Did you know that the UK corporation tax rates will be changing in April next year?
From 1 April 2023, the rate of corporation tax will change from 19% to a variable rate between 19% to 25%, depending on the profits made by your business. This could mean a change to what you will owe in tax for the 2023/24 tax year.
What are the main changes to corporation tax?
At the moment, corporation tax (CT) is charged at 19% for most companies. The only exceptions are companies in specific sectors like banking, oil, gas and life insurance.
From 1st April 2023 the rate of tax will change:
The thresholds will work as follows:
How will this actually work in practice?
So, what does this mean for your CT bill? If you have no associated companies, then where your profits are below £50,000, your tax will continue to be paid at 19%. If your profits exceed £250,000, your tax rate will be 25% – meaning a significant jump in what you lose to tax.
In between these two points, tax will be calculated at 25%, then marginal relief calculated by using the formula (U-A) x N/A x F where:
Presuming A = N = £100,000 then the initial tax calculation at 25% gives a maximum tax charge of £25,000.
The marginal relief is (250,000 – 100,000) × 1 × 3/200 = £2,250, and the tax actually payable is £25,000 – £2,250 = £22,750.
Remember this assumes a full 12 months accounting period and no associated companies. If there was an associated company (therefore two in total) then U would be £125,000 and the marginal relief would be £375, leaving tax due at £24,625.
It’s worth noting that ‘augmented profits’ is your taxable profits plus any exempt dividends received from non-group companies.
Talk to us about planning for these CT changes
Any change to your CT liabilities can have a significant effect on your financial position. It’s sensible to talk to your advisers as soon as possible to work through your planning options.
There are two key areas where we can help:
Get in touch to talk through your tax planning.