The 2023-24 tax year may seem a long way off, but we wouldn’t be doing our job if we didn’t prompt you to begin thinking about changes that will affect the current Corporation Tax system a little more than a year down the line.

The main rate of Corporation Tax (CT) will rise to 25 per cent for the financial year commencing on 1 April 2023.

However, as with most tax ‘tinkering’, it is slightly more complicated than it might first appear, given that the rate will vary depending on company profits.

How will companies be impacted by CT changes?

For companies recording profits of £50,000 or less, the ‘lower profits limit’, the current CT rate of 19 per cent will still apply.

Firms with profits between £50,000 and £250,000 will receive what is known as marginal relief, to cut their tax bill. As profits increase within the range prescribed, the rate increases incrementally until the upper limit of 25 per cent is reached.

Only those firms whose profits are £250,000 or more will pay the main CT rate of 25 per cent.

The lower and upper profit limits are reduced proportionately where the accounting period is less than 12 months. They are also reduced accordingly, where a company has one or more associated firms.

How is ‘associated firms’ defined?

Broadly speaking, a company is associated with another company at a particular time if, at that time or 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.

Calculating what CT you’ll have to pay

Effectively, the full amount of CT at the rate of 25 per cent is calculated before marginal relief is deducted. The marginal relief calculations are based on offsetting ‘augmented profits’ against the total taxable profits.

According to HMRC, ‘augmented profits’ are the company’s total taxable profits plus exempt distributions from non-group companies.

These include dividends, distribution of assets or amounts treated as a distribution on the transfer of assets or liabilities, or the repayment of share capital.

Speak to an accountant

The calculations are quite complex, so it can pay to speak to an accountant. We can help you to assess how the impending changes to the system will affect your business, and to calculate just how much CT you will have to pay to HMRC.

To put your best foot forward, as far as preparations go, get in touch with our friendly team of professionals. 

Link: Corporation Tax Charge

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