As part of the March 2019 Budget, it was announced that corporation tax would be increased from April 2023. We detail below an overview of these changes.

It is important to talk to us about the impact of the changes.  It may result in different approaches and practices from previous years. For example, should companies now defer expenditure to get higher tax relief, how does it impact decisions of salary and dividends for small companies, what is the best timing for directors pension payments and other such considerations.

What is changing?

The current main rate of corporation tax is 19% is applies to all companies regardless of size.

From 1 April 2023, the rate of corporation tax a company will pay will be dependent on the amount of its profits with the rates ranging from 19% to 25%.

*for accounting periods of less than 12 months the bands are pro-rated accordingly.

**marginal relief provides a gradual increase in Corporation Tax rate between the small profits rate of 19% and the main rate of 25%.

Associated Companies

Whilst the company profit bands given above relate to an individual company, the bands are reduced by the company has any associated companies. So, a company with 1 associated company will have its bands halved.

An associated company is broadly defined as a company with common ownership or control. It is also important to note the in determining control the ownership and rights of spouses and immediate family members also need to be considered.

The associated company rules can have some unfortunate consequences as shown in this following example:

Company A Ltd (£40,000 profits) and Company B Ltd (£10,000 profits) are deemed to be associated. As such, there profit bands will be halved and so the small profits band will be reduced to £0 - £25,000. Therefore, Company A Ltd will not benefit from the small profits rate of 19% and will pay corporation tax at a rate of 25% less marginal relief.

Combining the companies would mean that there is only one company and the combined profits of £50,000 would be charged at the small profits rate of 19%.

If you would like help understanding whether you are subject to associated company rules or wish to discuss whether there are any tax planning opportunities, please do not hesitate to contact us.