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Last updated: 26 Jan 2022
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How much is Corporation Tax? What are the rates?

Every business that makes a profit is required to pay Corporation Tax. In order to efficiently calculate what tax you owe, it is important to first understand what reliefs cost-cutting options are available to you and your business to reduce your tax bill. 
What is the Corporate Tax rate?

In this insight we’ve outlined the latest guidance on Corporation Tax rates and listed the most common reliefs that you can use to reduce your tax liability while remaining compliant. 

What is the Corporate Tax rate?

For the year beginning 1 April 2021 the Corporation Tax rate is 19%. No matter what size your business the current rate is the same, unless you are a ‘ring fence’ company and involved in oil extraction or oil rights in the UK.  

Corporate Tax rates

Corporate Tax rates from 2021 to 2023

The current rate of 19% will remain the same for the next financial year starting on 1 April 2022. However, the government have announced that the Corporate Tax rate will rise from 19% to 25% for the financial year beginning 1 April 2023. This new rate will apply to all companies except those with profits of £50,000 or less. If your business falls into this bracket then you will continue to pay Corporation Tax at 19%. 

If your taxable profit is between £50,000 to £250,000 then you will pay the new tax rate of 25% but could be eligible for marginal relief which will help reduce your tax bill. The reason for this is to bridge the gap between the profit margins. You can calculate your marginal relief using HMRC’s calculator.

Financial year 2020/2021 2021/2022 2022/2023 2023/2024
Main rate 19% 19% 19% 25%
Small profits rate (below £50,000) - - - 19%
Lower threshold - - - £50,000
Upper threshold - - - £250,000

 

How to potentially reduce your bill

How to potentially reduce your corporation tax bill

Your Corporation Tax bill can be a daunting matter to consider, especially with the upcoming rate changes and the uncertain business environment. However, there are ways to reduce your tax liability whilst remaining compliant. Here are some of the most common reliefs – could your business benefit from some of them?   

  • Expenses: No matter how small, claim it!
    No matter how small, expenses add up. Make sure you claim for all your business expenses. Whether it’s a car parking fee or a stationary purchase, it’s really important to keep track of them all. It can be tiresome to track every single item but they will add up to a significant cost over time. We know how much of a shock your tax bill can be, so we recommend that you save wherever possible to help reduce your tax liability.
  • Super deduction: save up to 25p for every £1 invested 
    If your company invests in new plant and machinery assets then you could save a significant amount on your tax bill with HMRC’s new Super Deduction relief. From 1 April 2021 until 31 March 2023 companies that qualify will be able to claim the following relief:
    1. a 130% super-deduction capital allowance on qualifying plant and machinery investments. This new relief could help companies reduce their tax bill by up to 25p for every £1 invested.
    2. a 50% first-year allowance for qualifying special rate assets, going down to 6% in future years.

Is it time to invest in productivity-enhancing plant and machinery assets?  

  • R&D tax: get rewarded for your inventions

Innovation can come in many different forms, and unfortunately some companies are missing out on Research and Development (R&D) tax credits because they are not seen as traditionally ‘innovative’. If your business is creating or improving a process, product or software then you could be eligible to receive R&D tax credits on the money you spend innovating. The tax relief could come in the form of a reduced corporation tax bill, credit or both. Even if your innovative project is unsuccessful, you can still claim for R&D tax credits! 

  • Patent Box tax regime: 10% relief 

If you have successfully innovated and qualify for R&D tax credits then you could also be eligible for the Patent Box Tax Regime – they work together to incentivise businesses to think outside the box. If you earn profits from a patented invention then you could apply for a lower rate of Corporation Tax of 10%. This relief is only available to businesses that own or exclusively in-license UK or Europeans patents and meet certain requirements set by HMRC.  

  • Employee share schemes: an all-round incentive

This relief could be one to consider as it offers incentives for both you as business owner and your employees. If you offer shares to your employees then you are eligible for a corporation tax deduction. In turn, offering your employees shares can be a lucrative incentive and increase staff retention, performance and motivation. There are a number of schemes available, so it’s important to choose one that best fits your business model. 

  • Losses: option to carry back up to £2 million 

If your business is liable for Corporation Tax but makes a loss, then you could claim trading loss. To help businesses back on their feet, HMRC has announced that there is an option to temporarily carry back your losses (up to £2 million) for three years – normally this option is only for 12 months. ‘Carrying back’ essentially means reducing the amount of profit for previous years, and therefore cutting your tax bill. If you don’t carry the loss back then it will be carried forward to your next financial year. You can submit this claim in your tax return. This is likely welcome relief for many businesses who have faced unprecedented challenges in recent times.

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Information around Corporation Tax and the reliefs available can be confusing – there are many rules and nuances. Hopefully, the above has given you some useful guidance on what options are available. These are just a handful of reliefs offered by HMRC and so it could be beneficial for you to seek expert advice on other possible options for your business. If you need any further support, just let us know.  

You may enjoy the other insights in our series about Corporation tax: 

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