Corporation Tax – what’s changing and when?

By Anita Jaynes on 6 May, 2022

Content sponsored by Purple Lime

As we come ever closer to the end of yet another tax year, you have probably spent a lot of time looking back. Accountants will be assembling accounts and they will be looking for ways to reduce your corporation tax bill wherever they can. But this time next year that might not be such an easy ask. Even before Chancellor Rishi Sunak delivered the Spring budget last year, we knew that corporation tax was one of the things that could be changing and change it will. But in order to mitigate some of the damage done by Covid-19 and claw back some of the deficit, the changes will come a little later than expected. So what exactly is changing and when?

Standard corporation tax rate

The big, headline change is the rise in corporation tax. As of April 1st 2023 the main rate for corporation tax will rise to 25% – a 6% increase on the previous rate. The hope here is to recoup around £17 billion in the 2025/2026 tax year, which could then be used to fund the Covid-19 deficit. So, if your company has profits of over £250,000, you will be paying 25% corporation tax from next April. 

However, and in reality, this change will not affect everyone. It is likely to only apply to the UK’s largest companies with the biggest annual profits, but even so the measure should mean more companies are paying a higher rate of corporation tax than ever before. Before you get worried, according to Sunak, these changes should only impact 1 in 3 businesses in the UK.

The small profits threshold

The good news is the current main rate isn’t going away forever. Instead, it will now be called the ‘small profits threshold’ and will apply to all company profits up to £50,000. So, if your profits are below this number then nothing will change for you in April 2023. You will still pay 19% corporation tax. The reason for this move is to ‘protect small businesses’, according to Sunak, and ensure only companies with bigger profits pay the higher tax rate.  

The revival of the corporation tax taper

You could be forgiven for not knowing what the corporation tax taper is, because it has not been in use since 2015. But come April 2023 this system will be brought back from the dead. The way it used to work was that the small companies’ rate of corporation tax was applied to profits up to £300,000, the main rate applied to any profits of £1.5 million or more, and tapered relief was offered to companies with profits falling somewhere between the two thresholds. In other words, if your business declared profits of between £50,000 and £250,000, you would pay the main rate of corporation tax, reduced by a marginal relief on the taper. The specifics of how this will work have not been announced yet, but we will keep you updated.

Super deductions

Increases are not the only thing happening next year. The super-deduction system will be ending as well, so now is the time to take advantage of it. Up until March 31st 2023 companies can considerably reduce their corporation tax bills by investing in qualifying plant machinery and other assets. This is currently possible because investing companies can benefit from a 130% first-year capital allowance, which essentially cuts your corporation tax bill by 25p for every £1 you spend. Limited companies can also benefit from a 50% first-year allowance for investing in qualifying special-rate assets (even long-life ones). So, if you have been looking at investing in equipment but for one reason or another have been putting it off, now is the time to act on it!  

If you have been struggling to understand the changes, or the impact they will have on your business, then we would love to speak to you. At Purple Lime, we specialise in providing information and advice on your business finances, as well as recommending tax-saving measures and strategies to help you manage your corporation tax bill. If you would like to know more, please get in touch by emailing or calling us on 01249 691360.

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