Loading…
Close icon
Find us quickly

130 Wood Street, London, EC2V 6DL
enquiries@buzzacott.co.uk    T +44 (0)20 7556 1200

Google map screengrab
Spring Budget 2021_businesses
Read time: 5 minutes
Last updated: 3 Mar 2021
On this page

Spring Budget 2021: Increase in the corporation and diverted profits tax rates and the return of the small profits rate

The rate of corporation tax will rise to 25% from 1 April 2023. While the change is two years away, for those businesses planning ahead there is potential for companies to plan how to maximise the use of the 19% before it is abolished. 

The  rate of corporation tax will rise to 25% from 1 April 2023. For smaller businesses this change will be coupled with the introduction of a Small Profits Rate for companies with profits of less than £50,000.   

Large multinational enterprises with UK business activities who have arrangements which divert profits away from the UK will be subject to an increased Diverted Profits Tax (DPT) of 31% (from the current rate of 25 %) from 1 April 2023. 

The increase in corporation tax rates to 25% will be tapered so that only business with profits in excess of £250,000 will be taxed at the full 25% rate. Companies with profits of less than £50,000 will remain subject to the current rate of 19%.  Companies with profits between £50,000 and £250,000 will pay tax at a rate between 19% to 25% under a marginal rate relief mechanism.  This system is similar to that in place prior to 1 April 2015 when the UK last had two rates of corporation tax. 

To prevent the artificial splitting of profits by groups of companies, the rate thresholds of £50,000 and £250,000 will be proportionately reduced for short accounting periods and where there are associated companies. 

As in the past, the small profits rate will not apply to close investment-holding companies. 

The chancellor noted that a 25% rate will remain the lowest rate in the G7.  Given the US currently has a federal rate of 21% this suggests HM Treasury expects corporate tax rises in the USA under Joe Biden to take place.  

While the changes in corporation tax rates are two years away, for those businesses planning ahead there is potential for companies to plan how to maximise the use of the 19% before it is abolished.  

In order to maintain the current differential between the rate of Corporation Tax and DPT, the latter will increase from 25% to 31% from 1 April 2023. The DPT Is intended to be penal and the increase to 31% will support HMRC’s policy objective to discourage the use of contrived arrangements that result in the erosion of the UK tax base. The increase in the DPT rate highlights the cost of groups inadvertently falling within the DPT and the fact that the government sees the DPT as a useful tool to tax profits they consider arise in the UK. 

If your company or group needs advice on planning for the changes to the corporation tax rates or you are concerned about the scope of the DPT in relation to your business, then please get in touch with us for more information.  

About the authors

Liam McKeevor

+44 (0)20 7556 1244
mckeevorl@buzzacott.co.uk
LinkedIn

Shriya Dheir

+44 (0)20 7710 3126
DheirS@buzzacott.co.uk

The  rate of corporation tax will rise to 25% from 1 April 2023. For smaller businesses this change will be coupled with the introduction of a Small Profits Rate for companies with profits of less than £50,000.   

Large multinational enterprises with UK business activities who have arrangements which divert profits away from the UK will be subject to an increased Diverted Profits Tax (DPT) of 31% (from the current rate of 25 %) from 1 April 2023. 

The increase in corporation tax rates to 25% will be tapered so that only business with profits in excess of £250,000 will be taxed at the full 25% rate. Companies with profits of less than £50,000 will remain subject to the current rate of 19%.  Companies with profits between £50,000 and £250,000 will pay tax at a rate between 19% to 25% under a marginal rate relief mechanism.  This system is similar to that in place prior to 1 April 2015 when the UK last had two rates of corporation tax. 

To prevent the artificial splitting of profits by groups of companies, the rate thresholds of £50,000 and £250,000 will be proportionately reduced for short accounting periods and where there are associated companies. 

As in the past, the small profits rate will not apply to close investment-holding companies. 

The chancellor noted that a 25% rate will remain the lowest rate in the G7.  Given the US currently has a federal rate of 21% this suggests HM Treasury expects corporate tax rises in the USA under Joe Biden to take place.  

While the changes in corporation tax rates are two years away, for those businesses planning ahead there is potential for companies to plan how to maximise the use of the 19% before it is abolished.  

In order to maintain the current differential between the rate of Corporation Tax and DPT, the latter will increase from 25% to 31% from 1 April 2023. The DPT Is intended to be penal and the increase to 31% will support HMRC’s policy objective to discourage the use of contrived arrangements that result in the erosion of the UK tax base. The increase in the DPT rate highlights the cost of groups inadvertently falling within the DPT and the fact that the government sees the DPT as a useful tool to tax profits they consider arise in the UK. 

If your company or group needs advice on planning for the changes to the corporation tax rates or you are concerned about the scope of the DPT in relation to your business, then please get in touch with us for more information.  

Have an enquiry about what the Budget means for you?

If you have an enquiry about how the Budget affects you, your business or charity, complete the form below and one of our experts will be in touch with you.

Please complete all required fields above.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

View other Budget content

Spring Budget 2021
Spring-Budget-Notforprofits
Spring Budget 2021_individuals
close back
Your search for "..."
did not yield any results.
... results for "..."
Search Tags