The UK government announced in the Spring Budget 2021 that the main limited company tax rate would increase from 19% to 25% from 1 April 2023. This change was originally due to come into effect in April 2022, but was delayed due to the COVID-19 pandemic.
The new corporation tax rate will apply to all companies with profits of £250,000 or more. Companies with profits of less than £50,000 will continue to pay corporation tax at 19%. HMRC has also implemented a system of marginal relief for companies that fall in between these two limits.
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How does marginal relief for corporation tax work?
In addition to the increase in the main rate of corporation tax, there will also be a new system of marginal relief for companies with profits between £50,000 and £250,000. Under this system, the amount of corporation tax payable will be reduced by a percentage for every £100 of profits above £50,000. The percentage reduction will be 1% for the first £100,000 of profits, and 0.5% for any profits above £100,000.
Put simply, companies with profits between £50,000 and £250,000 will pay an effective tax rate somewhere between 19% and 25% after marginal relief. The easiest the way to calculate your new tax obligations if your company falls within this bracket is to use HMRC’s marginal relief calculator.
The following table shows the new corporation tax rates and marginal relief percentages:
|Profits||Corporation Tax Rate||Marginal Relief Percentage|
|£0 – £50,000||19%||n/a|
|£50,000 – £250,000||25%||1% for the first £100,000 of profits, 0.5% for any profits above £100,000|
|£250,000 or more||25%||n/a|
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