The increase in corporation tax is one of the main taxes that UK businesses should plan for in advance. The new rate will go into effect on April 1st, 2023.

Currently, all businesses pay corporation tax at a rate of 19%, regardless of the magnitude of their profits. This rate is historically low, and it will remain in effect through 31 March 2023.

The appropriate corporation tax rates will be 19% and 25% once the rise in the corporate tax rate goes into effect. Under the small profit rate, businesses with profits of up to £50,000 would still only be required to pay 19%.

 GENERAL DESCRIPTION OF THE MEASURE

The act establishes the charge for Corporation Tax, with the primary rate set at 19% for the Fiscal Year beginning April 1, 2022, and also establishes the charge for CT for the Fiscal Year commencing April 1, 2023.

Additionally, this Act declares that, starting on April 1, 2023, the main Corporation Tax rate for non-ring-fenced income will rise to 25% and apply to profits over £250,000. In order to maintain their 19% Corporation Tax rate, businesses with profits of at least £50,000 will also be eligible for the small profits rate (SPR). Businesses that make between £50,000 and £250,000 in profits will pay tax at the main rate, lowered by a marginal reduction that gradually raises the effective Corporation Tax rate(gov.uk).

It may be possible to claim some marginal tax relief to reduce the 25% rate if a company’s profits lie between £50,000 and £250,000. This can apply if the company’s accounting period is less than 12 months, or if there are as associate companies.

 MARGINAL RELIEF: Between the small profits rate and the main rate, marginal relief gradually raises the corporate tax rate. This happens where the profits of a corporation for an accounting period surpass a ‘lower limit’ but do not exceed a ‘upper limit’.

 New Corporation tax ratees will be:

Financial year Financial year

2022 to 2023 2023 to 2024

Main rate 19% 25%

Small profits rate n/a 19%

Lower threshold n/a £50,000

Upper threshold n/a £250,000

CORPORATION TAX INCREASE FOR GROUP COMPANIES:

 For brief accounting periods and in cases where there are associated companies, the lower and upper limits will be proportionately lowered. A company is related with another company at a specific moment if, at that time or at any other time within the prior 12 months:

• one company has control of the other

• both companies are under the control of the same person or group of persons.

The linked company rules at sections 279F to 269H of the 2010 CTA will replace the relevant 51% group company test.

These restrictions will be in line with the thresholds used to determine whether a firm is subject to the small ring fence profits rate under Section 279E of the Corporation Tax Act of 2010.

CALCULATING THE MARGINAL RELIEF ON CORPORATION TAX:

The calculation of marginal relief is based on a complicated formula, which has the effect of raising the rate of corporation tax payable on profits falling within the marginal range, to a rate that is higher than 25%, even though it helps to reduce the total corporation tax payable where a company's profits fall between £50,000 and £250,000.

Effectively, marginal relief is subtracted before calculating the full amount of company tax at the 25% rate. Calculations for marginal relief are based on subtracting "augmented profits" from the overall taxable profits. "Augmented profits" are defined by HMRC as the sum of the company's taxable profits plus exempt distributions from non-group firms. Among these are dividends, asset distributions or sums that are deemed distributions upon the transfer of assets or liabilities, as well as the return of share capital.

 OPERATIVE DATE:

From 1 April 2022 to 31 March 2023, the Corporation Tax charge and main rate for the Financial Year 2022 will be in effect.

From 1 April 2023 to 31 March 2024, the Corporation Tax charge, main rate, and small profits rate will be in effect.

 In order to get more information regarding new Corporation tax rates please contact Cheylesmore Chartered Accountants.