Corporation Tax is the tax that companies pay on their profits. It used to be straightforward, with all businesses in the UK paying a flat rate of 19%, but recent changes mean different rates now apply depending on how much profit your company makes.
Here’s a breakdown of the current rates, how they work, and what businesses need to watch out for.
The Current Corporation Tax Rates
In April 2023, the government introduced a tiered system for Corporation Tax:
- 19% for companies with profits below £50,000
- 25% for companies with profits over £250,000
For businesses making more than £250,000 in profits, the full 25% rate applies. However, companies with profits between £50,000 and £250,000 fall into a middle range, where things get slightly more complex.
Profits Between £50,000 and £250,000 – Marginal Relief
Companies with profits between £50,000 and £250,000 don’t immediately jump from paying 19% to 25%. Instead, these businesses benefit from something called marginal relief, which reduces the 25% rate based on how close the company’s profits are to £50,000.
In practice, this means businesses in this profit range will pay a rate somewhere between 19% and 25%, depending on their exact profit levels. The closer a company gets to £250,000 in profit, the closer it moves towards the 25% rate.
This marginal relief calculation can be a bit tricky, which is why many companies choose to work with accountants to ensure they are paying the correct amount of tax.
Associated Companies and Corporation Tax
For businesses with more than one limited company, these are considered associated companies. This means the profit thresholds for Corporation Tax are divided by the number of associated companies.
For example, if a business owner has two companies, the lower threshold for paying 19% Corporation Tax would drop from £50,000 to £25,000 per company, and the upper threshold for paying 25% would drop from £250,000 to £125,000 per company.
The more associated companies a business has, the more these thresholds are divided.
Staying on Top of Corporation Tax
To ensure compliance and avoid any penalties, companies need to keep track of a few key points:
- Deadlines: Corporation Tax is due 9 months and 1 day after the end of the company’s financial year.
- Self-assessment: Unlike personal tax, there’s no bill from HMRC. Businesses are responsible for calculating and paying their Corporation Tax on time.
- Filing returns: Companies also need to file their Company Tax Return within 12 months of the end of their financial year.
Corporation Tax can seem complicated, particularly with the introduction of marginal relief and associated companies, but the right advice can make it much easier to manage.
| If you need support navigating Corporation Tax or want to ensure your business is making the most of available reliefs, get in touch with Blue Spire today. |
