The good news is that for small businesses with profits below £50,000 the Corporation Tax rate remains at 19% so that'll cover around 70% of businesses in the United Kingdom. An effective rate of 26.5% applies to profits between £50,001 and £250,000.
This may seem odd, but this ensures those with profits over £250,000 are taxed at 25%. This is illustrated below:
The first £50,000 is taxed at 19% which gives a tax liability of £9,500
The next £200,000 is taxed at 26.5% giving a tax liability of £53,000
Therefore, the total tax charged on the first £250,000 profits is £62,500 which is a tax rate of 25% overall
The question of associated company rules is being asked again and I anticipate that there will be anti-tax avoidance legislation including associated companies' rules. These rules will be required to avoid say a £300k profit company, splitting up into 6 companies and declaring £50k profit at the lower tax rate.
So, after the leadership shenanigans of the Conservative party where the Corporation Tax increase was scrapped in Liz Truss' mini-budget in September 2022, the increase has now gone ahead and business owners need to understand how it will affect them.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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