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Last updated: 3 Mar 2022
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Planning ahead for upcoming company tax changes

Companies subject to UK corporation tax should already be planning ahead for tax changes that are due to take effect from 1 April 2023. Most notably, the increase in the main Corporation Tax rate from 19% to 25%.
Corporation tax rates

Corporation tax rates

As covered in our Spring Budget 2021 update last year, the rate of UK corporation tax will be increasing to 25% from 1 April 2023 for companies with taxable profits above £250,000 (although this threshold will be proportionately reduced for short accounting periods and where there are associated companies). 

Companies with taxable profits below £50,000 will continue to be liable to corporation tax at the current rate of 19%. And for companies with taxable profits between £50,000 and £250,000 there will be a return to the marginal rate relief mechanism, like that in place prior to 1 April 2015.

While the changes to corporation tax rates will not apply until 1 April 2023, companies with accounting periods that straddle that date will be liable to an increased time apportioned tax rate on their profits for this straddling period (unless time apportionment produces a result that is not just and reasonable).

Although unavoidable for ongoing trading profits, for profits arising on one off transactions, such as chargeable gains, it would be beneficial to bring forward such transactions, where possible, so that they are liable to the current 19% corporation tax rate. 

For example, a company with a 30 September year-end, that makes a chargeable gain of £2 million by 30 September 2022 will be liable to corporation tax of £380,000 (£2 million x 19%). If the same company instead makes the gain on 1 October 2022, it would be liable to corporation tax at a time apportioned rate of 22% (assuming this produces a result that is just and reasonable), so would have to pay £440,000 of tax (£2 million x 22%). To avoid this, the company could instead look to shorten its accounting period.

About the authors

Devon Drury

+44 (0) 20 7710 2624
druryd@buzzacott.co.uk
LinkedIn

Matthew Baldock

+44 (0)20 3972 6623
baldockm@buzzacott.co.uk
LinkedIn

Corporation tax rates

As covered in our Spring Budget 2021 update last year, the rate of UK corporation tax will be increasing to 25% from 1 April 2023 for companies with taxable profits above £250,000 (although this threshold will be proportionately reduced for short accounting periods and where there are associated companies). 

Companies with taxable profits below £50,000 will continue to be liable to corporation tax at the current rate of 19%. And for companies with taxable profits between £50,000 and £250,000 there will be a return to the marginal rate relief mechanism, like that in place prior to 1 April 2015.

While the changes to corporation tax rates will not apply until 1 April 2023, companies with accounting periods that straddle that date will be liable to an increased time apportioned tax rate on their profits for this straddling period (unless time apportionment produces a result that is not just and reasonable).

Although unavoidable for ongoing trading profits, for profits arising on one off transactions, such as chargeable gains, it would be beneficial to bring forward such transactions, where possible, so that they are liable to the current 19% corporation tax rate. 

For example, a company with a 30 September year-end, that makes a chargeable gain of £2 million by 30 September 2022 will be liable to corporation tax of £380,000 (£2 million x 19%). If the same company instead makes the gain on 1 October 2022, it would be liable to corporation tax at a time apportioned rate of 22% (assuming this produces a result that is just and reasonable), so would have to pay £440,000 of tax (£2 million x 22%). To avoid this, the company could instead look to shorten its accounting period.

Super-deduction

Super-deduction 

As also covered in an our update last year, a super-deduction capital allowance scheme was introduced in the Spring Budget 2021, enabling companies to claim 130% as a first-year relief on main pool eligible expenditure, and 50% is available as a first-year allowance on special rate pool eligible expenditure (assuming 100% relief via the annual investment allowance (AIA) is not available for this expenditure).

The super-deduction is uncapped and applies for qualifying plant and machinery expenditure incurred between 1 April 2021 and 31 March 2023.

Annual Investment Allowance

Annual Investment Allowance

From 1 April 2023 onwards, it is expected that only the first £200,000 (currently £1 million) of qualifying expenditure in each period will be relievable in full via AIA. Therefore, where companies plan to undertake significant capital expenditure projects within the next 24 months, it will be beneficial to bring these forward, where possible.  

How can we help?

How can we help?

If your company is considering any of the above, or if you have any other queries about the company tax changes that will be introduced next year, fill out the form below and one of our experts will be in touch to help. As experienced company tax advisers, we can provide advice and guidance tailored to your company’s specific circumstances. 

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