Corporation Tax Planning From 1 April 2023

The table below shows the rates of Corporation Tax applicable from 1 April 2023:

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

As you can see, companies with profits between £50,000 and £250,000 pay the highest rate of tax on each extra £1 of profit that they make.

Please note that these thresholds are reduced where the company has associated companies (please see our separate note).

The thresholds are based on taxable profits which starts with your trading profit and is then adjusted for various items such as depreciation and Capital Allowances.

Impact of tax planning

Planning should focus on keeping taxable profits below £50,000 or allowing them to exceed £250,000 for maximum efficiency. This can be seen from the table below:

Year Profit - Company 1 Corporation Tax   Profit - Company 2 Corporation Tax
1 £150,000 £36,000   £50,000 £9,500
2 £150,000 £36,000   £50,000 £9,500
3 £150,000 £36,000   £350,000 £87,500
  £450,000 £118,000   £450,000 £106,500

Over 3 years Company 1 sitting within the marginal rate would pay £11,500 more Corporation Tax than Company 2 even though they have made the same taxable profits.

Actions to be taken

Capital Allowances on equipment purchases have the largest impact on taxable profits. It may be beneficial for tax purposes not to spread purchases evenly but manage the timing of investment so that taxable profits are more in line with company 2.

When using hire purchase to spread the cost of equipment please note that Capital Allowances are restricted until the asset is brought into use. This is particularly important for items such as combines which are not brought into use until the summer.

Similarly, if planning a large sale of equipment or livestock it may be beneficial to take all of this profit in one year to allow taxable profits to exceed £250,000.

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 7th February 2023 by Joe Attwood.