You have no doubt heard about the planned Corporation tax rise in the news, but how is it going to impact your business?
We’ve put together a summary below which hopefully clarifies things:
When is this happening? The changes in the rates kicked in from 1st April 2023. If your Company year end is March, then for your March 2024 year end your tax will be assessed on the new rates for the full year. If your Company year end is September 2023, then you will have 6 months on the current tax rates, and 6 months on the new rates (April – September 2023).
How are the rates changing? Currently Corporation tax is charged on the business’s taxable income at a flat rate of 19%.
From 1st April 2023 onwards:
- Small profits rate – Any businesses with taxable profits of less than £50,000 will still pay Corporation tax at the same flat rate of 19%. So no changes there, this is called the ‘small profits rate’.
- Main rate – Any business with profits of £250,000 or above will pay Corporation tax at the increased rate of 25%. This is called the ‘main rate’.
- Marginal rate – Any businesses with profits between £50,000 – £250,000, will be able to claim ‘marginal relief’ which means that the rate gradually increases from 19% – 25% as profits increase towards £250,000. The business has a tapered tax rate.
How does the ‘marginal relief’ work? Any profits between £50,000 and £250,000 will be taxed at the marginal rate of 26.5%.
Scenario 1 – If your business has profits of £60,000 for the year ending March 2024. £50,000 will be taxed at 19%, and £10,000 will be taxed at the marginal rate of 26.5%. The total tax would be £12,150, which equates to an overall tapered tax rate of 20.3%.
Scenario 2 – If your business has profits of £230,000 for the year ending March 2024. £50,000 will be taxed at 19%, and £180,000 will be taxed at the marginal rate of 26.5%. The total wax would be £57,200, which equates to an overall tapered tax rate of 24.9%.
Anything else to be aware of? Yes a few points:
- Associated Companies – For any companies in a group, or under common ownership – the rates will be divided by the number of associated companies.
- Calculator – The government have set up a calculator here to try and estimate your marginal relief – here
Hopefully that’s all clear. Any questions please get in touch at firstname.lastname@example.org