How to prepare for corporation tax rate hikes coming into play in 2023

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How to prepare for corporation tax rate hikes coming into play in 2023

Given recent political turmoil, frequent changes to proposed tax rates, and a tough economic climate, now is a good time to consider how you can best prepare your company for the anticipated hike in corporation tax rates from April 2023, writes Gary Bugdale, Managing Director of TaxAssist Accountants Farringdon.

What is changing?

Companies currently pay corporation tax at the rate of 19 percent on their taxable profits. However, the main rate is set to increase to 25 percent from April 2023, when profits exceed £250,000.

A new ‘small profits rate’ of corporation tax of 19 percent will apply where profits are £50,000 or less. Companies whose profits range between £50,000 and £250,000 will pay tax at the main rate of 25 percent and this will be reduced by a marginal relief, providing a gradual increase in the effective rate.

The impact of this is that profits in the margin (falling between the upper and lower limits) will pay an effective rate of tax of 26.5 percent.

The thresholds are shared across ‘associated’ companies and groups, so company owners with more than one company should review arrangements well before April 2023.

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What should you do?

It is more important than ever to carry out a review of your company’s tax position.

As well as reviewing any group or associated company issues, there are a number of tax reliefs and tips you could consider as part of your review, including:

Research and development tax credits
If you have developed new or improved products or processes, you should check if you are eligible to make a claim as very valuable tax relief may be available.

Remuneration planning
Several tax traps can be avoided by planning efficient profit extraction using a mix of salary and dividends.

Expenditure timing
Future capital or revenue expenditure should be reviewed to maximise tax savings and cashflow advantages.

Succession and incentives
Company owners could consider offering employees the chance to acquire shares, to help align employee and employer goals.

VAT

Switching to a different VAT scheme could potentially reduce the administrative burden or defer the time when VAT becomes payable. When undertaking a tax review, it is advisable to seek professional advice.

TaxAssist Accountants Farringdon
66 Long Lane, Barbican EC1A 9RQ
taxassist.co.uk/farringdon
020 3941 2011

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