Although the mini-Budget announced by Chancellor Kwasi Kwarteng on 23 September 2022 aimed at dismissing the initial increase in corporation tax, the Autumn Budget 2022 released on 17 November 2022 underpinned its continuity.
The corporation tax rate currently is 19%, irrespective of the company’s profit. However, this will change April 2023 onwards, and not all companies can benefit from the 19% corporation tax rate.
What will the new corporation Tax rates be?
From 1st April 2023, there will be two official corporation tax rates:
The companies will pay taxes as follows:
|
Profits |
Corporation Tax |
|---|---|
|
Up to £50,000 |
19% tax on all of its profits |
|
Between £50,000 and £250,000 |
19% tax on the first £50,00026.5% on the remainder |
|
Greater than £250,000 |
25% tax on all of its profits |
Understanding the change in Corporation Tax rates
A company with profits of £90,000 will pay 19% on the first £50,000 and 26.5% on the final £40,000. The total tax bill will be £20,100 which means the company will have an overall tax rate of 22.33% (£20,100/£90,000).
A company with profits of £150,000 will pay 19% on the first £50,000 and 26.5% on the remaining £100,000. The total tax bill will be £36,000, which means the company will have an overall tax rate of 24% (£36,000/£100,000).
A company with profits of £30,000 (i.e., less than £50,000) will simply pay £5,700 (19%).
A company with profits of £270,000 (i.e., more than £250,000) will simply pay £51,300 (25%).
Some Sample Corporation Tax Bills and Overall Corporation Tax Rates
As described above, from 2023/24, the main rate will be 25%. A small profits rate of 19% will apply to profits up to £50,000. The company will pay 26.5% on the remainder profit between £50,000 and £250,000 and 25% on profits above £250,000.
The following table summarise some corporation tax bills and overall corporation tax rates:
|
Profits |
Corporation Tax |
Rates |
|---|---|---|
|
£50,000 |
£9,500 |
19.00% |
|
£100,000 |
£22,750 |
22.75% |
|
£150,000 |
£36,000 |
24.00% |
|
£200,000 |
£49,260 |
24.63% |
|
£250,000 |
£62,500 |
25.00% |
Difference in Financial and Accounting Year
A company’s accounting year can be January to December, April to March or July to June.
However, the new corporation tax will be applicable to the company as early as from May 2022.
So, how will the tax rate be computed?
Let’s understand this with an example given below.
For example,
A company has a profit of £150,000. The accounting period of the company is from January 2023 to 31 December 2023.
The corporation tax would be levied as follow:
- 90 days to 31 March 2023 – 19%
- 275 days to 31 December 2023 – 24% (as mentioned in the above table)
The effective tax rate in this instance would be 22.77% as computed as 90/275 of 24% and 90/275 of 24%.
Please note that the number of days on the accounting period ending after February 2024 would be slightly different due to leap year.
Will the corporation tax rates be same for Non-Resident Companies?
Non- resident companies will not have the same benefit of the 19% small profits rate. Only companies that are UK residents will be able to benefit from it.
For example, a non-resident company that earns rental income from UK properties will have to pay 25% corporation tax on all of its UK rental profits. Even if the company has profit of £40,000 (less than £50,000), it will still pay at 25%.
