Corporation tax changes in 2023 and how to prepare for the changes if you run a limited company

The government announced that the corporation tax will increase from 19% to 25% from April 2023 as already legislated for. Although the growth plan statement on 23rd September proposed to cancel the changes, it was announced on 14th Oct that the original plan to increase the corporation tax will go ahead.

What are the changes?

The tax rate will increase to 25% for companies making a profit of £250 000 or more.Corporation tax will be paid at 19% for companies making a profit upto £50 000. Companies with profits between £50 000 and £250 000 will pay tax at the main rate reduced by a marginal relief.

How does it affect the associated companies?

The upper and the lower limits are reduced in case of the associated companies. This is because in the associated companies the profits are equally divided among the companies.

What is an Associated company?

According to HMRC a company is associated(no matter where it is resident for tax purposes) if :

• One company has the control of the other
• Two companies are under one control

How should I be prepared ?

Make sure you are utilizing your AIA(annual investment allowance)

You can deduct the full value of an item that qualifies for AIA from your profits before tax.

There is also an AIA extension which is going to affect the businesses investing more than £200 000 in plant and Machinery from Jan 2022.This extension is for the investments from Jan 2022 till March 2023. The AIA amount has temporarily increased to £1million between 1 Jan 2019 and 31 March 2023.The companies can claim 130% in the first year relief on the main pool qualifying asset and 50% in the first year on the special rate pool .

Make sure you are using all kinds of reliefs

When you are making your accounts you should make sure that you are saving costs by utilizing reliefs available to your business. There are different reliefs that apply to different businesses and in different situations. You can talk to your accountant to make sure you are saving as much costs as you can,

Be clear on your group structure

If you own more than one company you should be very clear about the control issue. Make sure you understand if your company is associated or not in order to use the right tax rates to your profits and avoid any penalties.

Maximize your profits

With the rising costs it’s important that you focus on maximizing your profits. You can do this by better advertisement on social media, introducing more innovative products etc.

Need help ?If you are looking for an accountant you can help you with your corporation tax, your group structures, tax returns contact your accountants in croydon, Taxaccolega and our team of accountants will be happy to help you.