Starting from 1 April 2023, companies with annual profits of more than £50,000 will need to pay more corporation tax.

With soaring inflation impacting businesses across the UK and the new tax year less than a month away, it’s essential to understand how the upcoming corporation tax rise could affect your company. Here’s what you need to know.


What’s changing with corporation tax?

The Government announced the 2023 corporation tax rise in the 2021 Spring Budget. From the 2023/24 tax year onwards, there will be two rates of corporation tax:

  • a 25% “main rate” for companies with profits of £250,000
  • a 19% “small profits rate” for companies with profits under £50,000.

This means the increase won’t affect companies making less than £50,000.  Meanwhile, companies with profits between £50,000 and £250,000 a year will be charged at the 25% main rate, but will see their corporation tax bill reduced by marginal relief.


Marginal relief 

Marginal relief provides a gradual increase in the effective corporation tax rate.

Business owners should note that these thresholds are shared across “associated companies”. That means that if you own more than one company, you’ll be charged corporation tax on their total profits, which could decrease the amount of marginal relief you receive.

Companies with accounting periods shorter than 12 months will also see a reduction in marginal relief.

Some companies are ineligible to claim marginal relief, including:

  • non-UK resident companies
  • close investment holding companies
  • companies with profits over £250,000 (including those of associated companies).

If you expect your company to make between £50,000 and £250,000 in the 2023/24 tax year, we’d recommend working with expert business advisers to help you estimate your tax bill.

Understanding your liabilities ahead of time can make it easier to budget and create accurate financial forecasts.

Further guidance on calculating marginal relief for corporation tax is also available on the HMRC website.

The modified corporation tax rules will also apply to companies in the UK oil and gas industry. These “ring-fence” companies can currently claim marginal relief on profits between £300,000 and £1.5 million.

However, this marginal relief will only be available for ring-fence companies with profits between £50,000 and £250,000 a year from April 2023 onwards.


How to prepare for the corporation tax rise

There are a few actions you can take to prepare for the upcoming corporation tax rise.

Claiming business expenses can reduce your company’s taxable profits. In turn, this may make you eligible for more marginal relief or, in some cases, even push your company into the small profits rate band.

To make the most of your expenses, you should keep accurate and detailed records of your business transactions throughout the year. Qualified bookkeepers can help you maintain good accounting practices and will be able to advise you on which expenses you can claim.

Other reliefs, such as capital allowances, R&D tax credits and industry-specific tax breaks can also minimise your tax burden.

If you want to know more about how corporation tax will affect your business in 2023/24, you should speak to an accountant. As tax experts, we can help you understand your liabilities and create a tax strategy that works for your company.

Contact us today for a free consultation.