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Corporation Tax Increase in 2023

In the 2021 Spring Budget an increase to the main rate of corporation tax was announced. This will take effect from 1 April 2023.

The current rate of corporation tax is 19%, however this is set to change with the main rate rising to 25%, although some smaller companies will continue to benefit from the lower rate.

The applicable tax rate will be determined based on the level of a company’s profits, with those over £250,000 paying tax at 25% (on the total), and those with profits below £50,000 continuing to pay at 19%.

**Please note the lower rate will be unavailable to close investment-holding companies and those not resident in the UK. **

Marginal relief will apply to profits between £50,000 and £250,000 to soften the transition between the small profits rate and the main rate. The tax due is calculated by applying a complex formula and despite the softened transition, it has the effect of increasing the tax due on profits within this range to a rate above 25%.

Companies may therefore wish to plan and consider reducing profits below the marginal rate limit where this is likely to apply. For example, this could be achieved through the making of employer pension contributions or by investing in plant and machinery earlier than originally planned.

Please bear in mind when calculating the corporation tax due from 1 April 2023, it is important to remember that where a company’s accounting period straddles more than one financial year, the chargeable profits of the accounting period must also be apportioned between the applicable financial years in determining the rate of tax.

Also businesses with an accounting period of less than 12 months or/and a business with associated companies will need to be aware that the £50,000 lower and £250,000 upper limits can be reduced. If you would like to discuss how any of these changes may affect your business then please get in touch.

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