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Tax is a critical concern for every business. As Corporation Tax constitutes a significant portion of your overheads, the rise in tax inquiries and stricter penalties for non-compliance it is more important than ever to work with experts who can support your business.
Our team of tax specialists have extensive experience in all aspects of taxation. We are here to help you meet the demands of complex corporate tax legislation while maximising tax efficiency.
Changes to Corporation Tax:
Since April 2023, the main rate of Corporation Tax has risen from 19% to 25% for the most profitable businesses.
The effective amount of Corporation Tax that is due will, however, rely on the taxable profits your company makes as follows:
- Small companies with profits of up to £50,000 will pay Corporation Tax at 19%
- Companies with profits of £250,000 and over will pay Corporation Tax at 25%
- Companies with profits over £50,000 but under £250,000 will pay Corporation Tax on a sliding scale of between 19% and 25%
Understanding marginal rate relief:
For those with taxable profits below £50,000, who benefit from Small Companies Relief which reduces the rate of Corporation Tax to 19 per cent, and those with profits above £250,000, that pay the top 25 per cent rate of tax, the new rules are quite simple.
However, where companies have taxable profits between these two thresholds, matters become a little more complicated as the rate of tax they pay will depend on their level of profit.
This is due to Marginal Rate Relief (MRR). This is a tapered relief, which increases in line with a company’s profits.
The basic method used by HM Revenue & Customs (HMRC) to calculate this relief is complex. In reaching a final figure, this calculation must consider:
- A company’s profits, including Franked Investment Income (FII), which is generally derived from dividends from other companies
- Basic profits, which are a company’s trading profits and gains and
- The Marginal Rate Relief fraction (3/200ths)
Corporation Tax for Group Companies:
According to HMRC, the ‘lower and upper limits are proportionately reduced for short accounting periods and where there are associated companies’.
A company is considered to be associated with another company if it is at any time in the preceding 12 months:
- A company has control of the other company
- The companies are under the control of the same person or group of persons
As part of the changes to Corporation Tax the related 51 per cent group company test under the Corporation Tax Act 2010 will be repealed and replaced by the associated company rules
Other changes will take place to the small ring fence profits rate under the Corporation Tax Act 2010.
If you operate a group of companies or are within a group of companies and want to understand in more detail how these changes affect you, please get in touch with our tax team.
Managing the Corporation Tax increase
The amount of Corporation Tax you pay has always depended on the total value of your taxable profits.
However, with the new rates so closely tied to your level of profitability, it has never been more important to seek advice and make use of the reliefs and allowances available to you.
Our company secretarial services can be tailored to meet the specific needs of your business, accommodating industry-specific requirements and providing personalised support.