Corporation Tax will increase to 25%
As of 14 October 2022 it has been re-announced the Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000.
A rate of 19% will be available for business with profits of up to £50,000. This will be known as the Small Profits Rate (SPR) and will also be introduced from the same date.
Marginal Rate
Where a company has profits between £50,000 and £250,000, a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.
The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits are £50,000 or less to 25% where profits are more than £250,000.
The amount of tax you pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction is 3/200. The calculation would be
- Profit x 25% less ((250,000 – profit) x 3 / 200) = Tax to be charged
Examples
- If your profits are £50,000 this will be taxed at 19% = £9,500
- If your profits are £51,000 this will be taxed at 25% = £12,750 less ((£250,000 – £51,000) x 3/200) £2,985 = total tax would be £9,765 (19.15% equivalent)
- If your profits are £100,000 this will be taxed at 25% = £25,000 less ((£250,000 – £100,000) x 3/200) £2,250 = total tax would be £22,750 (22.75% equivalent)
As always please call the office and we would be more than happy to help: Pi Accountancy | Expert Business Advice | Gloucester & Swindon (pi-accountancy.co.uk)