Changes to Corporation Tax from 1st April 2023
Legislation has been introduced to set the main rate for Corporation tax to 25% from 1st April 2023. A small profits rate will also be set at 19%.
The small profits rate of 19% will apply to profits below the lower limit of £50,000 – companies with profits under £50,000 will remain unaffected.
Profits exceeding the upper limit of £250,000 will be charged at the main rate of 25% – companies with profits over £250,000 will pay an extra 6% corporation tax.
If your profits fall between £50,000 and £250,000 marginal relief will be introduced which will bridge the gap between the lower and upper limits, providing a gradual increase in the corporation tax rate.
1. What are the tax rates for self employment in comparison to the new corporation tax rates?
The self employed pay tax at 20% up to £50,270, 40% up to £150,000 & 45% over £150,000
2. What impact will this have on what I pay in corporation tax in comparison to previous years?
Please use the attached excel sheet to calculate the comparison. Enter your taxable profit in cell D3. The rest of the cells are formulated & will provide you with a clear comparison.
3. Does it matter if my company is an associated company?
Yes it does. For associated companies, the new corporation tax upper and lower rates will be divided by the number of associated companies.
4. What is an associated company?
According to HMRC, a company is an associated company of another, if one of the two has control of the other, or both are under the control of the same person or persons.
5. I have shortened my year end so the accounting period is only 10 months. Will the lower limit and upper limit remain unaffected?
No. You will need to reduce the limits if the period is shorter. Here the lower limit will be £50,000 x 10/12 = £41,667 & the upper limit will be £250,000 x 10/12 = £208,333
6. What happens if my accounting period straddles 1st April 2023?
You will pay tax at 19% up to and including 31st March 2023 & then the new rate(s) will be charged on your profits from 1st April 2023 onwards.
If you have any questions please do not hesitate to contact us, we are happy to help.