From 1st April 2023, major changes in Corporation Tax have taken effect. If you're running a business, it's important to understand how these updates impact your tax bill.

While the small profits rate of 19% remains for profits up to £50,000, anything over that sees significant changes. Profits above £250,000 are now taxed at the main rate of 25%. For profits between £50,001 and £250,000, a system of Marginal Relief applies, meaning you could face an effective tax rate of 26.5%.

But there’s more to consider: if you have associated companies, these thresholds shrink, potentially increasing your tax bill. Short accounting periods also affect how these thresholds are applied, so careful tax planning is essential.

If your business year straddles the old and new tax rates, you’ll need to apply different rates to different parts of the year. For example, a financial year ending on 31 December 2023 would see two rates applied – 19% for the first 90 days (up to 31 March 2023) and the new rates for the remaining 275 days.

Associated Companies and Reduced Thresholds

If you own or control more than one company, these businesses may be deemed associated. This means the profit thresholds for each company are reduced, potentially pushing your profits into higher tax bands.

Don’t Forget About Reliefs and Deductions

You can still reduce your Corporation Tax bill through allowances and reliefs, like deductions for capital investments or claiming tax credits.

Now is the time to review your tax strategy! At Carthy Accountants, you’ll get expert advice tailored to your business. Don’t let these changes catch you off guard. Get in touch today to ensure you're optimising your Corporation Tax liabilities and get the business you want.