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The recent Corporation Tax U-turn has sent shockwaves throughout the business community. With the Treasury on a mission to plug a £50 billion hole in public spending, the rising tax rate has been billed as a ‘necessary evil’ for the recovery of the economy.
If you pay Corporation Tax, keeping ahead of the changes to rates and preparing for the inevitable is a must. But when does the change to Corporation Tax happen? And are there any exemptions that apply to your business?
As in the last two financial years, the current rate for Corporation Tax is 19%. There is currently no lower or upper threshold that applies to this rate, with all limited companies located in the UK needing to pay Corporation Tax on their profits.
It was announced that Corporation Tax for 2023/24 will rise significantly to increase revenue and pave the way for a more internationally competitive tax system. The rate for Corporation Tax will be increased from 19% to 25% as a result.
The new Corporation Tax rate was originally announced in March 2021, with the rise delayed by one year to support recovery following the Covid-19 pandemic. Under former Prime Minister Liz Truss and then Chancellor of the Exchequer Kwasi Kwarteng, a U-turn that would revert the rise and keep the rate at the current 19% for upcoming financial years was announced. This has since been quashed.
The new 25% Corporation Tax rate will come into effect from 1st April 2023, at the beginning of the new tax year.
The new Corporation Tax rate isn’t applicable to all businesses. The main rate of 25% will be payable by companies with profits of £250,000 per year or more. For organisations with profits of £50,000 or less, the current rate of 19% will be applicable. This will be known as the ‘Small Profits Rate’.
For businesses with between £50,000 and £250,000 profits, the main rate of 25% will apply, providing a tapered rate depending on the exact amount of profit. Companies that fall between this lower and upper threshold may be eligible to claim the Marginal Small Companies Relief (MSCR).
Need help preparing for the Corporation Tax rate rise? Use our handy service to look for an accountant who can help.