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What businesses need to know about the Corporation Tax changes 2023/2024

How will the corporation tax changes in 2023/2024 affect UK businesses?
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    All the way back in 2021’s budget, the UK Government announced changes to the Corporation Tax, which would be introduced in April 2023. After a few updates and pushbacks, the amendment was delayed, so it will now be in place from autumn 2023.

    With these new tax rate changes coming soon, our expert accountants will cover what UK businesses need to know to help them understand the 2023/24 corporation tax rate changes.

    So, read on to learn about the ins and outs of this budget update and how it will impact your business.

    What the Corporation Tax rate changes mean

    The current rate for corporation tax is set at 19%, but this is all set to change when the new legislation is brought into effect.

    The main areas that are changing include:

    • The main corporation tax rate will be increased to 25% for any company that earns profits in excess of £250,000.
    • There will also be a small profits rate implemented at 19%, which applies to all businesses with profits of £50,000 or under.
    • The main rate will ‘taper’ between the £50,000 and £250,000 rates.

    Alongside this, there are a few important details that you should look out for as they may be relevant to your business. We’ll go over these intricacies in more detail below.

    What is the taper?

    One of the more nuanced parts of the updated corporation tax rate is the taper, which is a sliding scale based on the profit levels of your business.

    The rate of corporation tax that you pay will vary depending on your profits, with the rates outlined as follows:

    • For profit levels that exceed £250,000, you’ll pay the main rate of 25% corporation tax on all profits.
    • For profit levels that are £50,000 and under, you’ll pay the small company rate of 19% on all profits.
    • If you have profits that fall between these thresholds, then the main rate of 25% applies. However, the business will be eligible for the Marginal Small Companies Relief (MSCR) which provides a deduction from your overall liability.

    The MSCR works by tapering the increased rate of corporation tax on your profits and uses a calculation to determine how it will work. The calculation is:

    (Upper Limit – Profits) x Basic Profits / Profits x MSCR

    This calculation factors in the following:

    • The upper limit is £250,000
    • Basic profits are all trading profits for the business
    • Profits include all basic profits as well as any Franked Investment Income
    • The MSCR sits at 3/200

    To make things a little easier, you can remove the Franked Investment Income to break corporation tax rates into bands, like so:

    • Profits up to £50,000 – 19%
    • Profits between £50,000 and £249,000 – 26.5%
    • Profits in excess of £250,000 – 25%

    How does the new Corporation Tax rate affect multiple companies?

    When it comes to multiple companies, there are a few issues that the new corporation tax rates throw up. The thresholds of £50,000 and £250,000 are brought in if there are associated companies.

    So the main rate will be applicable at the lower level. When aggregated profits fall under £250,000, it will be important to ensure that each company is as closely aligned to its peers as possible when it comes to profit levels.

    Associated Companies are any businesses that are under common control. The rules that surround this setup are quite intricate, but as a whole, they look at the different groups of individuals responsible for controlling the business and any ties they share with other businesses.

    In essence, a company is seen as an associated company in the following instances:

    • If the businesses are controlled by the same person.
    • If the businesses are controlled by the same group of individuals, regardless of shareholder breakdowns.
    • In certain scenarios, family members and their rights to the company may also be included if there’s any commercial interdependence between companies.

    If companies are classified as associated, then the thresholds are evenly distributed and apportioned. So if there are two companies that are associated, then they’ll each have a £25,000 threshold available.

    Are you prepared for the changes?

    With the new corporation tax rates taking effect soon, it’s important that you thoroughly understand how these changes might impact your business.

    So be mindful of how many companies fall under common control, as it will make a difference to your corporation tax rates. It can be quite complicated, so if you require any assistance, contact our tax experts at WIS Accountancy today or call us on 0203 011 1898.

    Frequently asked questions about the corporation tax changes

    To learn more about the corporation tax changes check out our FAQs below or contact us today:

    Will I pay more tax for 2023?

    How much tax you pay will depend on your earnings, but the personal allowance and basic rates haven’t changed from the 2021/22 budget. The higher rate threshold is also unchanged and sits at £50,270.

    How can I reduce my corporation tax?

    There are a few different ways that you can reduce your corporation tax, such as:

    • Claiming for R&D tax relief
    • Claim all business expenses
    • Make pension payments
    • Claim business mileage

    It’s always a good idea to speak with a financial advisor if you’re looking for the most efficient way to handle corporation tax.

    What is the current tax rate on dividends?

    At the moment, the dividend tax rate is set to 8.75% if your tax band falls into the basic rate. If you’re in the higher rate, then it’s 33.75% and if you fall under the additional rate it will be 39.35%.

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