Businesses must plan for the rise in Corporation Tax (CT), coming into force from 1 April 2023, and sees the top rate of tax rising from 19% to 25%
The tax applies to all profitable limited companies – from trading income or the sale of investments or assets.
The new approach to Corporation Tax
After 1 April, small companies with profits of up to £50,000 will continue to pay CT at 19% thanks to the small profits rate. However, companies with profits of £250,000 and over will pay CT at 25%.
Those companies between this upper and lower threshold will pay CT at the top rate of 25% but benefit from marginal rate relief that reduces their effective rate of tax on a sliding scale, depending on their level of profitability.
To calculate this all profits between £50,001 and £250,000 are effectively taxed at a rate of 26.5%.
For example, if a company enjoyed profits of £150,000, the first £50,000 is taxable at 19% and the remaining £100,000 at 26.5%.
As a result, the company would receive a tax bill of £36,000, which means that the actual tax rate that applies is 24%.
Newly introduced Associated Companies for Corporation Tax rules will apply from 1 April 2023 in the context of the small companies rate of CT.
It applies to clients who own or control more than one company. Where two or more companies are “associated” with each other, the Corporation Tax limits are divided by the number of companies concerned.
Like all taxes, CT is complicated. There are several ways to plan for and mitigate the changes to Corporation Tax with professional guidance. Our tax advisors can help you navigate these changes and give you advice based on your circumstances. Arrange your free consultation with us here.
