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Understanding the UK Corporation Tax 2024/25

UK corporation tax 2024/25
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    As we approach the 2024/25 fiscal year, understanding the UK Corporation Tax and its implications is essential for businesses looking to be more agile with their finances.

    This article discusses Corporation Tax, the upcoming changes, and how these adjustments impact businesses of various scales.

    What is Corporation Tax?

    Corporation Tax is a direct tax imposed on the profits of incorporated entities. This encompasses the earnings from doing business, investments, and selling assets for more than they cost (capital gains). In the UK, companies are obliged to calculate their tax liability and pay it without prior assessment from HM Revenue and Customs (HMRC).

    Calculating Corporation Tax requires you to look at the income your business makes through trading and investments. If your company sells assets for a profit, this should also go into the calculations. Limited companies don’t pay income tax or national insurance as corporation tax covers business profits.

    What is the threshold for Corporation Tax?

    The threshold for Corporation Tax refers to the profit levels that determine the rate at which a company is taxed. Traditionally, all companies paid the same rate, but recent reforms have introduced a tiered system based on profit levels, significantly impacting how businesses are taxed.

    Although there are several different rates for corporation tax, the small profits rate, marginal rate and main rate are the three most commonly used ones.

    Thresholds for these are:

    • Small profits rate: £0 – 50,000
    • Marginal rate: £50,001 – £250,000
    • Main rate: £250,000 and more.

    Who does Corporation Tax apply to?

    Corporation Tax applies to all incorporated entities operating in the UK, including companies, cooperative societies, and associations. It is relevant to both domestically formed companies and foreign companies with a UK office or branch.

    If you’re a sole trader or company director, you won’t pay any Corporation Tax. Instead, you will pay income tax on your earnings via a self-assessment tax return.

    What is the Corporation Tax Rate for 2024/25?

    The Corporation Tax rate for the fiscal year 2024/25 has been subject to scrutiny and anticipation. In a move to support economic growth while ensuring fair contributions from the corporate sector, the government has announced that Corporation Tax rates won’t be changing from last year.

    That means the current rates for Corporation Tax are as follows:

    • Small profits rate: 19 %
    • Marginal rate: 26.5 %
    • Main rate: 25 %

    How will changing Corporation Tax rates affect businesses?

    Although the Corporation Tax rates aren’t changing this year, adjusting this rate can have a profound effect on businesses For companies with higher profits, an increased rate means a higher tax liability, potentially affecting their financial planning and resource allocation.

    Conversely, businesses on the lower end of the profit scale may benefit from reduced rates, offering potential savings that could be reinvested into the business. It also impacts things like investments and future planning for the business.

    What if my business is generating less than £50,000 in taxable profits?

    Businesses with taxable profits below £50,000 are positioned to benefit from the lower Corporation Tax rate known as the small profits rate.

    This initiative is designed to support small to medium-sized enterprises (SMEs) by reducing their tax burden, thereby encouraging reinvestment and growth within this vital sector of the economy. As of 2024, the current small profits rate is 19 %.

    Will marginal relief still apply?

    Marginal relief serves as a bridge for businesses that find themselves between the lower and upper thresholds of taxable profits, offering a gradual increase in tax rates rather than a steep jump.

    The continuation of marginal relief in the 2024/25 fiscal year ensures a smoother transition for businesses as they grow, preventing a sudden increase in tax liability.

    How can WIS Accountancy help?

    WIS Accountancy is equipped to navigate the complexities of UK Corporation Tax for the 2024/25 fiscal year. With expertise in tax planning and compliance, WIS Accountancy can assist businesses in understanding their tax obligations, optimising tax positions, and ensuring compliance with the latest regulations.

    Whether leveraging the lower tax rates for SMEs, understanding the implications of the new tax rate for larger enterprises, or navigating the intricacies of marginal relief, WIS Accountancy offers tailored solutions that align with business objectives and financial strategies.

    To find out more about how WIS Accountancy can help with your tax obligations, please get in touch with our team today.

    Frequently asked questions about the Corporation Tax changes for 2024/25

    Do dividends reduce Corporation Tax?

    Companies pay Corporation Tax on all profits before distributing dividends. That means that paying dividends out won’t affect the company corporation tax bill. Salaries, however, could be used as a business expense, which could, in turn, lower your tax.

    Do sole traders pay Corporation Tax?

    No, sole traders don’t pay any Corporation Tax – regardless of earnings. This is because they pay tax as an individual through a self-assessment tax return.

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