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There are continued calls from some of Britain’s most influential business figures to scrap the increase in corporation tax planned for 2023. The increase was announced in the 2021 Budget in an effort to plug the deficit brought about by the Covid pandemic. The anticipated increase from 19% to 25% continues to split Parliament. The Prime Minister is being backed by senior Tories to oppose the planned hike for businesses. Furthermore, former Chancellor Gordon Brown has predicted Boris Johnson will abandon the plan in the autumn.

What is Corporation Tax?

Corporation tax is currently charged at 19% and applies to companies, irrelevant of their size. The tax is paid by UK Limited Companies and some other organisations. The amount of tax paid is based on the profits the company makes. The tax applies to the following for a limited company: –

  • Investments
  • Trading profit for the year
  • The sale of assets for a chargeable gain. These include the likes of property, shares and machinery

The current tax rate in Britain is 19% of all business profits. This is despite a previous pledge by the government of reducing it to 17% from April 2020.

Who Pays Corporation Tax?

Sole traders and partnerships don’t pay corporation tax. These entities are required to complete a tax return and will pay income tax on their earnings.

As mentioned, all UK limited companies will need to pay the tax. Additional companies will also need to pay, despite not being incorporated as a limited company. These include Co-Operatives, Clubs & Societies, Housing Associations and Membership Organisations.

What are the Corporation Tax Changes from 2023?

As part of their Budget in 2021, the government announced a much-disputed hike in the level of tax to be paid by companies. The increase from 1st April 2023 brings to an end the 19% currently charged. It will be replaced by variable rates ranging from 19% to 25%. The variable rates are defined in three bands: – Upper Limit with profits greater than £250,000, Marginal Rate of profits between £50,000 and £250,000 and Lower Limit with profits less than £50,000. The following tax rates will apply for each band: –

Upper Limit – Profits >£250,000

2021/2022 – 19%

2022/2023 – 19%

2023/2024 – 25%

Marginal Rate – Profits £50,000 – £250,000

2021/2022 – 19%

2022/2023 – 19%

2023/2024 – 26.5%

Lower Limit Profits < £50,000

2021/2022 – 19%

2022/2023 – 19%

2023/2024 – 19%

What Next?

Senior figures continue to oppose the plans, as do Tory donors. Sir Rocco Forte, regular donor to the Tory party has warned he will not be able to continue Boris Johnson without action to cut taxes. He warns the tax hike will have clear and damaging implications for the UK economy. In particular, international investors will no longer see Britain as an attractive place to invest or do business.

Whilst there is of course a balancing argument of the need to raise taxes post-Covid to plug the huge deficits, the debate continues whether the increase in corporation tax is right at this time. Debates will continue in Parliament and a further decision is likely in the Autumn 2022 Budget.

If you would like advice on your tax affairs please contact us. on 0800 471 4546.