Planning for the Corporation Tax Increase on 1 April 2023

What is changing?

From 1 April 2023 there will be two rates of Corporation Tax with a marginal rate in between. Companies with profits of £50,000 or less will continue to pay tax at 19% whilst those with profits above £250,000 will pay tax at 25%. These bands are reduced for those with associated companies.

Please see the table below for illustration of the rates:

Profit Rate of tax on each additional £1 of profit
Below £50,000 19%
£50,001 - £250,000 26.5%
Above £250,000 25%

What should I do about the rate change?

This depends on which profit band you are likely to fall into. This is based on taxable profit which starts with your trading profit and is then adjusted for various items such as depreciation and Capital Allowances.

Profits below £50,000 per year

Companies with profits below £50,000 per year should purchase any new equipment before 1 April 2023 in order to claim the Super-Deduction as this is ending on 31 March 2023.

If equipment cannot be delivered before this date, capital allowances can be secured by entering into an unconditional contract with the seller before 1 April 2023 as long as payment must be made in full within 4 months of the contract date.

Profits above £250,000 per year

Companies with profits above £250,000 per year should make every effort to bank profits before 1 April 2023. For example it may be possbile to bring forward sales of grain and livestock.

The Super-Deduction is tax neutral for companies with profits in excess of £250,000 so there is no benefit for these companies for accelerating purchases of new equipment.

Profits between £50,000 - £250,000

If a single large item such as the profit of sale of equipment or land will take the company above £50,000 per year then consideration should be made to realising this before 1 April 2023.

Disclaimer: The information contained in this note is of a general nature and is not a substitute for professional advice. Please speak to us to obtain specific professional advice before you take any action. No responsibility for loss to any person acting or refraining from action as a result of this budget note is accepted.

Posted on 8th February 2023 by Joe Attwood.