Corporation Tax 2023 – what you need to know

The 25% corporation tax rate applies from 1 April 2023 for companies with taxable profits of more than £250,000. 

 

If your business has profits of less than £50,000 you will continue to pay the 19% rate, as now. If your profits are between £50,000 and £250,000 you will receive marginal relief on the 25% rate, which effectively creates a sliding scale between 19% and 25%. 

 

In summary, the effective Corporation Tax (ECT) rate at different profit levels will be: 

Since dividends are paid on profits after tax this could have a significant impact on shareholders and Directors who take part of their remuneration as dividends. 

 

If your accounting period ended soon after April 2023 you will pay a part of the new Corporation Tax rate on a ‘just and reasonable basis’. 

 

If you have a number of active associated companies your taxable profit limits will be divided equally between them. 

 

If your accounting period starts on or after 1 April 2023 new associated company rules will apply which are more complicated. 

 

Large companies pay corporation tax in four equal instalments, on the fourteenth day of the seventh, tenth, thirteenth and sixteenth months following the start of their accounting period. This arrangement is known as quarterly instalments payments (QIPs). A company is regarded as ‘large’ if taxable profits are over £1.5million and QIPs will be affected by the new associated company rules. For growing companies, QIPs will only apply in the second consecutive year the company qualifies as large. 

 

In 2021 a temporary extension to the loss carry back rules was introduced for losses in accounting periods between 1 April 2020 and 31 March 2022. These losses can be carried back but can also be carried forward to provide relief up to a maximum of 26.5% where profits are in the marginal Corporation Tax band of £50,000 to £250,000. 

 

The super deduction capital allowance was introduced in 2021 to allow companies to claim 130% first-year relief on certain qualifying assets and 50% on some special rate assets. This could allow you to reduce your Corporation Tax bill by up to 25p for every £1 of qualifying capital investment. 

 

The Annual Investment Allowance (AIA) stayed at £1 million from 1 April 2023. 

 

From 1 April 2023 there were some changes to research and development (R&D) tax relief to include qualifying expenditure on data and cloud computing and some R&D costs incurred outside the UK. To prevent exploitation of R&D tax relief some targeted anti-avoidance measures were introduced.