The new Corporation Tax main rate came into effect at the rate of 25% on 1 April 2023 for companies with profits over £250,000. A Small Profits Rate (SPR) of 19% will also be introduced from the same date for companies with profits of up to £50,000, ensuring these companies pay Corporation Tax at the same rate as currently.

Where a company has profits between £50,000 and £250,000 a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.

The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits exceed £50,000 to 25% where profits are more than £250,000.

The amount of Corporation Tax to pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction will be 3/200.

With the increase in the Corporation Tax, businesses need to keep several things in mind to manage the impact on their financial position. Here are some key considerations:



Profits:

The most obvious impact of a corporation tax increase is smaller profits. As a result, businesses will have less money to invest in growth or to give to shareholders.

Cash flow:

Companies may also need to alter their cash flow forecasts to account for the increased tax obligation. A larger payment to HMRC will be required, impacting their ability to fund other expenses or investments.

Tax planning:

With higher tax rates, businesses may need to revisit their tax planning strategies to ensure they take full advantage of available allowances, deductions, or reliefs.

Pricing:

Depending on the nature of the business, a corporation tax increase may also lead to higher customer prices as companies try to retain profitability.

Economic environment:

Companies are a major part of the economy, and any changes to their taxes can have a ripple effect. A tax increase may lead companies to reduce spending on new investments, wages, or research and development. This could have a knock-on effect on the wider economy, leading to slower growth and fewer job opportunities.

In the meantime, if you would like to hear tips on how to save money on tax, you can head over to our Facebook, Instagram or LinkedIn pages, where we have a series of posts discussing the matter, or you can contact us at info@gkaccountingservices.com or call us on 01269 518 815, where we will be more than happy to answer any of your questions.