At the time of writing this, the current objective is that the corporation tax rates will increase to a potential rate of 25% for limited companies, with this due to come into effect from April 2023. This is up from the current levels of Corporation Tax of 19%. 

The initial proposal of the increase was announced quite some time ago, so we thought it may be useful to share what the original announcement meant and what we understand to still be the case of what is now coming in to legislation: 

• Corporation tax is tax that is payable on limited company profits 
• The rate of 19% will remain for companies that make taxable profits of up to £50k 
• There will be a marginal rate of tax that will be payable on taxable profits for companies between £50k and £250k 
• The marginal rate will be affected if you have associated companies – broadly an associated company is – “a company is an associated company of another company if one of the two has control of the other, or both are under the control of the same person or persons” 
• The rate of tax for companies with profits of greater than £250k will be at 25% 
• This is due to come into effect from April 2023. 
• For accounting periods that straddle the introduction of the new rates a calculation will be performed to calculate the effective rate for those periods. 

Attention naturally now turns to how the affect of this increase can be managed and whilst reducing taxable profits will undoubtedly help with that, the management of how and the subsequent taxes on the extraction of money by a shareholder/director will need to be carefully considered to ensure that a tax win in one pocket, isn’t taken from the other.

We’ll be working with our clients to ensure that the correct balance is achieved whilst managing planning for the impact caused.