Changes to Corporation Tax Main Rate

In the Spring Budget 2023 the Chancellor, Jeremy Hunt, confirmed the Government would proceed with setting the main rate of Corporation Tax at 25%, and introducing a small profits rate at 19% from 1 April 2023.

Following the Corporation Tax rate increase on April 1, the rate of tax a company pays will depend on its level of profit and whether the company has any “associated companies”.

For a business with no associated companies, the position is as follows:

The first £50,000 of taxable profits are taxed at 19%

The next £200,000 of taxable profits are taxed at a marginal rate of 26.5%

Any taxable profits over £250,000 are taxed at 25%

If a business has associated companies, unfortunately, the threshold for the various Corporation Tax rates will be reduced.

What is an associated company?

A company is an “associated company” of another company if one has control over the other or both are under the control of the same person(s).

The rules to determine associated company status are complex but understanding is key in the determination of the correct rate to apply to a company’s profits.

If a company has more than one associated company, the threshold for determining the appropriate tax rate is divided by the total number of associated companies, for example, if a company is deemed to be associated with another company, the thresholds are divided by two.

It is imperative to note that non-UK resident companies are included in the calculation of the quantity of associated companies, but dormant and ‘passive’ investment companies in some circumstances may be excluded.

As a result of the reduction to the rate thresholds, associated companies could see a significant increase in the amount of Corporation Tax due.