With effect from 1 April 2023 the main rate of Corporation Tax is due to increase from the current 19% to 25%. Whilst this will not affect many companies until next year, the increase in the rate will start to impact certain companies with a post 31 March 2023 year end much sooner. Companies who are required to pay their corporation tax in quarterly instalments will need to ensure they take into account the rise in Corporation Tax when calculating the quarterly instalment they will start making during 2022 for their 2023 year end.
The Government announced as part of the Spring Budget 2021 that the Corporation Tax main rate would increase from 19% to 25% for companies with profits over £250,000, together with the introduction of a small profits rate of 19% with effect from 1 April 2023. The small profits rate will apply to companies with profits of not more than £50,000, with marginal relief available for profits up to £250,000. Where a company has an accounting year end straddling 31 March 2023, at least part of the profits will be subject to the increased rates as the calculation is broadly carried out on a pro rata basis. This will obviously impact any budgeting or cash flow forecasts that a company produces.
All companies therefore with an accounting year starting after 1 April 2022 should consider the future increase in their tax liability.
It is important to note that the limits at which a company will pay the new corporation tax rates are divided by the number of other companies it is ‘associated’ with, where broadly ‘associated’ is any company under common control. This is an extension to the 51% related companies rule which currently applies for the quarterly instalment regime and may therefore see more companies brought into quarterly payments going forward.
Where a company is required to make quarterly instalments under either the large company or very large company rules, if it has a year ending after 31 March 2023, it will need to consider the new corporation tax rates this year when calculating the quarterly tax payment to be made. For example, a company with a year end of 30 April 2023, will need to consider the corporation tax rate change from the first quarterly instalment due 14 November 2022, or the earlier date of 14 July 2022 if they are classed as a very large company.
If you have any questions regarding the increase in the corporation tax rate, how this may impact your quarterly instalment payments or if your company may need to start making quarterly instalments for the first time, please contact our Tax Director, Jenny Marks.
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