Generally, Corporation Tax rates have been falling for many years.

The main Corporation Tax rate was over 50% in the 1970s, before reduction to the mid 30% during the 1980s, before falling further to 30% in the early 2000 and down to 20% in 2015 before reducing to 19%.

Initially announced in 2021 (before being reversed by Kwasi Kwarteng in September 2022, then being reinstated on 14 October 2022), the increase in the main Corporation Tax rate from 19% to 25% will take place from April 2023. This will apply to companies with taxable profits over £250,000.

The small companies’ rate will continue at 19% for companies with profits up to £50,000.

Profits between £50,000 and £250,000 will be subject to a tapered rate, producing an effective marginal Corporation Tax rate of 26.5%.

The government hopes that the increase to the rates will produce increased tax revenues.

For smaller companies, the increase in Corporation Tax rates will impact on their retained profits and they will need to consider their reward structure to ensure taxation liabilities are minimised.

Whereby, historically, dividends may have provided the greatest tax savings, alternative payments on which Corporation Tax relief is gained may now offer better alternatives, especially where the company’s profits fall between £50,000 and £250,000 with the resultant higher marginal taxation rate of 26.5% being paid.

This could include:

  • Increasing salary levels
  • Making pension contributions
  • Paying interest on loan account balances.
  • Paying rent for the use of premises.

If you would like to discuss any of the issues raised in this article, please get in touch.

The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

Lambert Chapman Chartered Accountants

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