Increase in the corporate tax rate in 2023 from 19% to 25%

The increase in the corporate tax rate from April 2023 will result in the return of the small profits rate and the main corporate tax rate.

Once the corporate tax rate increase takes effect, the applicable corporate tax rates will be 19% and 25%. Companies making profits of £50,000 or less would still only have to pay 19% under a low profit rate.

Following the increase in the rate of corporation tax, the full rate of 25% will apply to companies making profits in excess of £250,000. Businesses making profits between £50,000 and £250,000 will be able to claim marginal relief long forgotten about ten years ago.

In accordance with the proposed corporate tax rate increase, the new corporate tax rates will be:

What is Marginal Relief

Marginal relief provides for a gradual increase in the corporate tax rate between the small profit rate and the main rate.

This applies when a company’s profits for an accounting period exceed a ‘lower limit’ but do not exceed an ‘upper limit’.

Who can claim marginal relief due to the increase in the corporate tax rate

Your business or organization may be able to claim marginal relief and pay less corporation tax if its taxable profits before April 1, 2015 are between:

• – £300,000 (the lower limit)
• – £1.5 million (the upper limit)

If your business has one or more associated businesses, these limits are divided by the total number of associated businesses.

A corporation is an associated corporation of another at any time if at that time:

• – one of the companies controls the other
• – both companies are controlled by the same companies or persons

For example, if a business has 3 more, divide the thresholds by 4. The lower limit becomes £75,000 and the upper limit becomes £375,000.

If your accounting period is less than 12 months, these limits are reduced proportionally. This means that for an accounting period of 6 months the lower limit is halved to £37,500 and the upper limit to £187,500.

Definition of control

Control for this purpose is the definition used for related companies.

A person has control of a company if he exercises, is able to exercise or has the right to acquire direct or indirect control over the affairs of the company.

This includes owning or being entitled to the majority of voting rights, share capital, distributed income or assets in a liquidation of the company.

Discover more information about associated companies and shut down businesses.

Increase in corporation tax for group companies

The lower and upper limits will be proportionally reduced for short accounting periods and when there are associated companies. A company is associated with another company at any time if at that time or at any time during the preceding 12 months:

• – one company controls the other
• – the two companies are under the control of the same person or the same group of persons.

The related 51% group company test at s279F to s269H CTA 2010 will be repealed and replaced by the associated company rules.

The thresholds which apply to determine whether a company is subject to the closing small profits rate at s279E of the Corporations Tax Act 2010 will be aligned with these limits.

Check how much relief you can claim

Calculate the amount of relief you may be entitled to using the Marginal Relief tool.

You should only use this service to calculate marginal relief on corporation tax profits until April 1, 2015.

You cannot use this tool to calculate marginal relief if your business derives revenue from oil rights or extraction.

How to request marginal relief

You can either:

How can MCL accountants help you?

Contact MCL Accountants to 01702 593 029 If you have any questions about the corporate tax rate increase or need help with the preparation and filing of your professional accounts Where self-assessment tax returns at HMRC.