The April 2023 Corporation Tax rise was first announced by the then-Chancellor Rishi Sunak in March 2021.
What are the new Corporation Tax rates?
The main rate of Corporation tax has risen 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, with an effective rate of 26.5%.
The Government has created an online CT marginal relief calculator. This is particularly helpful, as it calculates your CT liability if your company accounting year is impacted by both the 'old' and 'new' CT tax regimes. Most companies will be.
For large companies within the scope of the QIPs (Quarterly Instalment Payments) regime, the issue of timing and cash flow could also be a significant additional factor to be considered.
Corporation tax increase for Group Companies
Tax changes from April 2023 also impact group companies as the lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies. A company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:
- one company has control of the other;
- both companies are under the control of the same person or group of persons.
Capital allowances
There are also changes to capital allowances as part of the tax changes from April 2023 after the withdrawal of the 130% super deduction from 31 March.
Companies incurring qualifying expenditure on the provision of new plant and machinery on or after 1 April 2023 until 31 March 2026 will be able to claim one of two temporary first-year allowances. These allowances are:
- a 100% first-year allowance for main rate expenditure – full expensing; and
- a 50% first-year allowance for special rate expenditure.
The annual investment allowance has been set at £1 million on a permanent basis from 1 April. This capital allowance is available to nearly all incorporated and unincorporated businesses, covering expenditure on most plant and machinery including second-hand assets and those acquired for leasing.
The first-year allowance for electric vehicle charge points has been extended until 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
For more information, please Contact Us.