From April 2023 onwards, the main rate of Corporation Tax will rise from 19% to 25% for all companies with profits of over £50,000.
The April 2023 Corporation Tax rise was first announced by the then-Chancellor Rishi Sunak in March 2021. However, in the 23rd September 2022 ‘mini Budget’, Kwasi Kwarteng announced that the measure was to be scrapped altogether.
Following the strong negative market reaction to the mini-Budget, the Government was forced into another U-turn. On 14th October 2022, PM Truss confirmed that the Corporation Tax rise will go ahead – as originally planned.
What are the new Corporation Tax rates?
The main rate of CT will rise from 19% to 25%. However, smaller companies will not have to pay the full rate. It depends on your level of profits for each fiscal tax year.
The current 19% rate will still apply – if your annual profits are at, or below a new £50,000 threshold.
The full 25% rate applies to companies with annual profits of £250,000 or more.
Between these two rates, a system of marginal relief will apply. The new system of marginal relief will be the same as that used for CT in the 2014/15 tax year (the last time marginal relief applied to CT).
What is Marginal Relief and how can you claim it?
Marginal Relief provides a gradual increase in corporation tax rate between the small profits rate and the main rate.
This applies where the profits of a company for an accounting period exceed a ‘lower limit’ but do not exceed an ‘upper limit’.
Your company or organisation may be able to claim Marginal Relief and pay less corporation tax if its taxable profits before 1 April 2015 are between:
– £300,000 (the lower limit)
– £1.5 million (the upper limit)
If your company has one or more associated companies, these limits are divided by the total number of associated companies.
A company is an associated company of another at a given time, if at that time:
– one of the companies has control of the other
– both companies are controlled by the same companies or people
To help businesses calculate how much marginal relief they can claim with the new CT rates, the Government has created an online CT marginal relief calculator. This is particularly helpful, as it calculates your CT liability if your company accounting year is impacted by both the ‘old’ and ‘new’ CT tax regimes, which most companies will be.
The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.
So, if you operate more than one limited company, where one company – under the control of the same owners – is controlled by another, the £50,000 and £250,000 thresholds are reduced.
For example, where there are two associated companies, the thresholds are reduced to £25,000 and £125,000.
To claim Marginal Relief, you can either:
– provide details in your online Company Tax Return (your filing software should work it out for you)
– amend your Company Tax Return within 12 months of the filing date
How can Sapphire help?
Need help understanding your business tax and reliefs you can claim? Contact Sapphire. We have years of experience with tax matters, and we can help you navigate the ever-changing tax landscape. Contact us today if you have any Corporation Tax questions.
