Did you know that the UK corporation tax rates are changed from April 2023?
From 1 April 2023, the rate of corporation tax changes 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?
Prior to the change, 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 changes:
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) x 1 x 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. We will discuss the changes with you when we complete your year-end review, to work through your planning options for when the changes are implemented.