Corporation tax rates to increase to 25%

Now that self-assessment taxes are behind us for another year it’s time to look at the changes coming to company tax in the next few months, the main one being that from the 1st April 2023 the corporation tax rate will be increasing to 25% from the current 19% rate.

The new corporation tax rate of 25% will be applicable to companies with profits of £250,000 and over with “small companies” having a profit of £50,000 or less continuing to pay corporation tax at 19%, any companies with a profit in between will pay tax at a tapered hybrid rate.

This means that a company with a year end of 31st March 2024 which will have a full 12 months within the new regime and who have taxable profits of £150,000 will pay additional corporation tax of £7,500.

Tax payable under current legislation:

Corporation tax paid at 19% under current legislation:

£150,000 x 19% = £28,500 corporation tax due

Tax payable under new legislation

Corporation tax at 24% under new legislation:

£150,000 x 25% = £37,500 - £1,500 marginal relief = £36,000 corporation tax due

Margin relief adjustment = (Adjusted upper limit - taxable profit including distributions) × (taxable profit ÷ taxable profit including distributions) × (Marginal Relief fraction)

(£250,000 - £150,000) × (£150,000 ÷ £150,000) × (3 ÷ 200) - £1,500

If you have any questions or queries on the new corporation tax regime or want to discuss anything further on your company and how we can help please do not hesitate to contact us at BSN, with you every step of the way!