Have you heard the one about a 6% rise in corporation tax rates?
Unfortunately, there’s no punch line, so companies are reminded that the increase in corporation tax to 25% on 1 April 2023 is just around the corner.
Briefly, the following will apply:
- 25% CT rate will apply to companies making profits over £250,000
- 19% CT rate will apply to companies with profits of £50,000 or below
- 26% marginal CT rate will apply to company profits between £50,000 – £250,000
- Companies whose accounting periods end soon after April 2023 will pay a pro-rated corporation tax rate
A company with £100,000 taxable profits in the year to 31 March 2024 will pay the following:
|£50,000 @ 19%||£9,500|
|£50,000 @ 26.5%||£13,250|
|Total Corporation Tax||£22,750 (22.75%)|
|An increase of||£3,750|
Beware the Group Company traps
The thresholds of £50,000 and £250,000 will be reduced where there are associated companies and the new rules for determining what is an associated company is likely to catch far more companies, resulting in increased tax liabilities.
Associated companies are those where 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
- This is a change from the old 51% ownership rule
If there are 5 associated companies, the thresholds will fall to £10,000 and £50,000, potentially increasing a companies tax liability.
Associated companies can be located anywhere in the world, but do exclude dormant companies and holding companies may be exempt depending on the circumstances.
Therefore in group company situations, care and planning are needed where profits per company may be taxed at different rates as the new associated company rules may also impact if and when quarterly instalment payments become due, so planning is crucial for accurate cash flow forecasting.
Please get in touch with our expert Corporation Tax team who will be delighted to help review opportunities to reduce the impact of the increased tax rates.