What is the April 23 corporate tax change?
Amid the economic strains caused by the COVID-19 pandemic, the UK government has responded by increasing the rates of Corporation Tax . This decision reflects the need to bolster public finances and support the nation's recovery efforts in the wake of the pandemic. While the adjustment may pose challenges for businesses, it's part of a broader strategy aimed at funding vital public services and economic stimulus programs.
In past years, the Corporation Tax rate has remained a flat 19%, regardless of the level of profits. However, starting from April 2023, significant changes have come into effect:
| |
Financial year 04/22 - 03/23 |
Financial year 04/23 - 03/24 |
Variance |
| Small Profits rate (< £50,000) |
19% |
19% |
- |
| Marginal rate (£50,001 - 250,000) |
19% |
26.5% |
+7.5% |
| Main rate (> £250,001) |
19% |
25% |
+6.0% |
These alterations introduce important details to how the taxes now work, so it's important to take a closer look at what they mean.
Here's an example of how the new increased rate works based on £100,000 of profit:
| Example, Profit of £100,000 |
| Slice £ |
Rate % |
Tax £ |
| £50,000 |
19.0% |
£9,500 |
| £50,000 |
26.5% |
£13,250 |
| Effective Rate and Total Tax |
| £100,000 |
22.75% |
£22,750 |
We can see that a business with 100k of profit will be facing heightened amounts of corporate tax payments based on these new changes.
What you can do to mitigate these changes
- Purchase for your business:
- Investing in equipment and office supplies not only enhances your business operations but can also reduce your taxable profits.
- Capital expenditures on machinery, computers, furniture, and other essential assets can be eligible for capital allowances, providing tax relief over time.
- By timing your purchases strategically, you can accelerate depreciation and claim larger deductions to minimise your corporate tax liability.
- Directors pay yourselves a higher salary:
- Directors of limited companies can pay themselves a salary as part of their remuneration package.
- By paying yourself a higher salary, in preference to dividends, you can reduce the company's taxable profits since salaries are considered allowable expenses.
- Enrol loved ones onto payroll:
- If you have family members who contribute to your business, consider enrolling them onto the company's payroll.
- Employing family members can provide tax benefits, as their salaries are deductible expenses for the business.
- Be sure to comply with employment laws and pay them a fair market salary for the work they perform to avoid potential issues with tax authorities.
- Maximise pension contributions:
- Pension contributions offer a tax-efficient way to save for retirement while reducing your corporate tax liability.
- Contributions to employee pension schemes are typically tax-deductible expenses for the company.
- By maximising pension contributions, you can lower your taxable profits and benefit from tax deferral on investment growth within the pension fund.
Reach out to us
Incorporating these strategies into your tax planning can help you minimise your corporate tax liability while operating within the bounds of the law. However, it's essential to seek expert advice and tailor these strategies to your specific circumstances and objectives.
For personalised guidance and assistance with corporate tax planning, consult with one of our experienced tax professionals who can provide tailored advice and help you navigate the complexities of the tax landscape.