As another tax year came to an end, accountants everywhere took a huge sigh of relief. Being the busiest period of the year, firms like us were looking at their clients’ accounts trying to find ways to reduce their corporation tax bill. After all, we would rather the money stayed in your pocket instead of the government’s! But next year, it might not be so easy. Rishi Sunak’s announcement on March 23rd 2022 highlighted that corporation tax was due an overhaul has come true and in 2023, a few things will be changing.
The new standard rate
The thing that has most business owners concerned is the rise in standard rate corporation tax. As of April 2023, the main rate will be 25%. That is a 6% jump from the previous rate and has many business owners worrying about how they will manage the gap. Fortunately, this change will not affect everyone. The increase has been designed to only impact the UK’s largest companies, those with profits above £250,000, ensuring they are paying a higher rate of corporation tax than ever before. According to Sunak, this change will only affect 1 in 3 businesses in the UK. The reason for the increase is apparently to recoup some of the £355 billion deficit caused by Covid-19.
New ‘small profits’ threshold
Before you panic about how you will afford the 6% tax rate increase, there is some good news. The current main rate of 19% isn’t going away for good – it’s just being rebranded. From April 2023 it will be known as the ‘Small Profits’ rate and will apply to any and all company profits up to £50,000. So, if your company profits are below £50,000, nothing should change for you. Sunak said the reason for this move is to ‘protect small businesses’ and ensure only companies with bigger profits pay the higher tax rate.
The corporation tax taper
Another big change in the world of corporation tax is the revival of the corporation tax taper. This taper was abolished in 2015 but with the 2 new rates, the system has been brought back and modernised. Essentially, it provides a tapered rate of tax relief for companies with profits between the standard rate and the small profits rate for corporation tax. So, if your business declared profits of between £50,000 and £250,000 you will be charged the main rate of corporation tax however, depending on where on the scale your profits fall, a relief rate will be applied to reduce that. The current plans for exactly how this will work are still being finalised.
Don’t miss out on super deductions
One thing we would like to remind you of is the super deductions system, which will be ending in April 2023. This system was brought in as one of the Covid-19 recovery measures, it allows businesses to substantially reduce their corporation tax bill by investing in qualifying assets, thanks to the 130% first-year capital allowance. This can be plant machinery, equipment, or any number of other assets, but each purchase cuts your corporation tax bill by 25p for every £1 you spend. If you run a limited company, you should also take advantage of the 50% first-year allowance for investing in any special-rate qualifying assets. So, if you’ve been debating investing in equipment, then now is the time to do it!
If you have been struggling to understand the changes or the impact they will have on your business, then we would love to speak to you. At Purple Lime, we work with businesses of all shapes and sizes to not only understand the impact of tax changes but plan a strategy that allows them to take advantage of the rules to benefit their business without any stress. If you would like to know more, please get in touch by emailing hello@purplelime.uk.com, or calling us on 01249 263 333.