On the 3 March Budget this year we saw very few tax increases, perhaps unsurprising given we were still in the midst of the second wave of Covid-19. The one increase that did hit the headlines however was to Corporation Tax, with an increase from 19% to 25% from 1 April 2023 for companies with profits over £250,000.
Companies with profits up to £50,000 will see no change and will remain taxable at 19%, while those with profits between £50,000 and £250,000 will pay tax on a sliding scale from 19% to 25% as profits increase.
For companies with profits in this “marginal relief” range, there is a fairly straightforward way to calculate the tax payable. The first £50,000 is taxable at 19%, while any amount between £50,000 and £250,000 will be taxed at a marginal rate of 26.5%.
As an example, a company with £125,000 of pre-tax profit will pay 19% on the first £50,000 plus 26.5% on the remaining £75,000 for a total of £29,375, an overall rate of 23.5%.
The table below shows the effect this has on profits between £50,000 and £250,000.
| Profit | Current rate | Current charge | 2023 rate | 2023 charge | Extra tax | |||
| 50,000 | 19% | 9,500 | 19.00% | 9,500 | – | |||
| 75,000 | 19% | 14,250 | 21.50% | 16,125 | 1,875 | |||
| 100,000 | 19% | 19,000 | 22.75% | 22,750 | 3,750 | |||
| 125,000 | 19% | 23,750 | 23.50% | 29,375 | 5,625 | |||
| 150,000 | 19% | 28,500 | 24.00% | 36,000 | 7,500 | |||
| 175,000 | 19% | 33,250 | 24.36% | 42,625 | 9,375 | |||
| 200,000 | 19% | 38,000 | 24.63% | 49,250 | 11,250 | |||
| 225,000 | 19% | 42,750 | 24.83% | 55,875 | 13,125 | |||
| 250,000 | 19% | 47,500 | 25.00% | 62,500 | 15,000 |
Care does need to be taken if there are multiple companies which are part of a group or are under common control as the profits of all such companies are considered when determining the rate each will pay. A group of 5 companies each with £50,000 of profit (£250,000 total) will pay at the 25% rate, not 19%.
This naturally increases the cost of trading via a limited company compared to a sole trader or partnership, but with two years until implementation, might we see a corresponding increase to personal income taxes?