Corporation Tax increasing to 25% (but not for everyone)

The rate of corporation tax (company tax on profits) is currently at 19% for all businesses.  From 1 April 2023 that rate is going up to 25%, but only for companies making over £250,000 in annual profit.

For those companies earning a profit of less than £50,000, the 19% rate will remain; and for those in between, a blended rate somewhere between the two.

There will be standard anti-avoidance measures, so for example it will not be possible to just add another company to the group once the £250,000 threshold is met.

A natural reaction to help pay back some of the myriad Covid measures (such as the furlough scheme), it will be a relief for many that this increase does not kick in immediately.  The actual tax payment at the higher rate, for a company with a 31 March year end and not paying by quarterly instalments, will not be until 1 January 2025 (nine months and a day after the year end of 31 March 2024).

This will also lead to a number of revised calculations regarding directors’ profit extraction – for a number of years now the standard ‘wage to personal allowance + dividend’ has been the default advice.  However with the introduction of the various permutations (also see our post regarding National Insurance rises – see here) and availability of genuine tax avoidance structuring, the calculations are going to get more complicated.