Planning ahead for upcoming company tax changes

Corporation tax rates

As covered in our Spring Budget 2021 update last year, the rate of UK corporation tax will be increasing to 25% from 1 April 2023 for companies with taxable profits above £250,000 (although this threshold will be proportionately reduced for short accounting periods and where there are associated companies). 

Companies with taxable profits below £50,000 will continue to be liable to corporation tax at the current rate of 19%. And for companies with taxable profits between £50,000 and £250,000 there will be a return to the marginal rate relief mechanism, like that in place prior to 1 April 2015.

While the changes to corporation tax rates will not apply until 1 April 2023, companies with accounting periods that straddle that date will be liable to an increased time apportioned tax rate on their profits for this straddling period (unless time apportionment produces a result that is not just and reasonable).

Although unavoidable for ongoing trading profits, for profits arising on one off transactions, such as chargeable gains, it would be beneficial to bring forward such transactions, where possible, so that they are liable to the current 19% corporation tax rate. 

For example, a company with a 30 September year-end, that makes a chargeable gain of £2 million by 30 September 2022 will be liable to corporation tax of £380,000 (£2 million x 19%). If the same company instead makes the gain on 1 October 2022, it would be liable to corporation tax at a time apportioned rate of 22% (assuming this produces a result that is just and reasonable), so would have to pay £440,000 of tax (£2 million x 22%). To avoid this, the company could instead look to shorten its accounting period.