From 1 April, 2023, new rules will come into effect for Corporation Tax, and the rate that companies pay will depend on the level of their profits.
The corporation tax rate currently is 19%, irrespective of a company’s profit.
However, from 1st April 2023 onwards, the rate of Corporation Tax that you will pay, will depend on how much profit your company makes.
What are the new rates?
From 1st April 2023, the corporation tax rate will remain at 19% for businesses with profits under £50,000.
For businesses with profits between £50,000 and £250,000, corporation tax will be paid at the main rate of 25% reduced by Marginal Relief (see below).
The tax rate for profits in excess of £250,000 will be 25%.
What is Marginal Relief?
Marginal Relief allows companies with profits over £50,000, and below £250,000, to make a claim to reduce their tax rate from the 25% main rate.
Your company or organisation may be able to claim Marginal Relief if its taxable profits from 1 April 2023 are between:
You can check how much Marginal Relief you may be able to claim on Corporation Tax profits from 1 April 2023 by visiting this link.
How much Corporation Tax will my company pay?
As mentioned above, the small profits rate of 19% will apply to businesses with profits up to £50,000.
For businesses with profits between £50,000 to £250,000, the company will pay 19% tax on the first £50,000, then 26.5% on the remaining profit between £50,000 and £250,000.
Companies with profits above £250,000 will pay tax at 25%.
Below are some examples of how much a company will pay once the changes come into effect on 1 April:
Example 1:
A company whose profits are £25,000 (less than £50,000) will pay £4,750 (19% of £25,000).
Example 2:
A company whose profits are £125,000, will pay 19% tax on the first £50,000 and 26.5% tax on the remaining £75,000. Their total tax bill will be £29,375 and their overall tax rate would be 23.5% (£29,375/£125,000).
Example 3:
A company whose profits are £375,000 (more than £250,000) will pay £93,750 (25% of £375,000).
Ring fence companies
Companies that make profits from oil extraction or oil rights in the UK are known as ‘ring fence’ companies, and there are different Corporation Tax rates that apply to them.
Please visit here for more infomation on the Corporation Tax rates for ring fence companies.
How Blue Spire can help you manage this increase
Corporation Tax is a hugely complex area and these upcoming changes could result in companies making costly errors, or paying more tax than neccessary.
We can help by advising how the increase may affect your company, and ensure you are ready for when the changes come into effect on 1 April 2023.
| If you need any advice on these upcoming changes to Corporation Tax, then please get in touch with us today. |
