How does the 2023 Corporation Tax changes affect your business?
The way Corporation Tax works in the UK has seen a significant change starting from 1 April 2023. Until recently, all companies paid a flat Corporation Tax rate of 19% on their taxable profits. This rate didn't vary with the amount of profit a company made or how many companies were part of a group under common ownership.
However, from April 2023, the rules change. Now, how much Corporation Tax your company pays depends on two main factors: how much profit your company makes and whether your company is part of a group with associated companies.
Here's the lowdown on the new rates:
If your company makes profits of up to £50,000 and isn't part of a group with associated companies, your Corporation Tax rate remains at 19%.
Companies that make more than £250,000 in profits and are not part of a group with associated companies will see their Corporation Tax rate increase to 25%.
For companies earning between £50,000 and £250,000 in profits, the Corporation Tax rate will vary between 19% and 25%, depending on the exact amount of profit.
When it comes to companies within a group, these profit thresholds get a bit more complex. They are adjusted based on the number of associated companies within the group. Essentially, the more companies there are in your group, the lower the profit thresholds become for determining your Corporation Tax rate.
But what exactly makes a company an ‘associated’ one? In essence, a company is considered associated with another if one has control over the other, or if both are under the control of the same person or people. Control is usually determined by ownership of more than half of the voting rights. However, dormant companies and holding companies that only handle equivalent dividends in and out each year are not counted as associated companies.
This change aims to tailor the tax system more closely to a company's profitability and its business structure, potentially affecting how businesses plan and manage their tax liabilities.