Corporation Tax changes from 1 April 2023

The tax rate for company profits prior to 1 April 2023 is 19% regardless of the amount of profits.

The tax rate for company profits prior to 1 April 2023 is 19% regardless of the amount of profits.

The main rate of corporation tax is set at 25% from 1 April 2023. The small profits rate is 19%.

The small profits rate will apply to profits below the lower limit of £50,000 and profits exceeding the upper limit of £250,000 will be charged at the main rate.

Marginal relief provisions also apply so that, where a company's profits fall between £50,000 and £250,000, it will be able to claim an amount of marginal relief that bridges the gap between the lower and upper limits providing a gradual increase in the corporation tax rate.

The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.

Associated company rules

The related 51% group company test is replaced by associated company rules. This will be the case for its application for determining whether a company is large or very large for quarterly instalment payment purposes.

Broadly, a company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:

  • one company has control of the other
  • both companies are under the control of the same person or group of persons

How to manage the increase in tax

This is a very complex area and professional advice should be sought as to how to manage this increase. In general, profits should be obtained this year rather than next year to ensure the lowest rate of tax payable is paid. Consequently, if it is possible to increase income or profit this year, steps should be taken to achieve this. Similarly, capital gains should be achieved this year rather than next year where possible.

Any discretionary expenditure should be deferred until the following tax year to reduce profits in the year when higher tax rates apply. Finally, the highest tax rate is payable on profits between £50,000 and £250,000, so this band should be avoided if possible.