Planning ahead for the corporation tax increase - Davies Tracey - Accountants in Tees Valley
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Planning ahead for the corporation tax increase


One of the biggest considerations for businesses currently is the increase to corporation tax. The new, higher rate will be effective from 1 April 2023 for companies with profits over £50,000. They will face a corporation tax rate of 25%.

This is a significant increase to the current rate of 19% (for all companies, regardless of the size of their profits), which is an historically low rate.

From 1 April 2023, all companies with profits below £50,000 will continue paying the 19% rate of corporation tax and, depending on the circumstances, if a company’s profits fall between £50,000 and £250,000, it may be possible to claim some marginal tax relief to reduce the 25% rate.

The way in which marginal relief is calculated is based on a complex formula, offsetting ‘augmented profits’ against the total taxable profits. These include dividends, distribution of assets or amounts treated as a distribution on the transfer of assets or liabilities or the repayment of share capital.

Therefore, depending on profit levels, it may be worth considering planning opportunities to reduce profits to below the marginal rate limit, such as advancing the purchase of equipment or making pension contributions.

There are further considerations where a company has multiple associated companies (the upper and lower profit limits for corporation tax purposes will reduce accordingly) and if a company’s accounting period spans the 1 April 2023 new rate start date (profits will be apportioned between those falling within the financial year 2022, which are taxed at 19%, and those falling within the financial year 2023).

It is therefore wise to speak to us so that we can help you understand the effects of the increase, and plan ahead for the most advantageous way your business can comply.

Please call us on 01642 606003 to arrange this.


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