The HMRC recently announced that the previously planned UK Corporation Tax increase of 25% will go ahead as of April 2023.
Currently corporation tax in the UK was levied on a standard rate of 19% regardless of profit.
However, the HMRC has announced a new “Small Profits Rate” to ensure that small businesses are not adversely affected by this corporate tax change. The Small Profits rate of 19% will be applicable on all companies with profits of up to £50,000.
The new Corporation tax main rate for companies with profits over £250,000 will be set to 25% as of 1 April 2023.
Where a company has profits between £50,000 and £250,000 a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.
The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits exceed £50,000 to 25% where profits are more than £250,000.
The amount of Corporation Tax to pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction will be 3/200.
For some businesses, it may be prudent to reconsider associated company relationships before April 2023 to avoid partial loss of the lower 19% rate or marginal tapering relief.