Changes to Corporation Tax (April 2023)

From 1 April 2023 the main rate of corporation tax increases from 19% to 25% for those companies whose profits are £250,000 or over.

If a company’s profits are £50,000 or less there is a small profits rate of 19% (the same as the current rate).

So what rate of corporation tax is paid if a company’s profits are over £50,000 and less than £250,000?  This is a tapered rate which gradually increases from 19% up to 25% on profits which fall within that window.  The marginal rate of tax is actually 26.5%.  This essentially means that for each pound of profit above £50,000 the rate is 26.5% up to £250,000.

This is best demonstrated by a simple example below:

A company’s profits are £100,000 for say year ended 31 March 2023 and again for 31 March 2024:

Year ended 31 March 2023

£100,000 profits @ 19% corporation tax = £19,000 tax

Year ended 31 March 2024

£100,000 profits 

The first £50,000 @ 19% corporation tax = £9,500

The next £50,000 @ 26.5% marginal rate = £13,250 

Total corporation tax £22,750 which is an effective rate of corporation tax of 22.75%. 

The effective rate increases the nearer to £250,000.

** This does not cover associated companies nor does it take into account dividends received by a company (not exempt dividends).

Key points to note

The increases in corporation tax shall

• impact on a company’s cashflow;

• potentially reduce the amount of funds for reinvestment;

• reduce the amount of dividends available for shareholders;

• impact negatively on the company’s balance sheet

Tax planning is absolutely key here.  Ensure you are having regular discussions with your accountant to help minimise the impact of these increases in rates.

Get in touch if you want help and advice with your corporate tax planning.