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What is the corporation tax increase from April 2023

What is the corporation tax increase from April 2023

Sue Lucas

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The current Corporation tax rate of 19% generally applies to all companies whatever their size. From 1 April 2023, this rate will cease to apply and will be replaced by variable rates ranging from 19% to 25%.
  • A small profits rate of 19% will apply to companies whose profits are equal to or less than £50,000.
  • The main Corporation Tax rate is increased to 25% and will apply to companies with profits in excess of £250,000.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced by marginal relief. The marginal relief acts to adjust the rate of tax paid gradually increasing liability from 19% to 25%.

These bands (the £50,000 and £250,000 limits), are reduced if a company has associated companies or an accounting period of less than 12 months.

A company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:
  • One company has control of the other.
  • Both companies are under the control of the same person or group of persons.
Thus, two companies are associated when the same person or group of persons can control both, either personally, or via their interests in other corporate shareholders.

Example -  if you have one company with taxable profits of £40,000 and one company with taxable profits of £5,000, the company with the taxable profits of £40,000 will not benefit from the small profits rate as the profits are above the lower limit of £25,000 that applies to a company with one associate. Merging the companies will mean that there is only one company and the combined profits of £45,000 will be charged at the small profits rate of 19%.

If you have a number of associated company businesses, we would recommend that you ask Moore (South) to review prior to April 2023 to see if overall tax liabilities can be reduced by restructuring the company businesses.

If you need assistance with your corporation tax, please contact your Moore (South) advisor.