which provides a gradual increase in the effective corporation tax rate. However, the sliding scale will see some businesses paying more than 26 percent on profits above £50,000.

Following the change, Chieu Cao, CEO of Mintago, advises how businesses can invest in their employee wellbeing and staff retention schemes to become as tax efficient as possible.

He says: “In the current economic climate, the corporation tax hike to 25% will come as an unwelcome blow to businesses across the UK. It reinforces the need for finance directors and CFOs to be savvy with how they are managing their finances, and, to that end, there is a good chance we will see some upsides to how they reinvest money back into the business. 

“With a greater focus on net-net investing, businesses should double down on inward investment into employee wellbeing and staff retention schemes. The cost-of-living crisis has made this more important than ever: organisations must ensure they support staff with robust, impactful and measurable initiatives that will help employees to manage their finances amid a highly challenging economic climate. 

“As corporation tax takes a six-point jump from today, I suspect many companies will look to offset their taxable profits through the net-net method, and greater investment into financial wellbeing solutions ought to be central to any such strategies. As a result, businesses will better position themselves to attract and retain talent, while employees will gain much-needed support in navigating the cost-of-living crisis and achieving their financial goals.” 

Economic challenges

Last month, interest rates hit 4.25% and inflation, which had been slowly declining, went back up to 10.4% in February. And whilst the UK narrowly managed to avoid falling into recession at the start of the year, the International Monetary Fund (IMF) has predicted the UK will be the only major economy to shrink in 2023.

The latest tax year will undoubtedly be tough for businesses economically, but according to Ian Goodwin, Employment Tax & Reward Partner at Mazars, it’s not the only issue businesses will have to contend with.

He comments: “It continues to be a really challenging time for businesses, and this is set to continue through 23/24. Inflation is sticky and high, well above the 2% target, which means decisions on pricing, supplier terms and pay rises are very difficult to get right.  

“Recruiting and retaining the best talent is also increasingly challenging. Though, changes announced in the budget to EMI and CSOP share option schemes can help with this challenge and may also help mitigate some of the risk from pay rise pressure due to high inflation levels. 

“The continued tone of uncertainty also continues to be a challenge. For some time, the UK has been on the brink of a recession and this has impacted business confidence, it’s hard to know if it is the right time to consolidate or expand.” 

Tips for the 23/24 tax year

Considering the difficulties that businesses are set to experience over the next year, the experts we spoke to also offered a range of tips to help navigate the year ahead.

Goodwin comments: “My first tip is a simple, but often overlooked one. Make a plan. Use the start of the next tax year to put a plan for your business in place.  

“Talk to specialists and get support. The old adage “a stitch in time saves nine” has never been truer, particularly when managing compliance risks as highlighted by the recent IR35 cases that are making front-page news. Take the time to seek the support of people who will help you dot the i’s and cross the t’s.  

“Review your reward strategy. What may have worked five years ago will have changed, with the continued presence of hybrid working, a global pandemic and the arguably successful trial of the four-day working week in the UK, views have evolved. Be flexible, nimble and talk openly to your colleagues, employees, contacts, and advisers on what is the best approach.  

“Finally, reassess how you are remunerated by your business. Changes to corporation tax rates and dividend tax thresholds mean you should review current arrangements. And the increase in the Pension Annual Allowance to £60,000 may provide an opportunity to make tax efficient retirement savings, which could be further enhanced if made through a salary sacrifice arrangement.” 

For Guest, UNLIMITED will look to improve in several areas this fiscal year too.

He comments: “Productivity is also a key focus for us, as it will be in many businesses. Jeremy Hunt’s move to bring more people back into the workforce in the Spring Budget is welcome, but we’re also focusing on productivity across the company, embedding it into how we work. We’ve developed a Productivity Playbook which breaks productivity down into five key areas that interact with each other. It’s about setting the right processes and structures and continuing to track them. It’s now part and parcel of how we work, and it will be a focus this year.

“As part of our continuous improvements, Automation and AI are part of this year’s plans, layering on top of our productivity work. We’re already automating many of our systems and we’ll be rolling this out across the business in this tax year. As well as using AI to increase our capabilities in delivering great client work, we are also drawing on generative AI for our own internal processes this year.”

Wellbeing expert Adrienne Herbert and Rachel Harris, Director at striveX, – who co-authored Intuit QuickBooks’ recently launched Guide to Successfully Setting New Tax Year Resolutions – also offered their top three top tips for the year ahead:

 1. Set goals 

“When it comes to ‘planning for success’, for me, it’s all about goal setting. Having a realistic and achievable goal to work towards will help you and your business to progress and succeed. The best piece of advice that I can give when it comes to setting business goals is that less is more. Too often I see people create a long list of goals that they try to tackle all at the same time.  

“I have a trusted framework for goal-setting – five simple steps that work every time: Get specific, set a deadline, share your goals, assess and reflect, ask for help.” 

2. Make powerful habits 

 “Powerful habits”, as I call them, are small, repeatable actions that have a positive knock-on effect over time. For example, dedicate 30 minutes each day to reading or listening to a podcast to inspire you, ensure you take a 30-minute lunch break away from your desk to focus on things outside of your business, or spend just five minutes every morning looking through insights from your financial forecasting tools.”

3. Rely on others 

“While being a small business owner can feel like a lonely endeavour at times, never forget that surrounding yourself with both expert and emotional support is not a weakness, but an excellent tool for success.  

“No matter your skill or success level, there are people you can and should rely on to help you. Your accountant is top of the list. They can support you in countless ways, but the first is both as obvious and as essential as you’d expect: compliance. 

“When I speak to clients, so many equate financial processes with rising anxiety levels. Before they even say a number to me, they’ll tell me a feeling. Worry, fear, stress – the concern that stems from not knowing if your business is compliant or if you’re making the right decisions is an incredible burden for many business owners. But you don’t have to do this by yourself – the right accountant can take the weight right off your shoulders.” 

Filing business tax returns

Finally, Goodwin offers some essential tips for filing your tax business’s tax return in the 23/24 tax year.

He says: “Plan at the start of the year. Look at the detail, the opportunities, and the risks. Prioritise these and act. This will also help you make sure you and your team know your roles and differing responsibilities. 

“Do it early. Get the tax work done as you are pulling together your accounts. This will mean you can focus on current and future years as soon as possible. Make sure you are claiming the reliefs that are available to you, think about how technology can be used to automate aspects to provide greater clinical transparency and easily identify costs and taxes, and seek the support of experts.” 

The 23/24 tax year is likely to be challenging for many businesses, but hopefully, with these tips, the year ahead will be a little bit easier.