In the March 2021 budget, the Government announced a corporation tax rise of 6%, applying to businesses with profits exceeding £250,000. This is “to balance the need to raise revenue with the objective of having an internationally competitive tax system” and will take affect from April 2023.

Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19%.

A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.

An effective rate of 26.5% is applied to profits between £50,001 and £250,000.

To help you understand the changes and impact we but together some frequently asked questions.

Corporation Tax Rises – FAQs

Below are some frequently asked questions on the new corporation tax rises.

What is the current corporation tax rate?

The current tax rate is 19% and will remain at 19% until April 2023.

What will the corporation tax rate be from April 2023?

The corporation tax rate in April 2023 is set to increase to 25% for businesses with profits over £250,000.

What will be the corporation tax rate for small companies?

From April 2023, there will be a small companies tax rate of 19% for profits under £50,000.

There will then be an effective rate of tax of 26.5% for profits between £50,001 and £250,000.

Why is the effective rate 26.5% which is above the main tax rate of 25%?

There is an effective tax rate of 26.5% to ensure that those with profits over £250,000 are taxed at 25%. This is illustrated below:

First £50,000 taxed at 19% gives a tax liability of £9,500
Next £200,000 taxed at 26.5% gives a tax liability of £53,000
The total tax charged on first £250,000 profits is £62,500 (which is a tax rate of 25%)

Will associated company rules return?

We anticipate that there will be anti-tax avoidance legislation including associated companies rules. These rules will be required to avoid say a £300k profit company, splitting up into 6 companies and declaring £50k profit at the lower tax rate.

Was the corporation tax increase scrapped in the mini budget?

Yes and No. The corporation tax increase was scrapped in the Mini Budget September 2022. However the tax increase was resinstated in October 2022 and confirmed in the Autumn Statement November 2022. As a result, the corporation tax increase is still going ahead from April 2023.

The below link to the government’s website gives more detail on this as it obviously differs for different situations and also gives details on rates and allowances too.

If you are in any doubt or would like to contact us to discuss any of the above please do not hesitate to give us a call.

https://www.gov.uk/guidance/corporate-tax

Key February dates

1st          Corporation tax payment deadline for companies with a year ended 30 April 2022.

22nd      Deadline for paying electronically your Month 9 (5 January) PAYE and National Insurance liability.

28th       Deadline for filing Limited Company financial statements at Companies House with a year ended 31 May 2022.