In the UK, a limited company must pay Corporation Tax on the profits it generates, which currently sits at 19%.
Businesses pay Corporation Tax on trading profits, investments and chargeable gains (the selling of assets for a great value than purchased). Assets such as property, land, equipment, and company shares.
How is Corporation Tax changing April 1st?
As stated by The Chancellor Jeremy Hunt in the Autumn Statement November 2022, there would be changes to Corporation Tax.
From the 1st April 2023, the Corporation Tax rate will increase from 19% to 25% for companies with taxable profits of £250,000 or more. Companies with taxable profits at or below £50,000 will continue to be taxed at the current 19% rate.
For companies with profits between these two amounts, there is a system of marginal relief that applies.
However there are exceptions to the rule. Where the same group of people control more than one company, these limits may be reduced. For example, if an individual owns two companies and there is a commercial connection between them each company will pay tax at 25% of its taxable profits exceeding £125,000.
The Corporation Tax Marginal Relief system – how does it work?
Companies can claim Marginal Relief if their taxable profits are between £50,000 and £250,000.
Marginal Relief provides a gradual increase in the Corporation Tax rate between the small profits rate and the main rate.
HMRC has launched an online service to help companies calculate their rate of Marginal Relief.
Before using the service, you’ll need to know and have access to:
- the company’s accounting period start and end dates
- the company’s total taxable profit
- the amount of any distributions (usually dividends) it receives from non-group, un-associated companies
- any associated (broadly speaking companies under common control) company details
If you’re worried about how these changes might affect your business finances or cash flow – we might be able help. Give our expert team a call on 01908 92 62 62 today.