Corporation Tax Changes

As of 1 April 2023, the corporation tax rate changed. Instead of paying 19% on your profits, you will now pay 19% on profits up to £50,000, a marginal rate of 26.5% on profits between £50,000 and £250,000 and 25% on anything over £250,000.

Corporation Tax Example

An example of how this works for a company making a profit of £120,000 with an accounting period running from 01.07.2022 - 30.06.2023 is shown below:

• Old rate: 01.07.2022 - 31.03.2023 £120,000 x 9/12months = £90,000 x 19% = £17,100

• New rate: 01.04.2023 - 30.06.2023 £120,000 x 3/12months = £30,000

  • £50,000 x 3/12months = £12,500 x 19% = £2,375

  • £30,000 (profit for 3 month period) - £12,500 (profit at 19% rate) = £17,500 x 26.5% (marginal rate) = £4,637

Total tax for the period is therefore £24,112 (£17,100 + £2,375 + £4,637). This is a hybrid rate of 20.1% (£24,112/£120,000).

Associated Companies

If you have an associated company then the £50,000 threshold may have to be reduced. A company is an associated company of another when:

• One has control of the other; or

• Both are under common control

Here is a link to an article by the ACCA that explains this in more detail: How changes to corporation tax will impact associated companies

Investment Companies

If you have an investment company then you may not be entitled to the lower tax rate as most investment companies pay tax at 25% on all of their profits.

However, where a company invests in property and the property is let on a commercial basis to unconnected parties they will still be able to access the reduced tax rate of 19% for the first £50,000 of profits.