The present 19% rate of Corporation Tax applies to all companies whatever their size.
From 1 April 2023, this flat 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%.
Planning note: Unfortunately, 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.
An associated company is loosely defined as a company in common ownership.
For 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%.
Readers with a number of associated company businesses could benefit from a review prior to April 2023 to see if overall tax liabilities can be reduced by restructuring.
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