How will the April 2023 Corporation Tax rise affect small businesses?

From April 2023 onwards, the main rate of Corporation Tax will rise from 19% to 25%. Although the current 19% rate will still apply if your profits are £50,000 or less, your company will pay more tax on profits above this level.

What is Corporation Tax?

All UK companies must pay Corporation Tax on the profits they generate.

The profits of non-incorporated businesses (sole traders, partnerships) are taxed via Self-Assessment, not the Corporation Tax process.

What are the new Corporation Tax rates?

The main rate of CT will rise from 19% to 25%. However, smaller companies will not have to pay the full rate.

It depends on your level of profits for each fiscal tax year.

The current 19% rate will still apply – if your annual profits are at, or below a new £50,000 threshold.

The full 25% rate applies to companies with annual profits of £250,000 or more.

Between these two rates, a system of marginal relief will apply.

How will ‘marginal relief’ work between the two rates of Corporation Tax?

The new system of taper relief will be the same as that used for CT in the 2014/15 tax year (the last time marginal relief applied to CT). With this in mind, use the following formula to calculate your CT tax liability:

Let’s use an example annual profit figure of £80,000.

a) Multiply your annual profits by the main 25% rate (£20,000).

b) Subtract your annual profits from the £250,000 threshold (£170,000).

c) Multiply step (b) by the marginal rate multiplier of 3/200 (£2,550).

d) Take away step (c) from step (a) – £20,000 – £2,550 (£17,450).

So, in this example, the CT liability is £17,450. This represents a tax increase of £2,250.

In other words, there will be a 26.5% CT rate between £50,000 and £250,000.

For further details, please visit HMRC website. Read more