Corporation tax is increasing from 1 April 2023
Currently
The corporation tax rate has been 19% of taxable profits since April 2016. The rate of 19% applies to all companies regardless of the level of profit or size of the company.
What is changing?
From April 2022 the main rate of corporation tax is increasing to 25%. The main rate applies to companies whose taxable profit is over £250,000.
Companies with taxable profit of £50,000 or less will still have the rate of 19% applied.
Profits between £50,000 and £250,000 will be taxed at a marginal rate. The marginal rate between £50,000 and £250,000 is 26.5%.
If you have more than one company the thresholds are split between the companies. For example, if you own two businesses, the main rate of corporation tax at 25% will apply to taxable profits over £125,000 in both companies. As the threshold of £250,000 is split between the two.
Considerations
There are a few things to consider, depending on your circumstances. It is best to talk this through with your accountant, some of the considerations are:
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Profits in the marginal rate are taxed highest at 26.5%. If you can reduce profits in the marginal rate that is going to save the most tax
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It may be beneficial to have a larger salary rather than dividends to reduce profits to under £50,000
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If you have a group of companies, losses should be used for companies paying tax in the marginal rate
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Purchasing qualifying assets help reduce taxable profit by way of capital allowances. It may be best delaying purchases if you can reduce profits in the marginal rates. For example, if you have a year end of March 2024 and you need two vans. You could purchase one in March 2024, and one in April 2024, this may take you out of marginal rates for two years rather than one
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Consider whether any of your activities qualify for tax relief such as Research and Development (R&D)
Get your accounts completed as soon as possible after the year end. Giving yourself extra time to plan the company’s cashflow for the for the increased tax liability.
If you want to reduce your tax liability to the minimum possible, or plan your cashflow then please contact us here to find out how we can help.
