The rate of UK Corporation Tax will change this month. If you’re a company director or CFO, you must understand how the new rates will apply to your business. In this article, we provide a complete overview of the new Corporation Tax rates and how you can calculate what you owe.
What is Corporation Tax?
All UK companies must pay Corporation Tax. The tax is on the profits, which is turnover less costs. Every year companies must submit a Company Tax Return.
Do sole traders and partnerships have to pay Corporation Tax?
No, instead, a sole trader and individual partners must submit a Self-Assessment Form to HMRC, which will then calculate the tax owed.
Is Corporation Tax increasing in 2023?
In 2010, when the Conservative’s came to power, the Corporation Tax rate was 28%. It was slashed to 19% over the years.
However, in 2021, the then Chancellor, Rishi Sunak (now the Prime Minister), declared that companies must pay more tax because they received so much government support during the pandemic.
On becoming Prime Minister, Liz Truss and her Chancellor, Kwasi Kwarteng, announced would indeed stay at 19%. This and other controversial policy changes, such as unfunded tax cuts for high-earners, increased the cost of government borrowing and mortgage interest rates.
Mr Kwarteng was dismissed on 14 October 2022, and Ms Truss stated that Corporation Tax would increase to 25%. This was confirmed in November 2022 by the new Chancellor, Jeremy Hunt and in the Spring Budget.
Even with the rate increase, UK companies will enjoy the lowest rate of Corporation Tax in the G7.
How will Corporation Tax work in 2023?
From April 2023, the UK Corporation Tax rate will increase from 19% to 25%. However, only companies with taxable profits over £250,000 will pay the main rate of 25%.
Those with a taxable profit of £50,000 or less will remain on the 19% rate (referred to as the small profit rate). Companies with taxable profits between the small profit rate and the main rate will benefit from Marginal Relief, allowing businesses to reduce their Corporation Tax rate from the main rate.
How to calculate Corporation Tax?
Marginal Relief provides a gradual increase in the Corporation Tax rate between the small profits rate and the main rate. HMRC has launched a new online service to assist companies in calculating marginal relief for Corporation Tax from 1 April 2023.
Before using the calculator, you will need to have to hand:
- Your organisation’s accounting period starts and ends dates
- Your company’s total taxable profit
- The total of any distributions from non-group, un-associated companies
- Details of any associated companies
Certain companies cannot claim Marginal Relief, notably:
- Non-UK resident companies
- Close investment holding companies
- Companies whose profits (including distributions from unrelated, unassociated companies) go over £250,000
Can I work out my 2023 Corporation Tax manually?
You can calculate your post-April Corporation Tax manually with the following method:
Step 1 – multiply your annual profits by the main 25% rate
Step 2 – subtract your annual profits from £250,000
Step 3 – multiply the total of Step 2 by the marginal rate multiplier (3/200)
Step 4 – subtract the result of Step 3 from Step 1
The final figure is what you will owe in Corporation Tax for the 2023/4 tax year.
How do I pay Corporation Tax online?
You must pay your Corporation Tax nine months and one day after the end of your company's accounting date.
It’s up to you to know the amount of Corporation Tax your company must pay. This figure is taken from your Company Tax Return. To pay your Corporation Tax, log into your HMRC account and choose a payment method. Note that you cannot use your personal credit card to pay Corporation Tax.
Get legal assistance from LawBite
Completing a Company Tax Return and figuring out the new amount of tax your organisation must pay can be complicated, which is why it is imperative to rely on professional advice if you are confused about any aspect of the process.
Our friendly team can assist you with any questions you have regarding paying Corporation Tax. Working with LawBite allows you to relax and focus on your clients and your company, knowing that all the legal aspects of your business have been expertly taken care of.