Upcoming corporation tax changes

It was announced at Budget 2021 that from 1 April 2023 different rates of corporation tax will apply depending on the level of taxable profits of a company and number of ‘associated’ companies.  This is very similar to the corporate tax rules which applied prior to 1 April 2015.

In summary, from 1 April 2023 the following corporation tax rates will apply:

• for companies with profits of £50,000 (lower limit) or less, a rate of 19% will apply.
• for companies with profits between £50,001 and £250,000, the main rate of 25% will apply but marginal relief will be available.
• for companies with profits over £250,000 (upper limit), the main rate of 25% will apply.

For example, if a standalone company has profits of £500,000 it will pay corporation tax on its entire taxable profits at the main rate of tax of 25% (an increase of 6%).  Therefore many companies will be facing a significantly higher corporation tax liability under these new rules.

One key point to note is that the upper and lower limits of £250,000 and £50,000 will be proportionately reduced where there are associated companies.  Companies will be associated if one controls the other or if the companies are controlled by the same person or persons. .  This change will therefore have a significant impact on the corporation tax liabilities of many business owners who own a number of companies in either a corporate group or standalone SPVs for example.

The upper and lower limits will also be proportionately reduced where the accounting period is less than 12 months.

Urgent consideration should now be given as to ways in which companies can mitigate these tax rate increases which will take effect from 1 April 2023.  Examples of planning could be:

• Where profits are likely to exceed the lower profit limit of £50,000 it may be worthwhile establishing whether profits can be legitimately accelerated so that they are chargeable before the rate of tax increases.
• It may be sensible to delay any tax deductible expenditure so that the company obtains corporation tax relief at the higher rates in the future.
• If the company incurs a trade loss in a period before 1 April 2023 it may be beneficial to carry these losses forwards (rather than carry them back) and set them against future profits which may be subject to corporation tax at a higher rate.  This includes any R&D loss relief claims.
• Consider whether changing the company’s year-end could be beneficial.  This may be relevant where the profits are seasonal.
• Careful thought should also be given to any potential restructuring which may reduce the number of associated companies.
• A review of the current profit extraction strategies will also be relevant to some clients who currently withdraw profits by way of dividends.

Changes to capital allowances

The super-deduction and special rate first year allowance temporarily increased reliefs for companies on qualifying expenditure on plant or machinery from 1 April 2021 to 31 March 2023.  The additional reliefs are split into two types:

• a super-deduction of 130% allowances on new plant or machinery that is not special rate expenditure.  For example, office equipment, computers, vans etc.
• a first year allowance of 50% on new plant or machinery that qualifies as special rate expenditure e.g. integral features, solar panels.

As these reliefs are being withdrawn from 1 April 2023 consideration should be given as to the timing of any planned capital expenditure.  It may be beneficial to bring forward any planned qualifying expenditure to take advantage of these additional reliefs before they come to an end.  It should also be noted that the Annual Investment Allowance (AIA) currently enables companies to claim 100% relief on most plant and equipment up to a value of £1,000,000 and companies will still be able to claim under the AIA once the super deduction has been withdrawn.

If you have any questions or queries on how these changes may affect you and your options, then please contact a member of your team, Rachel Warriner, Anthony Andreasen or Richard Humphreys, for further advice.

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.humpheys@r-m-t.co.uk