Corporation Tax has increased from the 19% we have already to 25% in April 2023. This was announced in March 2021 and affects any business with profits that exceed £250,000 per tax year ...
With the rise in Corporation Tax, the question of associated company rules is being asked again!
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
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about Corporation Tax, it may be a great idea to call me on 01908 774320 and let's see how I can help.
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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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