The planned increase in April 2023 to the corporation tax rate (from 19% to 25%) for companies making more than £250,000 profit has been cancelled. The rate will remain at 19% for all companies, so the reintroduction of the concept of a main rate and a small profits rate, and the need for marginal relief, has also been done away with. The Growth Plan 2022 states that “this will maintain a competitive business tax regime, which will support investment, innovation and economic growth in the UK”.
The following announcement made by Chancellor Rishi Sunak has been superseded by the Mini Budget announced on 23rd Sep 2022.
Corporation tax rate was due to increase from April 2023 which would have resulted in the return of the small profit rate and main rate of corporation tax.
If the corporation tax rate increase took effect, the applicable corporation tax rates would have been 19% and 25%. Businesses with profits of £50,000 or below would still only have to pay 19% under small profit rate.
As a result of the corporation tax rate increase, the full rate of 25% will be applicable to businesses making profits of over £250,000. Businesses earning profits between £50,000 to £250,000 will be able to claim marginal relief which was long forgotten about a decade ago.
As per the proposal for corporation tax rate increase, new corporation tax rates will be:
|Financial year 2020 to 2021||Financial year 2021 to 2022||Financial year 2022 to 2023||Financial year 2023 to 2024|
|Small profits rate||n/a||n/a||n/a||19%|
What is Marginal Relief
Marginal Relief provides a gradual increase in corporation tax rate between the small profits rate and the main rate.
This applies where the profits of a company for an accounting period exceed a ‘lower limit’ but do not exceed an ‘upper limit’.
Who can claim Marginal Relief due to corporation tax rate increase
Your company or organisation may be able to claim Marginal Relief and pay less corporation tax if its taxable profits before 1 April 2015 are between:
- – £300,000 (the lower limit)
- – £1.5 million (the upper limit)
If your company has one or more associated companies, these limits are divided by the total number of associated companies.
A company is an associated company of another at a given time, if at that time:
- – one of the companies has control of the other
- – both companies are controlled by the same companies or people
For example, if one company owns 3 others, divide the thresholds by 4. The lower limit becomes £75,000 and the upper limit becomes £375,000.
If your accounting period is shorter than 12 months these limits are proportionately reduced. This means that for a 6 month accounting period the lower limit is halved to £37,500 and the upper limit to £187,500.
Definition of Control
Control for this purpose is the definition used for close companies.
A person has control of a company if they exercise, are able to exercise, or are entitled to acquire, direct or indirect control over the company’s affairs.
This includes possession or entitlement to the greater part of the voting power, share capital, distributed income or assets on a winding up of the company.
Corporation tax increase for Group Companies
The lower and upper limits will be proportionately reduced for short accounting periods and 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.
The related 51% group company test at s279F to s269H CTA 2010 will be repealed and replaced by associated company rules.
The thresholds that apply for determining whether a company is chargeable at the small ring fence profits rate at s279E Corporation Tax Act 2010 will be aligned with these limits.
Check how much relief you can claim
Calculate how much relief you may be able to claim by using the Marginal Relief tool.
You should only use this service to calculate marginal relief on corporation tax profits up to 1 April 2015.
You cannot use this tool to calculate Marginal Relief if your company gets its income from oil rights or extraction.
How to claim Marginal Relief
You can either:
- – provide details in your online Company Tax Return (your filing software should work it out for you)
- – amend your Company Tax Return within 12 months of the filing date
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you have any queries on the Corporation tax rate increase or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.