The UK’s main rate of corporation tax will increase from 19% to 25% with effect from 1 April 2023. Not every company will pay at this rate. A small profits rate of 19% will be introduced for companies with annual chargeable profits of £50,000 or less, with a tapered tax band for those with profits between £50,000 and £250,000.
Changes to Corporation Tax
From 1 April 2023, the main rate of corporation tax rises to 25%, but not every company will pay at this rate. Profits exceeding £250,000 will be charged at the main rate, but a small profits rate of 19% applies where profits do not exceed £50,000.
Who pays UK corporation tax?
Corporation Tax is charged on annual profits of all UK limited companies including;
- certain membership organisations, clubs and societies
- housing associations
- trade associations
- co-operatives.
If you are a company director, it is your responsibility to ensure the Corporation Tax return is submitted on time and that the bill is paid.
Corporation Tax – profits under £50k Companies with profits under the £50,000 mark will effectively see no change as the small profits rate of 19% applies.
Corporation Tax – profits between £50k and £250k If your company has profits between £50,000 and £250,000, the tax rate is tapered. Your company will pay at the main rate reduced by marginal relief: essentially, the tax rate increases from 19% to 25% depending on your level of profit.
Effectively, under the new rates, companies will pay tax at 26.5% on all profits between £50,000 and £250,000. HMRC has created an online tool to demonstrate how marginal relief works: Click here to access Marginal Relief calculator
Corporation Tax – profits exceeding £250k Companies with profits exceeding £250,000 will pay corporation tax at 25% from 1st April 2023.
Can I reduce my Corporation Tax bill?
Corporation Tax is due on the profits of a limited company after various deductions, some of which are listed below. If your business is operating at a loss rather than a profit, you could be entitled to a refund by applying the losses to the previous year’s taxes or using them against future profits. Talk to your accountant about this and for more information about the deductions listed below.
- Expenses
Business expenses may be deducted from your profit – this will reduce the amount of Corporation Tax you owe.
Expenses include items or services used for business purposes, including:
- Employer National Insurance contributions
- Salaries
- Office equipment
- Petty cash for tea and coffee
- Travel expenses for business meetings
- Salary
Salary is a business expense. You will need to pay Income Tax and National Insurance on these earnings, so speak to your accountant about the best way to pay yourself a salary.
- Training
Training and related subscriptions that are paid for by your business are also tax deductible.
- Staff parties
Annual staff parties, such as Christmas parties and summer events that cost less than £150 per head are tax-free and tax deductible to- (staff parties are an exemption rather than an allowance so if you exceed the £150-per-head limit by just a penny, the total cost of the party will be taxable, not just the excess).
- Pay your corporation tax bill early
If you can pay your Corporation Tax bill early, HMRC will repay you a portion of it in interest, at a rate of 3 per cent (with a lower limit of 0.5% known as the ‘minimum floor’). Click here to see rates for late and early payments. Talk to your accountant about this and the rules governing this option.
- Research and Development tax relief (R&D)
Businesses that develop or improve products, services or processes that lead to an advance in science or technology could be entitled to Research and Development (R&D) tax relief.
Corporation Tax Rises – What you should do now
If you have any questions or concerns about corporation tax changes, then talk to us sooner rather than later.
If you are a director or shareholder in a company with higher levels of profits, it is important that you start planning for the cash flow implications of higher corporation tax bills.
Call us on 01992 444466. We’re experts ready to support you and your business, no matter your company size or sector.
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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above
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