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Corporation Tax Rate Increase in 2023

In April 2023 corporation tax rate increase from 19% to 25% will result in the return of the small profit rate and main rate of corporation tax.

Once the corporation tax rate increase takes effect, the applicable corporation tax rates will be 19% and 25%. Businesses with profits of £50,000 or below would still only have to pay 19% under small profit rate.

As a result of the corporation tax rate increase, the full rate of 25% will be applicable to businesses making profits of over £250,000. Businesses earning profits between £50,000 to £250,000 will be able to claim marginal relief which was long forgotten about a decade ago.

Marginal Relief

Marginal Relief provides a gradual increase in corporation tax rate between the small profits rate and the main rate.

This applies where the profits of a company for an accounting period exceed a ‘lower limit’ but do not exceed an ‘upper limit’.

Who can claim Marginal Relief due to corporation tax rate increase

Your company or organisation may be able to claim Marginal Relief and pay less corporation tax if its taxable profits before 1 April 2015 are between:

• – £300,000 (the lower limit)
• – £1.5 million (the upper limit)

If your company has one or more associated companies, these limits are divided by the total number of associated companies.

A company is an associated company of another at a given time, if at that time:

• – one of the companies has control of the other
• – both companies are controlled by the same companies or people

If your accounting period is shorter than 12 months these limits are proportionately reduced. This means that for a 6-month accounting period the lower limit is halved to £37,500 and the upper limit to £187,500.

Definition of Control

Control for this purpose is the definition used for close companies.

A person has control of a company if they exercise, are able to exercise, or are entitled to acquire, direct or indirect control over the company’s affairs.

This includes possession or entitlement to the greater part of the voting power, share capital, distributed income or assets on a winding up of the company.

Corporation tax increase for Group Companies

The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies. A company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:

• – one company has control of the other
• – both companies are under the control of the same person or group of persons.

The thresholds that apply for determining whether a company is chargeable at the small ring fence profits rate at s279E Corporation Tax Act 2010 will be aligned with these limits.

Check how much relief you can claim

Calculate how much relief you may be able to claim by using the Marginal Relief tool (HMRC.gov.uk).

You should only use this service to calculate marginal relief on corporation tax profits up to 1 April 2015.

You cannot use this tool to calculate Marginal Relief if your company gets its income from oil rights or extraction.

How to claim Marginal Relief

You can either:

• – provide details in your online Company Tax Return (your filing software should work it out for you)
• – amend your Company Tax Return within 12 months of the filing date.

If you need further help or have any questions, do not hesitate to contact us - we offer professional and affordable accounting services.

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