Budget 2023: Changes to corporation tax

There were no big surprises for corporation tax in today’s Budget. The previously announced increase in the Corporation Tax rate to 25% is to be implemented from 1 April 2023. Even though there will be a potential increase in the Corporation Tax rate by 6%, Jeremy Hunt has stated that the 25% rate is still the lowest of the G7 countries, making the UK a competitive place for business.

Not all profitable companies will pay the full 25%. Companies with profits of £50,000 or less will continue to be taxed at 19%, but the new 25% rate will apply for those with profits above £250,000 – just 10% of companies according to the Chancellor. These thresholds reduced based on the number of ‘associated companies’. 

If a company has profits between £50,000 and £250,000, a marginal tax rate will be used to bring the average tax rate up to 25% the nearer the profit figure is to £250,000. In practice this means that profits between £50,000 and £250,000 will be taxed at a marginal rate of 26.5%, and if profits do fall into this bracket careful consideration should be given to how to mitigate the tax liability.  

There were two other announcements today that could help reduce taxable profits of company. The first is the increase to the pension annual allowance for individuals and the second full expensing relief for capital expenditure.

Employer pension contributions are tax deductible for corporation tax purposes, therefore the increase of the pension annual allowance from £40,000 to £60,000 per annum, could allow companies to review their remuneration planning to reduce their taxable profits and therefore the impact of the rising Corporation Tax rate.  This is especially relevant for those companies with profits that will be taxed at the effective 26.5% marginal rate. 

If the Budget has raised any questions for you, book your place on our Budget question time webinar this Friday, 17 March at 9:30am.

Alternatively, if you would like further information, please get in touch with our team.