How to manage and minimise your bill for the 2023 rise in Corporation Tax

Next April will see a rise in the new top rate of Corporation Tax, which will increase to 25 per cent.

From 1 April 2023, the rate at which companies pay corporation tax will depend on the level of their profits. The Government has described the change as a tapered system so that only the most profitable businesses will be hit harder.

The key to making sure you pay no more Corporation Tax than you have to is to claim every allowable deduction and expense to give an accurate picture of your profits and that is where your accountant has expert knowledge.

What happens in 2023?

Some firms will be unaffected, and those recording profits of £50,000 or less (the lower-profits limit), will continue to pay at the current 19 per.

Businesses with profits between £50,000 and £250,000 (the upper-profits limit) will technically pay the main higher rate of 25 per cent. However, they will receive marginal relief related to their level of profitability – cutting their tax bill.

As a result, the rate at which these businesses pay tax increases as profits rise until a company reaches profits of £250,000 or more and no longer benefits from this relief.

How can businesses manage and minimise the increase?

Accelerate profits – If possible, where profits exceed the lower profits limit, accelerate profits so that they are taxable in the financial year 2021 or the financial year 2022, rather than after 1 April 2023.

Carrying forward losses – This means losses are relieved at a maximum of 26.5 per cent rather than the current rate of 19 per cent, depending on your circumstances and rate of marginal relief.

Time selling an asset – If you are considering selling an asset you could bring the disposal forward to the current tax year so that the gain is taxed at 19 per cent rather than higher rates in 2023/24.

Carefully plan spending – If you are looking to spend and invest in your business it may make sense to wait until the new tax year, as this could reduce your level of taxable profits and, therefore, increase the amount of marginal relief that you enjoy under the new tax system.

This decision must be weighed carefully against the current Capital Allowance schemes, such as the super-deduction, which end before the beginning of the new tax year.

For an initial consultation with our experienced tax team ahead of the increase to Corporation Tax, please contact our expert team today.