Understanding the 25% Corporate Tax Rate: Key Insights for Businesses

Changes to UK Corporation Tax Rates Effective April 2023

Beginning April 1st, 2023, adjustments to the UK's corporation tax rates will come into effect, potentially impacting businesses' tax liabilities for the 2023/24 tax year. The current flat rate of 19% will transition to a variable rate ranging from 19% to 25%, contingent upon business profits.

Under the new regime, a tapered rate system will be introduced, delineating profits between a lower and upper threshold. Companies with profits below the lower threshold will remain subject to the 19% rate, while those surpassing the upper threshold will face a 25% tax rate. Profits falling between the two thresholds will be subject to a marginal relief formula to determine the applicable tax rate.

Calculation of the lower threshold entails dividing £50,000 by the number of associated companies, while the upper threshold involves dividing £250,000 by the number of associates. Should profits remain below the upper threshold, marginal relief will be enacted, gradually increasing the average tax rate from 19% to 25% as profits escalate.

To navigate these forthcoming changes effectively, it is prudent for businesses to engage with their advisers to explore planning options. Our team stands ready to assist in evaluating the number of associated companies and determining the tax implications post-marginal relief. Additionally, we can provide strategic guidance on minimizing tax exposure, particularly for businesses with associated companies boasting divergent profit profiles. Reach out today to discuss your tailored tax planning requirements.