Way back in 1789 one of the USA’s founding fathers, Benjamin Franklin wrote what was probably his last great quote, saying: ‘The only thing certain in life is death and taxes.”
He was right about taxes and we are all feeling the tax pain at the moment, but there is more to come in the form of Corporation Tax.
When the rise to 25 per cent was announced in the 2020 Budget, 2023 seemed a long way off, but now it is well under a year before it comes into force.
The current Corporation Tax rate of 19 per cent generally applies to all companies whatever their size. From 1 April 2023, this rate will cease to apply and will be replaced by variable rates ranging from 19 per cent to 25 per cent.
It comes after the majority of the world’s nations signed a historic deal to ensure big companies worldwide pay a fairer share of tax.
The agreement covered 136 countries that agreed to enforce a minimum corporate tax rate of at least 15 per cent.
It came after it had been revealed that multinational companies are re-routing their profits through low tax jurisdictions.
The 2023 UK increase is projected to bring in additional revenues of £11.9 billion in 2023-24, rising to £17.2 billion in 2025-26
Be prepared for changes to Corporation Tax in 2023
As we are halfway through 2022, companies must be prepared for changes to the system which is just down the line.
The rise to 25 per cent kicks in on 1 April 2023, but it is slightly more complicated than the headline figure.
How will companies be affected?
For companies recording profits of £50,000 or less, the ‘lower profits limit’ at the current rate of 19 per cent will still apply, but those companies with profits between £50k and £250k, the so-called ‘upper profits limit’, will pay the main rate of 25 per cent.
However, they will receive what is known as marginal relief to cut their tax bill which increases the rate incrementally, as profits rise, until the upper limit of 25 per cent is reached.
The lower and upper profit limits are reduced proportionately where the accounting period is less than 12 months. They are also reduced when a company has one or more associate companies.
The calculations are quite complex so your accountant will be able to help you with assessing just how much you will have to pay to HMRC.
For help and advice on international corporate tax matters, call our expert team today.