Updated 11 December 2022

From 1 April 2023 corporation tax rate will rise to 25%. However, the new full rate of 25% is only applicable for companies making profits of over £250,000. Companies with profits of £50,000 or below will pay the small profit rate of 19%.

Companies will pay a marginal rate of corporation tax of 26.5% on profits between £50,000 and £250,000. Marginal rates of corporation tax are nothing new, however they are something we saw the end of nearly eight years ago.

When the new rules are introduced, a company with £100,000 of taxable profit will pay the following rates of corporation tax:

1st £50,000 @ 19% – £9,500

2nd £50,000 @ 26.5% – £13,250

Total corporation tax – £22,750 (22.75%)

Group company traps

The limits of £50,000 and £250,000 will be reduced where there are associated companies.

A company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:

• one company has control of the other
• both companies are under the control of the same person or group of persons.

Example

If a group includes four companies, each company within that group would pay the following corporation tax rates:

Taxable profits <£12,500

19% (£50,000/4)

Taxable profits £12,501

£62,500 – 26.5%

Taxable profits above £62,500

25% (£250,000/4)

The rates above will apply for each active company.

Therefore in group company situations, care and planning will be needed where profits per company will be taxed at different rates.

Super-deduction capital allowance

For the period 1 April 2021 – 31 March 2023, limited companies can claim a 130% super-deduction capital allowance on qualifying plant and machinery investments. There is no cap on the level of investment which qualifies for the 130% rate.

The super-deduction also covers property investors for allowances on plant and machinery within leased properties. Note the super-deduction capital allowance will end on 31 March 2023.

ANNUAL INVESTMENT ALLOWANCE

The current £1 million level of the annual investment allowance has been made permanent following Chancellor Jeremy Hunt’s Autumn Statement in November 2022.

R&D tax credit repayments capped

Research and development (R&D) tax credit repayments for SMEs have been capped for accounting periods after March 2021. The cap limits the payable R&D credit to £20,000 plus 300% of an SME’s total PAYE and NIC liability.

The cap does not apply to those companies which have employees creating or managing intellectual property and which don’t spend more than 15% of their qualifying R&D expenditure on outsourcing the relevant R&D work to connected parties.

For R&D expenditure after 31 March 2023:

• the R&D expenditure credit rate will increase from 13% to 20%;
• the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%; and
• the SME credit rate will decrease from 14.5% to 10%.

Qualifying expenditure will be expanded to include data and cloud costs and support will be focused on innovation in the UK. Note that the government plans to consult on the design of a single R&D tax relief scheme for all businesses. See Changes on the horizon for Research & Development Tax Relief.

Buildings and land reliefs can reduce your tax liability

Claiming for reliefs and allowances can cut corporation tax bills for qualifying businesses.

One such allowance which applies to all businesses is the structures and buildings allowance (SBA), which covers expenditure on or after 29 October 2018 on the purchase or improvement of business premises.

A successful claim will give an annual allowance of 3% of the qualifying expenditure. This can then be used to reduce the annual taxable profit figure of the business by that sum for up to 50 years.

Premises must be taxable in the UK and used for a qualifying activity. Construction costs which count as qualifying expenditure for the SBA include:

• fees for design
• preparing the site for construction
• construction works
• renovation, repair and conversion costs
• fitting out works.

You can find out more here on the Shipleys website.

Land remediation relief

Businesses planning to reduce their environmental impact can take advantage of several helpful government initiatives.

One of these is land remediation relief. If a property development project involves cleaning up contaminated land, up to 150% tax relief is available on the cost. If the development project makes a loss, a 24% cash repayment for the land remediation cost can be claimed.

Can we help?

For more on the new corporation tax rate rise and what they mean for your business, as well as reliefs currently available please talk with your usual Shipleys contact or get in touch with one of our specialists shown on this page.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary.

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