Budget 2021 – Corporation Tax Rate Increases

In the Budget, a significant increase in Corporation Tax rates was announced. The current rate of 19% will remain in place until 31 March 2023, and then from 1 April 2023 the rate will increase to 25%.

This higher rate will apply to companies with taxable profits over £250,000, but companies with profits up to £50,000 will still pay the lower rate of 19%. For companies with profits between £50,000 and £250,000 a tapering calculation will be required, but they will effectively pay a marginal rate of 26.5% on profits between £50,000 and £250,000.

Some additional factors also need to be considered when looking at these limits:

• If a company has a short accounting period, then these limits will be proportionately reduced. For example, a company with a 6 month accounting period would have revised limits of £25,000 (instead of £50,000) and £125,000 (instead of £250,000).
• Where the company has any associated companies or related 51% group companies the £50,000 and £250,000 limits will be divided by the total number of group/associated companies. For example, if a company has four associated companies (there being five companies in total) the limits would be reduced to £10,000 and £50,000.

In advance of these significant tax increases, business owners should consider whether steps can be taken to mitigate the impact, including:

• Reviewing utilisation of tax losses and the benefits of carrying these forward.
• Reviewing whether profits can be realised prior to the increase in rate.
• Reviewing their group structure to ensure the limits are not reduced by unnecessary companies.

As always, our EQ Taxperts would be happy to discuss your circumstances and offer our advice and support to prepare for these changes. Get in touch by calling one of our offices or email [email protected].

If you want to read more about the announcements made in the Budget then you can download our Budget Summary here.