Corporation Tax Increases from 1st April 2023
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 |
| 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.