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Corporation Tax Changes

It was announced at Budget 2021 that from 1 April 2023 different rates of corporation tax would apply depending on the level of taxable profits of a company and the number of ‘associated’ companies. This regime is now fully in force and broadly mirrors the corporation tax rules that applied prior to 1 April 2015.

In summary, the corporation tax rates applying from 1 April 2023 onwards are as follows:

  • For companies with taxable profits of £50,000 (the lower limit) or less, a small profits rate of 19% applies.
  • For companies with taxable profits between £50,001 and £250,000, the main rate of 25% applies, but marginal relief is available.
  • For companies with taxable profits above £250,000 (the upper limit), the main rate of 25% applies.

For example, a standalone company with taxable profits of £500,000 will pay corporation tax on its entire profits at the main rate of 25%. As a result, many companies are now facing a higher ongoing corporation tax liability compared with the position prior to April 2023.

One key point to note is that the upper and lower profit limits of £250,000 and £50,000 are proportionately reduced where there are associated companies. Companies are treated as associated if one company controls another, or if they are controlled by the same person or persons. This can have a significant impact on business owners who operate multiple companies, whether as part of a corporate group or through standalone SPVs.

The upper and lower limits are also proportionately reduced where an accounting period is shorter than 12 months.

Given the higher ongoing rates of corporation tax, companies should regularly review their tax position and consider whether there are opportunities to manage their liabilities efficiently. Areas for consideration may include:

  • Reviewing the timing of taxable profits and deductible expenditure to ensure relief is obtained at the most beneficial rates.
  • Considering whether losses, including R&D losses, are best carried forward to offset future profits taxed at higher rates.
  • Assessing whether the company’s accounting period or year-end remains appropriate, particularly where profits are seasonal.
  • Reviewing group structures and the number of associated companies to understand the impact on corporation tax thresholds.
  • Revisiting profit extraction strategies, including the balance between salary, bonuses and dividends.

Capital allowances

The temporary super-deduction and special rate first year allowance, which applied to qualifying expenditure on plant and machinery, ended on 31 March 2023.

From 1 April 2023, companies investing in qualifying plant and machinery may be able to claim relief under the full expensing regime, which currently applies up to 31 March 2026. Under these rules:

  • Companies can claim a 100% first-year allowance for qualifying new main-rate plant and machinery.
  • A 50% first-year allowance is available for qualifying new special rate assets, such as integral features.

In addition, the Annual Investment Allowance (AIA) remains available and currently allows companies to claim 100% relief on qualifying plant and machinery expenditure up to an annual limit of £1,000,000.

The interaction between full expensing, special rate allowances and the AIA means that careful consideration should be given to the timing and nature of capital expenditure to ensure that relief is maximised.

Rachel Warriner (Associate Director)
T: 0191 256 9500
E: rachel.warriner@r-m-t.co.uk

Anthony Andreasen (Director of Tax)
T: 0191 256 9500
E: anthony.andreasen@r-m-t.co.uk

Richard Humphreys (Director of Tax – Healthcare)
T: 0191 256 9500
E: richard.humphreys@r-m-t.co.uk