Corporation Tax Increases from 1st April 2023

The HMRC have increased Corporation Tax rates with effect from 1^st 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:

Example:  Profits £100,000

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.