corporation tax changes for the 2023–2024 tax year
You may have recently heard that UK Corporation Tax Rates have increased this new tax year.
Former chancellor Kwasi Kwarteng announced last year that he was cancelling a planned increase in the Corporation Tax and would instead be reducing the rate. This change was quickly reversed, as were many others that were stated in the mini-Budget. The previously announced increase was implemented at the start of the 2023–2024 tax year with Rishi Sunak as prime minister. Therefore, it is important for business owners to understand how the new rates could have an impact on your profit margins and long-term goals, if all all.
So how do the changes affect companies then?
Corporation tax increases for some companies to 25%
Although the Corporation Tax has increased for the tax year 2023–2024, not all businesses will be impacted. Profits actually determine the rate of corporation tax that a business will pay.
The Corporation Tax rates for 2023–2024 are:
- 19% for small enterprises making less than £50,000 in revenue
- 25% for companies with revenues over £250,000
- A tapering rate will apply to businesses with profits between £50,000 and £250,000.
After deducting salaries and other company expenses, you determine the profits that limited corporations must pay Corporation Tax on. And if you use dividends to supplement your income, you should be aware that Corporation Tax is determined prior to the deduction of dividends. Because your tax liability may be impacted by how you take your income, it is important to look at this in further detail.
The new Corporation Tax rate may result in certain businesses paying much more tax in 2023–24 than they did in prior years. For example, a business with £300,000 in profits in the tax year 2022–2023 would have paid £57,000 in corporation tax. Their expense would increase to £75,000 during 2023–2024.
Despite the new 25% rate, the government claims it is the lowest amongst the G7. The rise is predicted to increase Treasury coffers by almost £18 billion annually.
4 effective WAYS for businesses to lower their Corporation Tax liability
The increase in corporation tax makes now the ideal moment to examine your company’s finances and determine whether you’re functioning as efficiently as possible. There might be actions you can take to perhaps lessen the amount of tax a business pays for this tax year.
1. Claim all business expenses
Allowable expenses are deductible from your Corporation Tax bill. This includes all of your company’s operating expenses, including paying personnel and acquiring raw materials.
Therefore, checking your finances and documents to make sure nothing is missing could help you pay less in corporation tax. Possibly seemingly insignificant costs can add up to lower your bill or possibly result in a cheaper interest rate.
Businesses may occasionally decide to spend more in certain areas so they can deduct these expenses from their Corporation Tax bill. For instance, you could provide employee training programmes to develop your own talent whilst doing so in a tax-efficient manner (since business owners could claim this as a business expense).
2. Increase pension contributions
Pension contributions fall under the category of permissible company expenses. As a result, you can deduct pension payments from business income before determining your Corporation Tax liability.
Increasing pension payments could aid in retaining employees and luring in fresh talent if you have employees.
3. Make a capital allowance claim
With regards to capital allowances, you may be allowed to deduct some or all of the value of any assets you purchase and hold for use in your business, such as equipment or commercial cars, from your profits before paying taxes.
If an item qualifies for more than one type of capital allowance—there are several—you can choose which one to utilise. Therefore, it’s crucial to know what your options are and which ones would be best for you. Please get in touch with us if you have any enquiries.
4. Request tax relief for research and development
The UK government is encouraging businesses to participate in research and development (R&D) and is offering considerable tax reliefs to those who do so.
To qualify or claim R&D tax relief, the work must be a part of a specified project to advance science or technology. You may be able to claim a tax credit of up to 33% on your R&D expenses if your project is eligible.
QUESTIONS?
Our advisers would be happy to help you with all your corporation tax matters. Book your FREE initial consultation today to get your questions answered.
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