Given the pressure to give businesses timely tax cuts to boost the economy, and the new leadership race, will the Government still go ahead with the planned rise to corporation tax in April 2023? Below we explore what this will mean and also the planning opportunities that can be looked at.
Companies now pay a flat 19% corporation tax rate but will face, from 1 April 2023, a substantial increase with the rates being replaced by variable rates ranging from 19% to 25%.
A small profit rate of 19% will apply to companies whose profits are equal to or less than £50,000.
The main Corporation Tax rate will be increased to 25% and will apply to a company with profits in excess of £250,000. Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced by marginal relief. The marginal relief acts to adjust the rate of tax paid gradually increasing liability from 19% to 25%.
However in addition to this percentage increase, the bands are reduced if a company has associated companies or an accounting period of less than 12 months. An associated company is loosely defined as a company in common ownership. An example of how this may affect you is:
If you have one company with taxable profits of £40,000 and one company with taxable profits of £5,000, the company with the taxable profits of £40,000 will not benefit from the small profits rate as the profits are above the lower limit of £25,000 that applies to a company with one associate (£50,000 divided by 2).
Jill says ” we will be contacting our clients to discuss this and offer advice but if anyone is in such a position and if they have a number of associated companies they may really benefit from a review prior to April 2023 to see if overall tax liabilities can be reduced by restructuring”
How EBS Can Help
If you have any questions about your Corporation Tax liability, please contact us. We can help you review your options and make sure you are taking advantage of all the reliefs and exemptions available to you.