2023 Corporation Tax Rise – Follow our steps to manage your tax bill

A new system for Corporation Tax will be introduced from April 2023 that will see the top rate of tax rise to 25 per cent.

This is a significant shake-up of the current corporate tax rules, but not every business will pay this higher rate.

That is because the Government is introducing a new tapered system of tax that uses marginal relief to ensure that only the most profitable businesses pay considerably more.

How do the new Corporation Tax rules work from 2023?

Companies recording profits of £50,000 or less (the lower-profits limit), will continue to pay Corporation Tax at 19 per cent – the same as the current rate of tax for all incorporated businesses.

Meanwhile, businesses with profits between £50,000 and £250,000 (the upper-profits limit) will technically pay the main higher rate of 25 per cent.

However, they will receive marginal relief related to their level of profitability – cutting their tax bill.

As a result, the rate at which these businesses pay tax increases as profits rise until a company reaches profits of £250,000 or more and no longer benefits from this relief and pays Corporation Tax at the full rate.

Due to these changes, many factors could affect a company’s final tax bill, including special rules where it is part of a larger group of businesses.

The calculations involved in reaching a final tax rate and bill, once the marginal relief is applied, will be quite complex, and small changes to a business’s profit level could have a big impact on its Corporation Tax Rate.

Manage and minimising Corporation Tax from April 2023

Companies can take several steps within the next tax year to manage their Corporation Tax liabilities ahead of these new rules being introduced.

Here are just a few examples for you to consider:

Carrying forward losses – Could it be worth carrying forward losses against taxable profits made in future accounting periods in the new tax year? Doing this may mean that losses are relieved at a maximum of 26.5 per cent rather than the current rate of 19 per cent, depending on your circumstances and rate of marginal relief.

Gains – If you are considering selling an asset you could bring the disposal forward to the current tax year so that the gain is taxed at 19 per cent rather than higher rates in 2023/24.

Bringing income forward – It may be worthwhile accelerating the recognition of income, where possible so that it falls in the 2022/23 tax year ahead of the changes and higher levy.

Plan your expenditure – If you are looking to spend and invest in your business it may make sense to wait until the new tax year, as this could reduce your level of taxable profits and, therefore, increase the amount of marginal relief that you enjoy under the new tax system.

This decision must be weighed carefully against the current Capital Allowance schemes, such as the super-deduction, which end before the beginning of the new tax year.

The changes to the rules surrounding Corporation Tax and the new rates and reliefs are complex and small decisions, that can have a significant impact on the tax you pay.

If you would like advice on managing your Corporation Tax bill, please contact us.