In the 2021 Budget it was announced that Corporation Tax will increase from 1 April 2023.  This decision was reversed and then re-instated in the two budgets of autumn 2023.

Whats Changing?

Historically in recent years there has been a flat rate of Corporation Tax of 19%.

From April 2023:

• The main rate of Corporation Tax will be 25% for Companies with profits of £250,000 or more – this applies to all profits
• A Small Profits Rate of 19% will exist for Companies with profits of £50,000 or less
• The main rate will taper in between £50,000 and £250,000

Marginal Rates and Effective Rates

If your profits are below £250,000 it is useful to understand how the rules work in more detail.

The official expression of the rates are:

• If profits are over £250,000 the Main Rate of 25% applies to all profits – including those below £250,000
• If profits are £50,000 or below the Small Company Rate of 19% applies to all profits
• If profits are between these thresholds then the main rate of 25% applies and the company is entitled to Marginal Small Companies Relief (MSCR) as a deduction from the calculated liability.

The tax rates on profits which are in each band (not Average Rates) are as follows;

An example:

The Effective Corporation Tax rate at various profit levels will be:

This Effective Rate applies to the whole of the profits.

Multiple Companies

Multiple companies present some traps with the new Corporation Tax rates.

Briefly, the £50,000 and £250,000 thresholds are apportioned where there are Associated Companies.   This means the Main Rate cuts in at a lower level.  The apportionment is on a strict arithmetical basis so for situations where aggregate profits are below £250,000 care will be needed to make sure each company is as close as possible to its peers in terms of profit levels – we will look at this below.

Associated Company Definition

Associated Companies are Companies under common control.  The rules around this are complex, but generally they look at different groupings of individuals who control a company, and commonality within those groupings.  In practical terms Companies will be associated where:

• They are controlled by the same individual, eg:
• They are controlled by the same group of individuals, albeit with differing shareholdings