Will I Have To Pay More Corporation Tax After 2023?

Corporation Tax is paid by UK businesses, based on their annual profits. Although at the time of writing, corporation tax is currently 19% across the board, this will increase for some businesses to 25% from April 2023. Whilst this substantial increase may seem alarming, it is important to note that this increase will not apply to all businesses. Here, we are answering the question: will I have to pay more Corporation Tax after 2023?

Budget 2021

Rishi Sunak announced in the 2021 budget that Corporation Tax will increase to 25% for large companies. This is just one of the measures announced in the budget as a direct result of the £355 billion worth of government borrowing in an attempt to fill the large hole in public finances, caused by the pandemic, which needs to be addressed.

What are the rates?

Sunak also revealed that the higher 25% corporation tax rate will only apply to 10% of companies – the biggest firms.

Sunak went on to say that these new corporation tax levels will mean that 1.4 million businesses “will be completely unaffected” by the new changes, which equates to approximately 70% of companies.

Smaller businesses that have annual profits of £50,000 or less will not be affected by the increase and will continue paying the current 19% tax rate, therefore being protected from the increase.

Those largest companies that are making more than £250,000 profit will be charged the new highest rate of 25%, with companies earning profits between 50,000 and £250,000 paying increasing levels of corporation tax, between 19% and 25%, the more profits they make.

Marginal rates and the tapered approach

If your company’s profits are between the thresholds, then the main rate of 25% applies and the company is entitled to marginal relief. Marginal relief tapers the effect of the increased rate.

UK Corporation Tax compared to other countries

Despite the 2023 increase, the Chancellor said “the UK will still have the lowest Corporation Tax in the G7 – lower than the United States, Canada, Italy, Japan, Germany, and France.”

What to do if you are going to be impacted 

If your company will be affected by these upcoming changes in Corporation Tax, there are some things you can do to plan ahead and try to keep the impact of the changes to a minimum.

• If possible, where profits exceed the lower profits limit, accelerate profits so they can be taxable in the 2021 or 2022 financial year, as opposed to after April 1st 2023.
• Where possible, delay expenses to April 1st 2023 to secure a relief at a higher rate.
• Consider the impact of associated companies and whether restructuring would be beneficial.

So, whilst the increase in Corporation Tax may seem a daunting prospect to many businesses, the truth is that the majority of companies will not see an increase in 2023. If you need any advice about how much Corporation Tax your business has to pay, then get in touch. A member of the Wright Vigar team will be happy to help.