After a slew of uncertainties, policy shifts and government updates, the corporation tax change has happened – since April 1st, the main tax rate is now 25%.
All companies must pay corporation tax on the profits they generate – if you’re not an incorporated company (like a sole trader) you’ll pay tax through self assessment.
Here’s all you need to know about the latest corporation tax changes.
Explaining the new rates
Back in 2021, the Government announced a corporation tax rate increase for companies with a turnover of £250,000 or more, rising from 19% to 25%.
Smaller companies with a turnover of £50,000 or less still pay the original 19% corporation tax rate, now known as the small profits rate.
If you’re between the thresholds, you’ll pay the main corporation tax rate but with a reduced marginal relief – providing a gradual increase in corporation tax rate.
Corporation tax relief
Your company may be able to claim marginal relief if its profits fall between £50,000 and £250,000.
If you have multiple companies or your accounting period is shorter than 12 months, HMRC will reduce your rate proportionately.
You can’t claim the relief if you:
- run a non-UK resident company
- run a close investment holding company
- have a profit (including those of related companies) of over £250,000.
If you own a company that makes any profits from oil extraction or oil rights – known as a ring-fenced company – you can claim marginal relief on profits between £300,000 and £1.5 million for accounting periods up to 31 March 2023.
How to lower your bill
As you’re likely to start paying more corporation tax once April comes around, it’s worth looking into how to lower your tax bill.
By planning throughout the year, you’ll likely find ways to reclaim expenses you’ve incurred throughout the year – just make sure they’re wholly and exclusively for business purposes.
Example expenses include:
- travel costs
- staff salaries
- pension contributions
- bills for your business premises
- advertising and marketing
The Government will also allow you to claim capital allowances for certain things you’ve bought to run your business – machinery, company cars or equipment, for example.
A 130% super-deduction capital allowance was available on qualifying plant and machinery investments from 1st April 2021 until 31 March 2023.
Any purchases made now won’t be eligible, but you can claim if they were made during this window.
A new full expensing plan has come in to replace the super deduction. This gives you 100% first-year relief on qualifying new main-rate plant and machinery investments.
Plant and machinery are equipment like computers, office furniture, tools, machinery, etc., i.e. items you use in your business.
Similarly, the annual investment allowance (AIA) lets you write off the cost of main and special rate expenditures in the same year you purchased. However, you can only claim £1 million per year with the AIA..
Get in touch with us
Staying on top of corporation tax is a lot of effort – it pays to have a professional by your side, who can help you get the reliefs you need,
We’re here to help you with your corporation tax. Get in contact and set up a meeting with us.