The HMRC have increased Corporation Tax rates with effect from 1st April 2023. How does this affect you?
If your profits are under £50,000 there will be no change and you will still be charged Corporation Tax at a rate of 19%
If your profits are above £250,000 they will all be charged at a rate of 25%, not just the amount above £250,000 – unlike personal tax where portions of income are taxed at gradually increased rates.
However, if your profits are between £50,000 and £250,000 you will be subject to a tapered rate. What does this mean?
Tapered rate on profits between £50,000 and £250,000
The taper is a confusing calculation, 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. A simple expression of the new rates are as follows:
Profits |
Marginal Rate |
£0 to £50,000 |
19% |
£50,001 to £249,000 |
26.5% |
£250,000 + |
25% on ALL profits |
Example: Profits £100,000
Profits: |
Rate % |
Tax £ |
£50,000 |
19% |
£9,500 |
£50,000 |
26.5% |
£13,250 |
Total Profits/effective rate/tax due: |
||
£100,000 |
22.75% |
£22,750 |
Previously, Corporation Tax on profits of £100,000 would have been charged at 19% and would have been £19,000 – therefore the new rates increase the tax liability by £3,750
Example: Profits £275,000
All profits are charged at 25%, so Corporation Tax on profits of £275,000 would be £68,750. Previously they would have been charged at 19% which would be £52,250, therefore the increase in tax is a huge £16,500!
Impact on Dividends
Dividends from companies are paid from available profits after Corporation Tax has been deducted – therefore the increase in Corporation Tax means there will be less profits to distribute as dividends.
However, this does mean the personal Dividend Tax on your dividends will decrease.